M-Pesa: a Kenyan Innovation for Financial Inclusion

by Maria Cristina Torrado, EY Middle East  

Without a bank account, it is a daunting task to make all payments through cash. Nowadays, paying bills can be a mission (finding an office and standing in a queue) but on the other hand, keeping all your savings “under the mattress” can be dangerous and poised to theft. In this situation, payments through mobile and other means have gained significant attention around the world. According to the World Bank, between 2011 and 2014, 700 million adults became account holders. This achievement is partly attributed “to financial services innovations in technology such as mobile money, which is helping to rapidly expand access to financial services in Sub-Saharan Africa”.

The objective of this article is to share what I consider five critical success factors for the use of mobile money in Kenya: the regulatory environment, the affordability of the service, the accessibility of the service, the speed of the service and the security of the transactions.

Regulatory environment:

When M-Pesa was launched in 2007, there was no regulatory framework for mobile money operations. At that time, the regulator had two options: to allow for M-Pesa to operate freely while keeping an eye on the evolution of the service, or to introduce regulations that may confine the development of the innovation.

In this case, the regulator conducted a due diligence on the service before it was launched. This investigation focused on ascertaining the system’s security mechanisms, ensuring minimum standards of services and assuring that the provider was allowed to deliver the service and the regulator opted to provide a relaxed framework.


This approach was a key success factor for the adoption and expansion of M-Pesa. It allowed Safaricom to develop, tailor and improve the service’s functionalities and did not incur additional costs that could have jeopardized the achievement of reaching a critical mass.

This particular case shows that regulation should follow innovation and that laws must be flexible in order to accommodate new changes. By operating in a flexible environment, the regulations do not restrict innovations by causing additional costs for the creation of new products.

Now that M-Pesa is serving near 30 million customers, the regulator has the challenge of providing an adequate regulatory framework that is flexible enough to allow for further innovation and strict enough to protect the consumer and to ensure financial stability.


When achieving financial inclusion, affordability is a key success factor as it should be within the reach of the masses. In Kenya, M-Pesa represented an affordable way to transfer money as wage earners typically traveled to urban areas for work while their family stayed behind in the villages. In order to send money to their relatives, people would travel back home or give the money or airtime to a bus driver with a tip.

After M-Pesa was launched, people were able to send money to any registered user within the country at a very small fee and thus avoided all the previous inconveniences.


According to Michael Joseph, Vodafone Group’s Director of Mobile Money, when conceptualizing M-Pesa, they “wanted to have a ‘branch’ on every street corner” and they developed an agent-based model for this purpose. Currently, there are more than 40,000 M-Pesa agents scattered around the country who handle deposits and withdrawals.

M-Pesa agents include authorized dealers, operating one or more outlets around Kenya, other retailers with substantial distribution networks such as supermarkets and petrol stations and selected Banks and Micro-Finance Institutions.

Most of M-Pesa agents are dealers that operate through outlets such as kiosks in every corner of the country. This system facilitated accessibility to the service as the user didn’t have to go to additional places to get the service. Furthermore, when a person requires to withdraw M-Pesa, the agent is at the place he or she usually visits and the authorized agent is usually a person the user has had previous contact with and is capable of solving doubts and guiding the final user about any transaction.


Transferring money using M-Pesa is as fast as sending an SMS and, most of the times, is faster than any bank transaction. Sending money to a shop to pay for purchased goods or sending money to a family member takes literally seconds and makes M-Pesa more liquid than cash as people don’t need to meet physically to perform a transaction.

After M-Pesa was available to the public, it experienced a fast adoption. It was a no-brainer for Kenyans to become familiar and start using the platform: it was easy to access, affordable and fast!


The largest denomination of Kenyan Shillings is 1,000 KES (or approximately 10 USD), so carrying and storing cash can be bulky and unsafe as people can easily notice if an individual is carrying “large” amounts of money and M-Pesa provided Kenyans with a safer alternative to cash for doing transactions (specially for small businesses and traders in the markets).

A recent study by the Massachusetts Institute of Technology, published in Science, confirmed that M-Pesa has had a dramatic impact on the overall economy of Kenya as it increased daily per capita consumption levels of 194,000 or roughly 2% of Kenyan households, lifting them out of extreme poverty.

Additionally, M-Pesa has mechanisms for secure transactions such as account pins, account identification numbers, SMSs confirming the amount of the transaction and the payee’s number and the name. If a person sends money to a wrong number, Safaricom has a customer service line that debits the funds from the recipient, freezes the transaction and credits the sender after a verification process.

All these mechanisms and benefits have encouraged the use of the service and have made M-Pesa the driver of financial inclusion in the country. According to the 2016 FinAccess Household Survey, 75.3% of Kenyans are now formally included; which represents a 50% increase in the last 10 years.

After the 10th anniversary of M-Pesa, the Financial Sector in Kenya has to continue its innovative path towards financial inclusion. The constant use of M-Pesa and analytics provide mobile money operators and financial institutions with information about their clients that will enable them to develop and tailor products that fulfill their needs and create a win-win situation for the provider, the individuals, the industries and the financial service provider such as M-Pesa which has brought a revolution in the area of financial inclusion.

The author is a Manager Advisory and Consultancy at Ernest and Young and is based in Nairobi, Kenya.