How M-Pesa is changing everyday life in Kenya

By Judith Owigar|2023-12-19T15:18:53+01:00July 31st 2017|Finance, Good Governance|

Mobile money has revolutionised the lives of many people in the Global South, most of all the ones living in difficult economic circumstances. The M-Pesa service in Kenya is one of these success stories. Judith Owigar describes how it helps making basic services like water and energy available to citizens.

In developing countries, bank branches and fixed-line telecommunications are scarce, whereas mobile phones are plentiful. These factors have led to the use of mobile money, whereby money can be deposited to an account linked to a phone, transferred to other users, and converted back into cash^[1].

M-Pesa (M for mobile, pesa is Swahili for money) was launched by Vodafone’s Kenyan associate, Safaricom, in March 2007. It has become Kenya’s dominant (although not only) mobile money service with at least one individual in 96% of Kenyan households using it^[2]. The service is designed to enable customers to safely and securely send, receive and store money via a basic mobile phone and, more recently, by using a smartphone app. It enables millions of people who have access to a mobile phone, but do not have or only have limited access to a bank account, to send and receive money, top-up airtime, make bill payments and much more.

M-Pesa also reduces significantly the potential risks of street robbery, burglary and petty corruption within cash-based economies where only a small proportion of the population benefits from access to conventional financial services. Vodafone now offers M-Pesa services in 10 countries: Albania, the Democratic Republic of Congo, Egypt, Ghana, India, Kenya, Lesotho, Mozambique, Romania and Tanzania. As of the end of 2016, M-Pesa served almost 29.5 million active customers through a network of more than 287,400 agents. In addition, 614 million transactions were recorded per month.^[3]

The M-Pesa Ecosystem

The M-Pesa ecosystem^[4] operates in a hierarchical structure from a higher level (bank) to a lower tier level of agents and sub-agents. Most clients interact with the M-Pesa system at the sub-agent level, i.e. where they carry out cash deposits or withdrawals. The numerous M-Pesa shops located all across Kenya are mostly sub-agents, meaning they operate under a principal agent (another agent but at a higher level). Principal agents are multiple and distinct individual companies which take on the task of managing multiple sub-agents. Sub-agents fulfill several roles, including

receiving deposits from customers
offering withdrawals (i.e. cash) to customers
registering new customers

Mobile money for energy and water

This year, M-Pesa is marking 10 years of operation in Kenya. It has been used innovatively in many ways: in addition to the millions of person-to-person (P2P) transactions, there are customer-to-business (C2B) transactions locally referred to as “pay bill” and “Buy Goods and Services”. Through the C2B transactions there has been a marked improvement in service delivery especially between utility companies and the government, which were previously characterised by very bureaucratic payment processes.

The use of mobile money has increased the adoption of pre-paid smart meters among customers in the energy sector. Through pre-paid smart meters, households can access pay-as-you-go electricity, solar power or liquid petroleum gas (LPG). Similarly, water company customers use M-Pesa to buy credits to pay for fresh, clean water when they need it. This is revolutionary for resource constrained households as it helps them control when they can access and use utilities.

Sustainable water supply is a profound problem in informal settlements in Africa. Although significant progress has been made towards reducing the proportion of people without access to improved water sources, as many as 748 million people still lack access to safe drinking water; nearly half are in sub-Saharan Africa^[5]. While urban populations in sub-Saharan Africa tend to have better access to improved water supply compared with rural populations, there are often profound intra-urban disparities in access between different groups. Intra-urban disparities in access are likely to increase as rapid urbanisation and climate change pose increasing challenges to the provision of financially and environmentally sustainable water services.

Supply challenges are further exacerbated by weak political leadership and poor governance^[6] ^[7]. For example, outdated management practices and limited civic participation cause decisions to be made without adequate information, often resulting in poor implementation. Further problems include insufficient and poorly maintained infrastructure and lack of capacity for revenue collection^[8]. In Kenya’s capital Nairobi, for example, it is estimated that 38percent of the water is lost due to leakages or is delivered to customers without being invoiced^[9].

In 2015, UN Habitat in partnership with Ericsson and the Nairobi Water and Sewerage Company (NCWSC) carried out the Maji Wazi project. The objective was to use multi-functional sensors for monitoring water supply in Mashimoni, an area in the Mathare Slum in Nairobi. The project, which was a first of its kind in Kenya, was based on Smart Water Management that integrates information and communication technology (ICT) to monitor water resources, diagnose problems, improve efficiency and coordinate management that can help to overcome the challenge of providing every citizen with a sustainable water supply. A key success factor of this project was the inclusion of Citizen Field Engineers (trained residents from the local communities), who were automatically notified upon the need for maintenance and were remunerated via mobile money: M-Pesa.

The Citizen Field Engineer built on the idea of using sensor networks to monitor water supply and water quality, but also applied an innovative, crowd sourced governance model where citizens performed maintenance tasks to minimise costs for service delivery, while generating income. Under the concept, existing pipes, meters and access points were connected with sensors to measure service performance (supply, flows and leakage) and environmental data (contamination). Citizen Field engineers carried out the required maintenance. By using local skills rather than technicians employed by the water service provider, who often lack system knowledge and may experience personal safety risks when entering the slums, the concept sought to lower operational costs for service delivery and improve infrastructure maintenance^[10].

How can mobile money contribute to sustainable urban development?

It can be seen that in Kenya, M-Pesa has become a relevant tool to achieving SDG 11, ‘make cities and human settlements inclusive, safe, resilient and sustainable’, through its use in the implementation of projects in the water, transport, energy and waste management sectors.

M-Pesa facilitates the safe storage and transfer of money. Mobile wallets offer a secure place to save as funds are stored virtually. And both the mobile money facility and the mobile phone can be protected with a password. Results from a study titled, ‘The long-run poverty and gender impacts of mobile money’ (Suri and Jack, 2016)^[11], have shown that primarily among women, financial inclusion through M-Pesa helped them to graduate from subsistence agriculture and to reduce their reliance on multiple part-time occupations. This could be because mobile money allows women to directly access remittances and/or have more agency. It could also be that because women tend not to be the primary earner in the household, they may have been more constrained before the advent of mobile money.

According to Rockefeller Foundation’s 100 Resilient Cities programme^[12], urban resilience describes the capacity of individuals, communities, institutions, businesses, and systems within a city to survive, adapt, and grow no matter what kinds of chronic stresses and acute shocks they experience. Because it facilitates timely transfer of small amounts of money, M-Pesa makes it possible for urban-rural networks to maintain or increase their regular support as well as better manage the effects of unexpected downturns in income or other misfortunes, thereby making them more resilient. A 2008 paper by Olga Morawczynski^[13] argued that M-Pesa supports the “dual system” in Kenya, namely the mutual support provided between rural households and family members who go to cities to seek work. The rural community remains a source of support for the urban worker during downturns, while urban workers help rural family members make ends meet with their remittances^[14].

According to Ericsson, a sustainable city is a city that is taking an intelligent, long term, collaborative approach targeting economic, social and environmental challenges that arise when more and more people come together in dense, compact areas, stretching already scarce resources. In Kenya, smart metering enables payment for utilities like water, energy and transportation (e.g. car sharing services, flights and recently trains), through M-Pesa. Consequently, consumers have access to the information they need to control their utility costs. In this way citizens gain access to services and opportunities that improve their quality of life and financial outlook^[15].

As local governments in Africa look into the smart city approach to urban development, and integrate ICT and Internet of Things (IoT) technologies to manage their cities’ assets, the task of paying for services will most likely rely on mobile money to make service delivery more efficient.

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Judith Owigar

ICT advisor at UN Habitat

Judith Owigar is an ICT Advisor at UN Habitat, Urban Basic Services Branch. She is a cofounder of AkiraChix, an organisation that seeks to increase the number of African women who use technology to create solutions. She is also the founder of JuaKali, an online micro-jobs platform that links young people to short-term jobs in Kenya’s informal sector. She holds a Masters in Applied Computing from the University of Nairobi.