D+C Newsletter

Dear visitors,

do You know our newsletter? It’ll keep you briefed on what we publish. Please register, and you will get it every month.

Thanks and best wishes,
the editorial team



Money flows with M-Pesa

by Kilasa Mtambalike

In depth

Shop offering M-Pesa services in Voi, Kenya.

Shop offering M-Pesa services in Voi, Kenya.

Financial transactions have always been a challenge for rural, poor or illiterate people in Africa. M-Pesa, an immensely popular system of money transfer via mobile phone, has made life much easier.

Thomas Masagati had his doubts. The businessman wanted to send money for Christmas to his mother in Musoma in the north of Tanzania, but he was sceptical about using M-Pesa services for the first time. This was in November 2008, just a few months after Vodacom Tanzania introduce mobile money transfer services in the country.

M-Pesa was not as widespread as today. Masagati faced another challenge: his mother did not own a mobile phone; she was using a neighbour’s handset to communicate with her son. "I always had to send money to my mother in Musoma, but since she has no bank account, it meant a great deal of difficulty and risk", Masagati remembers. Things are easier now thanks to M-Pesa and his mother’s own mobile phone. The service is now widely used all over East Africa. It is set to become even more popular as more people learn about it, according to a report by Groupe Spéciale Mobile Association (GSMA), an association of mobile operators.


Banking for poor people

The word "M-Pesa" derives from "mobile" and "pesa", the Swahili word for cash. The system was first introduced in Kenya. According to the World Bank, it has given the unbanked poor access to financial services: "M-Pesa is a small-value electronic payment and store of value system accessible from ordinary mobile phones. The affordability of the service has been key in opening the door to formal financial services for Kenya’s poor."

The service enables its users to:

  • deposit and withdraw money,
  • transfer money to other users and non-users,
  • pay bills,
  • purchase airtime and
  • transfer money between the service and a bank account.

The popularity of M-Pesa in Eastern Africa has many reasons. Working individuals in Kenya, Uganda or Tanzania tend to have many dependents who often live far from their providers. Remittances to a family in rural parts of the country are commonplace. This used to be difficult due to poor banking infrastructure. According to GSMA, as of 2006, only eight percent of people in Tanzania had a bank account. Today, the figure has risen to about 18 %. In the past, the popular methods of sending money were crude and unsafe, like asking a friend to deliver the money, sending envelopes via buses, remitting in kind or relying on postal service.

In 2002, the UK Department for International Development (DFID) funded a research at Gamos (a company specialising in the social dimensions of technology use) and the Commonwealth Telecommunications Commission. The result was that people in Uganda, Botswana and Ghana were using mobile-phone airtime as a proxy for money transfer. They transferred airtime to relatives or friends who then used or resold it.

Gamos researchers approached MCel, a telecoms company in Mozambique, and in 2004 MCel introduced the first authorised airtime credit swapping service, a precursor step towards M-Pesa. DfID then connected the researchers with Vodafone, with the aim to develop a system of mobile money transfer. In April 2007, using a Kenyan student software development project, the Kenyan telecoms company Safaricom launched M-Pesa.

In April 2008, Vodacom introduced M-Pesa in Tanzania. Fourteen months later, Vodacom announced that registrations had reached 280,000 users who were transferring the equivalent of $ 5.5 million per month. In May 2013, the company claimed to have over 5 million M-Pesa subscribers in Tanzania, and the monthly transactions were said to be worth more than $ 820 million. Vodacom uses a trust structure to protect deposits in the service. A holding company has been registered in Tanzania, with independent directors, to act as trustees for all funds from the M-Pesa business.

When M-Pesa was first introduced, the service caught many banks off-guard. They pointed out that there was no proper law to guide and regulate mobile banking, prompting the government to introduce regulations to monitor and supervise transactions by mobile phones.

The Tanzania Communications Regulatory Authority (TCRA) reports that a memorandum of understanding (MoU) with the Bank of Tanzania (BoT) to regulate mobile money transfer was signed in 2011. The MoU is designed to provide a mechanism for regulatory and supervisory coordination between the two bodies. While the central bank will regulate financial transactions, the Tanzania Communications Regulatory Authority will focus on communications infrastructure. The MoU is meant to pave way for the new law.

John Nkoma, the director general of the TCRA is in favour of M-Pesa: "This system war born out of necessity. In Europe, the use of credit cards is widespread. But in this part of the world, credit cards are not common. So the mobile phone money payment was a natural growth due to lack of credit card facilities and the need to use less cash." According to government statistics, 80 % of Tanzania’s 45 million people live in rural areas.


Cheap loans to women ­entrepreneurs

As a value added service, M-Pesa has not only transformed how people and businesses do transactions, but it has changed lives of many individuals, including impoverished women in various parts of the country.

In 2010, Vodacom launched M-Pesa Women Empowerment Initiative (MWEI), with the aim of supporting women entrepreneurs in remote parts of the country or deprived urban areas. So far MWEI has given loans worth over $ 200,000 in 42 districts in Tanzania, says Grace Lyon, Vodacom Foundation Manager for MWEI: "We have faith in our women who work hard every day to ensure they accomplish greater things in their day-to-day lives. What we are doing is just giving them a boost, and they in return have been faithful in paying back the loans." Among the beneficiaries of the interest-free loans disbursed recently is Tausi Mjape from Dar es Salaam’s Temeke District. She is one of more than 400 women entrepreneurs who will now be able to start up new businesses or expand their existing ones.

"It has not been easy for me to expand my business", says Tausi Mjape, who operates a small food stall. "With my small business I am not able to access a loan due to the requirements needed by the normal banks. Even when I am eligible for one I still face the challenge of very high interest rates." Via the M-Pesa Women Empowerment Initiative, she received 50,000 shillings (not quite $ 30) to invest in her business.

MWEI loans disbursements and repayments are done through M-Pesa. Women who do not have access to loans from financial institutions are asked to form groups and receive an M-Pesa cash float (interest-free) of between 5,000 shillings to 150,000 shillings. MWEI is unique in the sense that whenever a member of a group repays, the money is given to another member of that group, making repayment a priority among members while at the same time ensuring that more and more women get access to the interest-free loans. This is one of the many ways that M-Pesa is changing the lives of Africa’s poor.

And it is bound to reform finances for the poor in other parts of the world as well. One of the first countries to introduce M-Pesa was Afghanistan, where the government used it to disburse money as early as 2007. In India, M-Pesa has recently been introduced as "M-Paisa". Paisa is what Rupie-cents are called.


Kilasa Mtambalike  is a journalist and editor at the Tanzania Standard. He lives in Dar es Salaam, Tanzania’s commercial capital.