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

  • Date Posted: February 8, 2012
  • Authors: Monique Cohen, Guy Stuart
  • Organizations/Projects: Microfinance Opportunities
  • Document Types: Evidence or Research
  • Donor Type: Foundation

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.

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