Banking on Mobile Money: What Does It Mean For Kenya’s Economy?

Friday, February 26, 2010

Many technologists and entrepreneurs have argued that mobile phones can empower people in the developing world by providing civic and commercial resources where traditional infrastructure is lacking. But what actually happens when people start using such technologies? An MIT economist’s detailed new study from Kenya sheds light on the impact of a mobile phone-based money system in a developing economy.

Kenya’s new mobile-money system, called M-PESA, really is changing the way Kenyans manage their money, by letting them borrow, save and pay for services more easily, according to Tavneet Suri, an assistant professor at the MIT Sloan School of Management, who along with Georgetown University economist William Jack is leading a major research project on the subject.

“I don’t think anybody thought it would take off quite as fast as it did or be as popular as it’s been,” says Suri. “The adoption has been very quick compared to almost any other technology we’ve seen.”

Since its introduction in 2007, the researchers found, 38 percent of Kenyan households have at least one M-PESA user in them; by contrast, only 22 percent of adults have bank accounts. “In these sorts of economies, there’s not much of a bank presence, but money transfers are still important,” notes Suri. “People do them all the time.”

Kenya’s rapid adoption of mobile money is occurring with a larger global trend of increased cellphone use. There are now over 4 billion mobile phone subscriptions worldwide, compared to 1 billion in 2002, according to a 2009 report by the International Telecommunications Union, a United Nations agency. Of those subscriptions, about two-thirds are in developing countries.

Source: MIT News (link opens in a new window)