NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, March 6, 2017

Mobile money providers like M-Pesa have disrupted traditional financial systems in many countries in ways conventional banks could only dream of. But, despite the significance of such services in the lives of millions of people, they remain vulnerable for use by money launderers, says a US Department of State report (pdf, pg.116).

The addition of international money transfer capabilities to M-Pesa with users in Kenya and Tanzania able to transfer or receive funds directly across borders has made illicit financial flows effortless. Currently, M-Pesa users in East Africa can receive or send money internationally following mobile money providers’ partnerships with a host of providers.

The State Dept says diaspora remittances to Kenya totaled $1.55 billion in 2015 and $862 million between January and September 2016. It points to the 159,000 mobile-money agents in Kenya, mostly working on the dominant M-Pesa system as well as the over 10 million accounts on M-Shwari, Safaricom’s online banking service.

“These services remain vulnerable to money laundering activities,” the report states. This is backed up by Kenya’s standing as “a transit point for international drug traffickers and trade-based money laundering.”