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1.1  Background information

            In 2007, Kenya woke up to a new money transfer system, The M-PESA. M-PESA is a mobile phone based money transfer system. M-PESA is operated by Safaricom which is one of Kenya’s leading cellular phone provider. It is currently the largest in the country. Subscribers of M-PESA exchange cash with floats. M-PESA allows users to send floats and to exchange the floats with cash during withdrawal. After eight months since its beginning in 2007 in March, approximately 1.1million Kenyans had registered to use M-PESA services. A total of US$87 million cash had been transacted over M-PESA in the same period according to Safaricom.

            Approximately 8.6 million Kenyans had registered to the service by 2009 and a total of US$3.7billion had been transacted since 2007 according to Safaricom. This amount, US$3.7billion is equivalent to 10% of Kenya’s GDP. By April 2010, M-PESA agents had grown to 18000 locations from 450 in 2007. Kenya has around 491 bank branches, 500 post bank branches and 352 ATMs. The mobile phone service is growing at a high rate. M-PESA is continually growing responding to competitive pressure and customer needs. Although M-PESA has received more attention, there is little quantitative evidence on its economic and social impacts.

            The ability to transfer money cheaply and somehow securely has led to enormous changes in the organization of economic activity, risk management and mitigation and family relations. Notable changes have been observed in nature, pattern and impact of remittances. Morawcyznski and Pickens (2009) observe that M-PESA users sent smaller but more frequent remittances, which resulted in overall larger remittances to rural areas. Decrease in the number of visits made by those staying in urban areas was also observed. This has weakened the social ties between migrants and their home communities. Researchers have also noted the potential of M-PESA to affect savings. Morawcyznski and Pickens (2009) observed that users keep a balance on their M-PESA accounts. The system does not provide interest hence becoming a rudimentary bank account.                                                                                                                                                                                                                                                                            Some individuals also store money in M-PESA due to safety considerations, especially when travelling across the country, Vaughn (2007). Plyleret al. (2010) argue that M-PESA has enabled small businesses to expand and grow and has also increased the circulation of money in these communities. The research should thus focus on studying the M-pesasystem and what it could grow to be. The rapid growth of M-PESA has sent people into discussions raising questions like; Is it a low-cost money transfer system competing with modalities such as cheques and Western union or replacing them? Does it have the capability of displacing cash sometime to come? Can it be used as a savings account? Is it the perfect bank to the poor? Suri and Jack (2011) report indicate that three out of four M-PESA users use it to save money. Recently, the potential for M-PESA to be a savings facility has received even more attention as Safaricom and Equity Bank have introduced M-Kesho, an interest-bearing savings account linked to M-pesa

1.2  The problem statement

            M-PESA has emerged out as one of the superior money transfer systems in Kenya. Even though it’s a money transfer system, it is expanding to become one of the platforms for saving money. M-PESA has seen people in rural areas being able to send and receive money. The e-float has increased the efficiency with which money can be transferred hence far much better than the cash-based system.

            Having a significant impact on previous money transfer companies and a transmitter of 10% of the country’s GDP, it has economic impacts. Banks have partnered with M-PESA after their pleas to regulate M-PESA failed. M-PESA has forced money transfer companies to lower prices and also induced firms to improve their products and services. In some cases, firms have partnered with M-PESA to offer integrated services. Despite all the attention M-PESA has received, there is little quantitative evidence on its economic and social impacts. Therefore, M-PESA is still a topic of discussion to what it is going to be in future.

1.3  Research questions

Given our research topic on the study of impacts of M-Pesa, the questions of the research are designed a follows;

1.      What are the uses of M-PESA in Kenya?

2.      What are the Economic impacts of M-PESA in Kenya?

3.      Why M-PESA is not used as a facility for storage of value?

1.4  Research objectives

            The overall objective of this study is to establish the impact of M-PESA as a money transfer system in Kenya in the mobile banking sector. The study will also identify effects of M-PESA on money transferring companies. Our specific research objectives are;

-          To establish specifically the economic impacts of M-PESA.

-          To ascertain the behaviors of users and uses of M-PESA in Kenya.

-          To find out the reason behind the M-PESA system not used as a facility for storage of value.


Aker, Jenny C. (2010). “Information from Markets Near and Far: The Impact of Mobile Phones On Agricultural Markets in Niger.” American Economic Journal: Applied Economics.

Bower, Joseph L. & Christensen, Clayton M. (1995). "Disruptive Technologies: Catching the Wave" Harvard Business Review, January–February 1995.

Jensen, Robert T. (2007). “The Digital Provide: Information (Technology), Market Performance And Welfare in the South Indian Fisheries Sector,” Quarterly Journal of Economics, 122(3), p.879 – 924.



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