Mobile money

William Jack, Tavneet Suri, 16 March 2011



Over the last dozen years, mobile telephony has spread through the developing world faster than any other technology in history. As cell phone ownership and network coverage have expanded, access to this means of communication has deepened, and the kinds of messages sent have changed, both in terms of the technology (from analog to digital, from voice to text), and in terms of content, from personal greetings, to healthcare reminders (see Aker and Mbiti 2010 for a survey). In the last four years, cell phones have been used to send what might be the world’s most important message: Money.

The most successful manifestation of mobile money has occurred in Kenya, although the idea is being adapted in many other countries, both rich and poor. In Kenya there are currently four cell phone operators that provide mobile money services, but the market is dominated by one carrier, Safaricom Ltd., which holds an 80% share of the voice/SMS market. Safaricom’s mobile money product, M-PESA (M for mobile, pesa for “money” in Kiswahili) commands an even larger share of the mobile money market.

In one sense, mobile money is far from mobile, as account balances are stored on a remote server, and none are recorded on the cell phone itself. The mobility of mobile money arises from the fact that each account is identified with a SIM card, and can be accessed by SMS message. As well as querying balances, SMS messages can also be used to transfer balances to another account matched to a different SIM card. As access to the server is available to anyone with cell phone network coverage, balances can instantaneously be “sent” from Mombasa on the Indian Ocean coast to the inland shores of Lake Victoria, or from the savannah of the Masai Mara to the remote Somali border. Transfers that had been made by taking long, costly, and dangerous journeys could now be executed with a few keystrokes on a mobile phone (see Vodafone 2007 for further discussion). The potential of such an innovation was palpable.

In the blink of an eye

The success of mobile money has been driven by two complementary infrastructure networks.

  • The first is a network of cell phone towers and transmitters that facilitates unprecedented connectivity and communication, and that was already established and set to expand further at the time of M-PESA’s commercial launch in March 2007.1 But unless, and until, mobile money replaces cash as a medium of exchange, its value will only be used fully if electronic balances can be reliably converted into cash.
  • The second driver of M-PESA’s success has thus been the network of retail outlets, or agents, at which cash and electronic balances can be interchanged. Starting from scratch, about 4,000 agents were operating within a year of the product’s launch. Now, after less than four years, there are close to 25,000. In a country with just 850 bank branches, Kenyans appear to have gained unprecedented access to financial services in the blink of an eye.

New insights on mobile money in Kenya

In order to study the adoption and impact of M-PESA, we conducted a series of country-wide surveys of 3,000 households between July 2008 and July 2010. The results, some of which are reported in Jack and Suri (2011), confirm the rapid spread of the technology in the population as it has diffused across income and wealth strata, from urban to rural locations, crossing gender divides, and reaching users of otherwise widely divergent socio-economic characteristics.

Growth in registered subscribers has been rapid and unrelenting over the four year period, as illustrated in Figure 1 (left hand axis), reaching nearly 14 million, or about 60% of the population over 14 years of age. Matching this growth, and likely contributing to it, was a steady surge in the number of M-PESA agents, also illustrated in Figure 1 (right hand axis). According to the results of a survey we conducted of agents, between mid-2008 and mid-2009 the average distance between a household and its nearest agent halved.

Figure 1.

Access to the formal financial services offered by M-PESA is perhaps best measured at the household rather than individual level. Our survey found that in 2008, 44% of households had at least one member who had used M-PESA, and that this figure had grown to nearly 70% by 2009.

While it was anticipated early on that M-PESA could be a feasible entry point to financial services for the unbanked, it was in fact initially adopted more widely by the better off. However as use by all segments of the income distribution has grown, the proportional growth has been highest among those at the bottom. For example, the bottom quartile of the income distribution accounted for just 10% of all users in 2008, but 14% in 2009, while the share of users from the richest 25% of household accounted for 34% of users in 2009, down from 37% in 2008.

Similarly, households that have taken up M-PESA recently differ from those that adopted the service earlier, and from those that had not yet done so by 2009. For example, the level of consumption of non-users was about 40%, and that of recent adopters was about 72%, of that of early adopters. Despite this balancing of the pattern of adoption, M-PESA has remained popular among the well-off. In 2009, 93% of households in the top quarter of the income distribution had at least one user.

This same pattern is observed with respect to other indicators of well-being and financial inclusion. In the latest survey, close to all (86%) of households with a bank account also had an M-PESA user – M-PESA is not a service “targeted” to the unbanked. But it is a service used by them – of unbanked households (whose number fell only slightly from 52 to 50% of the population), the share who use M-PESA doubled from 25 to 50% from 2008 to 2009.

And the representation of rural households, typically poorer and less integrated into the broader real and financial economy, has also increased. While a predictably high share, three-quarters, of urban households used M-PESA in 2009, the share of rural households using the service again doubled from just 29% in 2008 to nearly 60% in 2009. Similar patterns are observed with regard to educational attainment: better educated people are more likely to use M-PESA, but growth is higher among the less-well educated.

Finally, M-PESA is reaching women. While only 38% of users were female in 2008, this share had increased to 44% by 2009. Among adults over 18 years of age, the share of men using M-PESA saw a healthy jump from 25 to 54% between 2008 and 2009. But the share of women using the product leapt in comparison, from 15% to a level approaching gender parity of 41%.

Uses of M-PESA

Respondents report using M-PESA most often for remittances, purchases of airtime (pre-paid phone credit), and savings, but recently its use for more anonymous transactions (e.g., to pay bills and purchase goods and services) has begun to increase. And while the value of daily transactions is still dwarfed by more traditional transfer mechanisms (e.g., via the banking system), M-PESA transactions make up a significant and growing share of the volume or number of financial transfers.

Mobile money as a safety net

Our results indicate that M-PESA adoption is associated with a higher frequency of remittances, both as senders and recipients. For example, we found the remittance behaviour of early- and never-adopters was little changed between 2008 and 2009, but among those who adopted the technology between the two surveys, the frequency of remittances nearly doubled. The remittance channel could lie at the heart of some patterns we have observed in the data in our ongoing work on risk.

We suggest that M-PESA could be helping households protect themselves in the face of economic insecurity. In particular, correcting for endogeneity by using proximity to agents as a measure of access, we find that users are more able to protect themselves against unexpected negative income shocks than non-users, and that this smoothing is achieved in part by using M-PESA to tap into a network of benefactors. We surmise, but cannot yet confirm, that M-PESA makes this network numerically larger, geographically wider, and statistically more diverse, and that it is more easily and quickly accessible in times of need.

Alternatively, M-PESA might provide financial protection by facilitating self-insurance – that is, precautionary savings. For example, the share of M-PESA users who reported using the product to save for “emergencies” increased from 12 to 22% from 2008 to 2009.

As M-PESA develops from an accounting device for managing personal finances and sending money home, to a mechanism for performing more anonymous two-sided transactions, the role of – and need for – agents could begin to decline. Similarly, as a source of ever more widely circulating credit, it will generate regulatory and policy implications for the monetary authorities as to how it should be further integrated into the formal financial system.


Aker, Jenny C., and Isaac M. Mbiti (2010). "Mobile Phones and Economic Development in Africa" Journal of Economic Perspectives, 24(3): 207–32

Jack, William and Tavneet Suri (2011), “Mobile Money: The Economics of M-PESA”, NBER Working Paper Series 16721,

Vodafone (2007), The Transformational Potential of M-Transactions, Policy Paper Series, Number 6, July.

1 Early development had been sponsored by the UK’s Department for International Development, initially as a means of improving micro-finance access and operations. 

Topics: Development, Financial markets
Tags: international finance, Kenya, Mobile money, technology

Associate Professor of Economics, Georgetown University

Co-Director, Agriculture Research Program, International Growth Center