Social and Economic Innovation Award winners 2010

In 2003, at the World Summit for Sustainable Development, Nick Hughes, employed by Vodafone at the time, was approached by a representative from the UK government’s Financial Deepening Challenge Fund (FDCF) run by the Department for International Development. Hughes decided to get involved and led the effort to get Vodafone, the world’s leading international mobile communications group with operations in 25 countries, active in a mobile payments project funded by the FDCF. Susie Lonie, a mobile commerce expert, was recruited to develop and manage the project on the ground in Kenya from pilot to commercial operation.

M-PESA (m for mobile, pesa is Swahili for money) is a mobile phone-based money transfer service. It is aimed at customers who do not have access to a bank or, if they do, lack easy access to a bank account in rural areas. It was launched as a pilot project in Kenya in October 2005 and became widely available in the country starting in 2007.

M-PESA is a joint effort between Safaricom, the leading mobile telecommunications company in Kenya, and Vodafone, which owns 35% of Safaricom. The service allows people to transfer money using a mobile phone, even if they don’t have a bank account.  Today they can also pay bills and use the product to make savings..  There is no fee to join, no monthly charges, and users do not have to keep a minimum balance. It’s a low cost “pay as you go” model that works well in underdeveloped, rural and under-banked areas.

Customers simply go to an M-PESA agent − including cell phone dealers, petrol stations, supermarkets, and small retail outlets − and register by providing their Safaricom mobile number and identification card. They load their M-PESA account by buying e-money at an agent. To send money, they transmit the information via secure text messages to the desired recipient − even if the recipient is using a different mobile carrier. To collect the funds, the recipient goes to an M-PESA agent, enters a secret code, shows ID and receives the cash.  Agents earn a commission for providing the cash-in and cash-out service..

At its core, M-PESA is electronic money backed by real money in a conventional bank account, held on trust for the consumer. M-PESA agents buy the electronic money by depositing money into the M-PESA bank account and clients buy the electronic money for cash.

Between March 2007 and May 2009, M-PESA attracted 6.5 million subscribers, who were doing two million daily transactions in Kenya. By contrast, there are only 750 banking outlets and 3 million bank accounts in the entire country. M-PESA now has 12 million customers, 18,103 agents in Kenya and has transferred more than 432 billion Kenyan shillings (equivalent to about US$5.4 billion) since its launch. The majority of transactions are below US$20.  Recent independent surveys have shown that the vast majority of people in Kenya believe M-PESA makes a significant difference to their day-to-day lives.

The M-PESA service has been deployed in Tanzania and Afghanistan (including an interactive, voice-recognition service for customers there unable to read and write) and has recently been launched in South Africa. Deployment in India and Egypt are planned, subject to gaining regulatory approval.