Money on a Phone

On a Friday evening in Nairobi, a man who works on a building site counts out part of his wages. His mother lives in a village many hours away, and she needs money for school fees, and for seed before the rains.

Before 2007, getting it to her was a worry. He might hand an envelope of cash to a bus driver, or to a friend travelling home, and hope it arrived. He might take a day off and make the long journey himself. Envelopes went missing. The trip cost money, and a day's wages.

Most Kenyans did not have a bank account. Banks were few outside the towns, and they were not built for people with small, uneven incomes. But by the middle of the 2000s, many people had something else in their pockets: a simple mobile phone.

An idea that changed its shape

The story began at Vodafone, the British phone company, and Safaricom, the Kenyan mobile company that Vodafone partly owned. A Vodafone manager named Nick Hughes had been looking at how phones could help people in poorer countries. With money matched by a British government fund for development, the companies set out to test an idea.

The first plan was narrow. Small loans from microfinance groups were usually repaid in cash at weekly meetings. Could people repay them by phone instead? A team led by Susie Lonie ran a trial around Thika, near Nairobi, with a microfinance company called Faulu Kenya.

The trial worked, but not quite in the way anyone expected. People began using the service for other things. They sent money to relatives and friends. They used it to pay for things. The team saw that what people wanted most was simple: a safe way to send money to someone else.

So they changed the plan. Safaricom launched the service across Kenya on 6 March 2007. It was called M-Pesa: M for mobile, and pesa, the Swahili word for money.

Shops instead of banks

M-Pesa did not need a smartphone or an internet connection. It worked through a menu on the SIM card and short text messages, on the cheapest phones.

The clever part was what happened on the ground. To put money into the system, you went to an agent: often a small shop that sold phone airtime, with a green Safaricom sign outside. You handed over cash, and the agent sent the same amount as electronic money to your phone. To take money out, you did the reverse. Each account was protected by a PIN.

Sending money took a few key presses. The person at the other end got a text message straight away, and could walk to an agent in their own village and collect the cash.

Agents spread quickly, into market towns and small trading centres where no bank had ever opened. The number of users grew faster than almost anyone had predicted, and within a few years most adults in Kenya were using the service.

What changed at home

For families split between city and village, the change was quiet but deep. A son in Nairobi could send money to his mother the moment she needed it, even a small amount if that was all he had. A relative's hospital bill could be paid the same day.

The economists Tavneet Suri and William Jack followed Kenyan households over several years. In a study published in 2016, they estimated that access to M-Pesa had lifted about two per cent of Kenyan households out of extreme poverty. The effect was strongest in homes headed by women, and some women had moved from farming into business.

Families were also better able to get through a bad harvest or an illness. When trouble came, relatives far away could help quickly, in small amounts, from many directions at once.

Not the end of the story

M-Pesa was not perfect. People worried about fees, about sending money to the wrong number, and about how much power one company held. Phones were stolen, and there were scams. Governments and banks had to work out new rules for a kind of money nobody had planned for.

But the idea travelled. Similar services were built in other countries in Africa and further afield, and M-Pesa showed the world what a phone in a poor family's pocket could do.

What began as a way to repay small loans became something much larger: proof that a simple tool, fitted to the lives people actually lead, can change how a whole country lives and works.

Want to read more?

Money, Real Quick, edited by Tonny K. Omwansi and Nicholas P. Sullivan, gathers accounts from the people who built and studied M-Pesa. Nick Hughes and Susie Lonie described the early trial in the journal Innovations in 2007, and Tavneet Suri and William Jack's 2016 study in Science measured what it meant for families.