In March 2007, the leading cell phone company in Kenya, Safaricom, launched M‐PESA, an SMS-based payment system for e-money that allows individuals and businesses to deposit, transfer, and withdraw funds using their cell phone to anyone with another phone.

Between 2007 and 2013, Safaricom has rolled out more than 78,000 mobile payment agents nationwide 1. It is now the world’s most successful mobile payments platform, processing more than 41 million transactions per month with over 18 million registered users 2. In July 2013 M-Pesa transactions accounted for a significant portion of Kenyan GDP 3. In 2014, $10 billion worth of transaction were processed through the system 4.

The initial M-Pesa product has gradually expanded to become an increasingly comprehensive payments gateway. M-Pesa now offers:

  • Enables ‘cash in’ and ‘cash out’ from 78,000 agent outlets countrywide
  • Facilitates person to person (P2P) transfer to any network
  • Enables airtime top up – top up your phone anywhere
  • Facilitates personal to business (P2B) bill payment through over 350 Pay-Bill partners
  • Provides ATM withdrawals offering anytime access to larger withdrawals at over 650 connected ATMs countrywide
  • Facilitates salary payments from business
  • MFI partnerships to handle loan repayments
  • Social payments through partnerships with Oxfam, Concern Worldwide and other NGOs. International money transfer to the UK

In November 2012, Safaricom and Commercial Bank of Africa announced the launch of M-Shwari; a virtual banking platform that sits on the M-PESA paltform. M-Shwari allows M-PESA users to operate savings accounts, earn interest on deposits, and borrow money using their mobile phones. Deposits into M-Shwari earn interest depending on the size of the deposit. Additionally, borrowers can request loans of up to KES 20,000 through the mobile phone.


The initial concept of M-Pesa was to create a service which allowed microfinance borrowers to conveniently receive and repay loans using the network of Safaricom airtime resellers. This would enable microfinance institutions to offer more competitive loan rates to their users, as costs are lower than when dealing in cash 5. However users subsequently started using the network to perform peer to peer transactions and so when it came time to lauch the platform this is the area that was prioritised.

There was a perceived need to enable the creation of affordable financial services to enable those without access to banking to be able to store and transfer funds without recourse to cash. In addition it was noted that there were signifcant risks associated with a cash dominated society and the potential for loss, theft and damage to wipe out family savings. The M-Pesa system was therefore created to help address some of these issues.

Since Safaricom is a public listed company the profit motive for intiating M-Pesa cannot be ignored. For a Mobile Network Operator income is largely determined as a product of Revenue Per User and the size of the active customer base. A key initial motivation for Safaricom was to add value to their customers and thereby to reduce customer churn thus maintaining the customer base while increasing the revenue per user.

Community Overview

Kenya is a developing country with a total population of 43 million people. Kenya has slightly lower than average income inequality, measured by the Gini Coefficient at 47.7. The main source of livelihood for most people is agriculture (44.2%), with 18.6% remain dependent on others and just 15.6% run their own businesses 6. The difficult situation in which half of Kenyan population lives in can be illustrated by the fact that one in ten adults goes without food often and four in ten go without food sometimes.

Kenya has a relatively well developed financial sector.  Despite the abundance of financial institutions, the financial sector in Kenya is highly concentrated. Four financial institutions, Equity Bank, Cooperative Bank, Kenya Post Office Savings Bank and Kenya Commercial Bank, account for two thirds of all bank accounts which numbered 14 million by mid 2012.

A survey showed that the average M-PESA user is in comparison to non-users is slightly more likely to be male, slightly older, more literate, better educated, and much more likely to be banked 7. Similarly, annual expenditures of M-PESA users were about 65% larger than that of non-users and assets were more than twice as large as those of non-users. 8

Organisation and History

Safaricom, which started as a department of Kenya Posts & Telecommunications Corporation, the former monopoly operator, launched operations in 1993. It was then incorporated in 1997 and converted into a public company in 2002. Up until 2007 the company was still majority state owned , when 25% of the stock was sold. The current key sharehodlers are Vodafone with 40% and the Kenyan government with 35%.

In 2002 researchers funded by the Department for International Development (DFID) in the UK documented that in Uganda, Botswana and Ghana, people were spontaneously using airtime as a proxy for money transfer. Africans were transferring airtime to their relatives or friends who were then using it or reselling it. In 2004 MCel introduced the first authorised airtime credit swapping – a precursor step towards M-Pesa. DFID introduced the researchers to Vodafone who had been discussing supporting microfinance and back office banking with Mobile phones and wanted to establish a system in Kenya. Piloting began in 2005 and in April 2007 Safaricom launched a new mobile phone based payment and money transfer service, known as M-Pesa.

In 2011The M-Pesa team within Safaricom was staffed by around 350 people.


The huge success of M-Pease has been put down to

  • Successful piloting and gradual expansion of the product
  • Provides a safe and easy way to transfer money from the urban working to their rural family members
  • Launched a money transfer service that was efficient to use – main competitor at the time charged in excess of 35% of the transfer amount or were considered unsafe (physical transport of the money)
  • The removal of barriers to access by making registration free, depositing money free and imposing no minimum limit of deposits
  • The strong focus on customer experience and ensuring that it meets high standards across the whole of the M-pesa network
  • Finally it was M-pesa’s ability to innovate and meet user needs such as buying airtime and paying bills 9

One of the main impacts of M-Pesa has been to provide the un-banked with access to secure and affordable financial services. The use of mobile phone financial services, which was at a rate near 0% in 2005 rose to 28% to in 2009 and then to 68% in 2013 10, with 40% of those users not having access to a bank account.

As well facilitating remittance payments within Kenya from the urban working to the rural poor,  Safaricom M-PESA’s customers can now receive international money transfers from 45 countries and territories thanks to an agreement between Safaricom and Western Union. Using any of the 80,000 Western Union agent locations across the globe, including the U.S, Canada, Italy and the U.K., customers can simply and conveniently send the money direct to the M-PESA “mobile wallet” of their friends or family members. 11

Additional security of family money since M-PESA keeps their money safe, even if their mobile phone goes missing.


a.    The system in numbers

In 2013 M-Pesa had over 18million users and there were 78,856 authourised payment agents throughout the country. These users accounted for over 41 million transactions per month where they transferred large amounts of ‘money’. The value of P2P (person-to-person) transfer per month is KES 77.3 Billion. The value of P2B (Person to Business) per month is KES 9.9 Billion. The value of B2P (Business to Person) per month is KES 7.6 Billion. In addition 34% of airtime top-ups are done directly through M-PESA.

b.      Function and Unit of Account

The M-Pesa seeks to provide a new medium of exchange and is denominated in and backed by Kenyan Schillings

c.       Issuance – Backing

M-Pesa e-money is created when a customer deposits cash, say 1000 Kenyan Schillings (Ksh) onto their M-Pesa account. To do this he/she makes a payment of 1000 Ksh to an approved agent. The customer’s M-Pesa account is credited with 1000 Ksh and the agent’s M-Pesa account is debited with 1000 Ksh. An agent can keep on accepting deposits in this way until their balance of electronic money is exhausted. Withdrawals work the same way – except on this occasion the agent gives out cash, and receives e-money. In addition, the customer is charged an additional fee by Safaricom for processing the withdrawal.

Safaricom places all of the customer deposited schillings into a number of pooled bank accounts in multiple banks, in order to mitigate some of the risk of any particular bank collapsing. The money in these accounts is held in trust for the benefit of M-Pesa users and ensures that the e-money is fully backed by schillings. This means that should Safaricom go bust their creditors will have no claim on the customer deposits.

In order to deal with the interest that accrued in the accounts held in trust for the benefit of M-PESA customers, Safaricom reached an agreement with Kenyan regulators that the trustees should be able to administer the interest that accrues. Although there is some evidence that the money is spent on charitable purposes 12 the actual trust deed states that ‘it is expressly agreed that any interest received … shall be retained by the Trustee for its own account to defray the costs of administering the Trust fund and operating the M-Pesa accounts and for such other purpose as the Trustee, may in its sole discretion determine’. Kenyan authorities did not allow the interest to be passed through to the customers whose funds actually earned the interest for fear that the payment of interest would make M-PESA a banking service rather than a payments service, requiring Safaricom to obtain a bank license and be subject to full prudential regulation.

d.      Software

M-Pesa works through the use of custom made software package developed in the UK between 2004-2007 with the help of Gamos and Consult Hyperion. 13

e.      Taxation and Compliance

The Central Bank of Kenya took an active role in facilitating and permitting the growth of M-Pesa, from early 2006, by allowing M-Pesa to be operated by a Mobile Network Operator and not by a financial institution.

Safaricom has carefully ensured that M-Pesa does not act as a bank, because of all the additional compliance obligations that would be placed on it. Safaricom has designed many of its systems and processes to ensure that this is the case – such as not paying interest, not engaging in loans or using customer deposits to engage in speculation. In addition customer accounts are held in trust in multiple banks with Safaricom having no beneficial interest.

This means that the key types of legislation that need to be complied with are ‘Know your customer’ (KYC) and anti-money laundering (AML) rules. It is down to the approved agents, who are the face to face interface with the users to perform these checks. The process has been made significantly easier for them recently due to the compulsory registration of all phone numbers and the presence of national identity cards.

Currently there is a 10% tax rate on transactions over 100 Ksh carried out through mobile payment systems like M-Pesa, which was introduced in early  2013. The Kenyan Treasury wanted the costs to be absorbed by the profits made by the telecoms companies who run the payment services, however many analysts warned that this was unlikely. 14 The CEO of Safaricom stated publicly that the tax had forced his company to absorb the majority of the 400 million shillings due to the treasury to avoid impacting the users and hampering adoption 15.

f.        Revenue Generation

One the principles of the M-Pesa service is that charges should only arise when you try to do something with your money. This means that charges only arise when transfers are performed or withdrawals are made. The tariffs vary according the amount being transferred or withdrawn on a sliding scale basis. The fees are also differentiated based on whether the recipient of the transfer is a member of the M-Pesa network or not. Since fees are paid by the sender this is supposed to act as an incentive for members to encourage non-members to join in order to reduce their fees. In addition small fees are levied to check balances and to change the secure PIN number.

Amount Transfer to other M-Pesa user Transfer to unregistered Member Withdrawal from M-Pesa agent
10-49 3 NA NA
1001-1500 33 66 27
20001-25000 82 275 187

This is a sample for indication purposes only. For the latest tariff structure please reference the Safaricom website 16

g.       Funding

Initial seed funding for the project was given by the British Government along with Vodafone UK who both put close to £1million into the development of the software and pilot programs. The M-Pesa program is now extremely profitably and accounts for 16% of Safaricom’s revenue.

How does it work in practice?

First a person needs to register to join M-Pesa at any M-Pesa agent for free. This is quick and easy to do because M-Pesa agents are everywhere in both the large cities and small villages. Once registration is done the network sends you an updated menu on your phone – so you’re ready go.

The next step is to deposit some money into your M-Pesa account at any agent by just handing over your cash and they load it onto your phone. Alternatively a kind relative, friend, or employer can put money onto your account for you.

Then you can send money easily. To do this you just go to the menu on your phone, enter the phone number of the recipient and amount and the money arrives near instantly – in the time it takes for an sms to arrive.

You can also pay all sorts of bills using  M-Pesa using a very similar process to sending money to friends. The variety of goods and services that can be purchased is increasing all the time.

Finally you can withdraw money. To take your money out you just need to go to an M-Pesa agent and send them some money, which they then give to you there and then. You can now also go to some ATMs and take your money out without a card.