The African nation's digital payment solution may provide important insights on key next steps for the Maldives in terms of creating a secure and vibrant digital economy.
Flickr - Rosenfeld Media
Patrick, a fruit and vegetables businessman in Kenya owes his success to M-Pesa. He uses the service to receive payments from customers, and to pay his employees directly to their M-Pesa accounts. He is also able to send money to family members who live far away.
M-Pesa is Africa’s most successful mobile money service, and Kenya’s largest fintech platform used to send and receive money using a mobile phone. Integration of financial services with the mobile phone has enabled millions of people who have a mobile phone, with limited or no access to banks, to have access to financial services.
In 2017, prior to M-Pesa's arrival on the scene, only 26.7 percent of the population had access to financial services. Today, with the help of this mobile payment platform, more than 86 percent of the population are within 5km of a financial access touchpoint. There are now 30.5 million active registered mobile money subcriptions in Kenya.
Customers with a mobile phone registers for the service at authorised agents — agents can be anyone; from a local retail shop, barbers, bakers, or post offices. Registered users with an M-Pesa account can deposit cash in exchange of electronic money. Customers can then send and receive money to their family or friends throughout the country. All transactions are secured by entering a PIN number, and both parties — the sender and the receiver — get an SMS to their phones confirming the amount that has been transferred. The recipient receives the electronic money in real time, and can redeem it for cash by visiting any authorised agent nearby. Goods and services can also be paid for using the M-Pesa service, and it can also be used to send and receive money across borders in real time.
The success of this platform can be viewed in three dimensions; first, it has enabled the development of an effective national payment system, through transfers and payments for goods and services in the economy. Secondly, it has achieved greater financial inclusion with its technological platform being an effective and efficient way for both micro savers and depositors in managing their bank account transactions. Finally, it has enabled better access to finance, as it provides a platform for short term micro credit that has become efficient and more effective, as people are no longer required to visit a bank.
With the newfound convenience and easy access to financial services, the proportion of adults with access to and use of banking services tripled from 3.9 million to 10.2 million, and those who accessed insurance services have increased more than 11 fold, from 600,000 to 7 million during the last decade (2009-2019). This was a result of an increase in the number of mobile money users from 5.3 million in 2009 to 19.9 million in 2019.
Another revolutionary change that occurred in Kenya with the new payment system was the natural progression of short term credit applications and disbursements. As banks and telecos invested in a more versatile platform that used transactions and savings data to generate individual credit scores, and customise the price of credit (interest rate), there emerged a central platform for digital credit assessment and disbursement of micro credit. This enabled access of finance to many, as collateral requirements had acted as a major barrier on borrowing from the financial system. This enabled micro credit any time, anywhere, within mobile phone network reach, and opened many opportunities for businesses. One could, at 3.00 am borrow an amount, conduct a trade, and by 7.00 am repay the loan and earn a profit.
Cross border financial transactions have also been revolutionised in Kenya with the mobile money transfer technology. The adoption of mobile money and platforms like World Remit and TransferWise have improved efficiency and lowered the cost of transfer of money across borders. This has resulted in an increase in international remittance inflows from USD570 million in 2006 to USD2.8 billion in 2019.
The M-Pesa provides a good case study for the development of Fintech at the national level, as it has provided benefits to the whole financial sector of Kenya, including digital payments, providing credit, international transfers, personal finance, asset management, capital markets, and equity crowd funding. It has also enabled the Government of Kenya to collect tax payments electronically, and facilitated capital market developments through shareholders having the option of receiving dividend payments through M-Pesa.
One of the key lessons learnt is that once digitalisation occurs in the financial sector, it allows for sustainable business models to be developed and launched on the digital platform to support other sectors of the economy.
