Feed the Future
This project is part of the U.S. Government's global hunger and food security initiative.

Cash In, Cash Out Kenya: The Role of M-PESA in the Lives of Low-Income People

Microfinance Opportunities
Monique Cohen
Guy Stuart
Institutional Sponsor: 
Bill & Melinda Gates Foundation
Publication date: 
Thursday, September 1, 2011

Using a Financial Diaries methodology, Microfinance Opportunities undertook a study to examine how low-income Kenyans use M-PESA, that country’s pioneering e-money service. The study focused on:

  1. the value of M-PESA to low-income individuals;
  2. the most likely areas for M-PESA’s future growth; and
  3. whether M-ESA can serve as a platform for financial services beyond remittances.

The study sample consisted of 92 low-income respondents (median of average per capita income $2 per day) from three research sites. Researchers recorded all weekly financial transactions for these respondents between November 2009 and June 2010 for a total database of more than 18,000 records.

The study found that “cash is king.” E-money’s share of transactions was less than 6 percent, compared to more than 94 percent for cash. M-PESA is still primarily used to send money home, usually from urban to rural, cash out almost always happens quickly, often the same day the remittance is received. Respondents did not appear to use M-PESA as de facto savings accounts, but the service was an important part of their coping strategies for unusual large expenses, particularly hospital bills.

The study provides a Distance/Purpose Framework that segments the e-money market by intended use (business or household) and the distance (local or long-distance) it travels. Within that framework, the study draws on concepts from economic sociology to show that Kenyans’ use of M-PESA is “embedded” in preexisting social and spatial relations and that M-PESA usage patterns mimic to some degree those of cash. It also examines the length of the “e-money loop” (number of times an e-money unit is transferred before it is cashed out) the transaction fees M-PESA users pay in order to identify cost and price implications of current and potential uses. The Distance/Purpose Framework suggests that e-money providers have a virtually untapped potential “sweet spot,” in terms of cost and price, serving the business market segments provided that issues of trust can be overcome.