Originally designed as a system to allow microfinance-loan payments to be made phone, its success rocketed into the service becoming an entire money-transfer scheme (The Economist, 2013). This system is not only used for loans and savings products, but can also be used to pay employees their salaries, pay your bills, and transfer money to friends and family in just a couple of minutes. Instead of queuing up at the bank for hours, M-PESA allows money to flow through society much quicker and more efficiently. It has been estimated that in rural Kenyan households that made use of M-PESA, incomes increased by approximately 5-30% (The Economist, 2013).
So how come more people use this system instead of opening a bank account? The simplest reason for this is that most people are not eligible for opening a bank account. Without a bank account it is difficult to save money and transfer money to different people. Also it means that starting up a business is extremely difficult. Also banks cannot always be trusted, because they are often engaged in ethnic disputes (The Economist, 2013). This means that people who do not have much to live up, do not get access to financial services. They are trapped.
The introduction of M-PESA changed this for many people. Suddenly the majority of the population had access to this financial service, which was regarded as a safer place to store your money than the bank. Money is flowing. From one person to the other. And the best thing is that the only thing you need to make use of M-PESA is a mobile phone. Even a simple Nokia will do. With your mobile phone you can create an M-PESA account on which you can store money and whenever you want to withdraw it, you go to one of the many local Safaricom shops and you withdraw your money.
So why are there still banks? One of the few downsides to the M-PESA system is the fact that there is a limit to saving money. So when you are starting to save money, you are forced to refer back to the normal banking system.
All in all, M-PESA has helped many Kenyans to become more independent and organise personal finances better. The system has proven so successful that similar systems have been introduced in Tanzania, Afghanistan and India.
References:
The Economist. "Why does Kenya lead to world in mobile money?" Published May 27, 2013. Available from: http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18