Financial exclusion is a large part of the jigsaw of global poverty. But in just over 6 years an additional 800 million people around the world gained access to basic banking services. It’s a glimpse of how quickly economic infrastructure can change. Part of that revolution can be found, quite literally, in the hands of people in Kenya.

A mobile phone payment system was set up in the country just over a decade ago that has revolutionised African banking, and given access to financial services to millions of the poorest people for the first time. M-Pesa (M-money in Swahili) began as a simple method of texting small payments between users making microfinance repayments. Today it services 30 million users across 10 countries, partnering with traditional banks to offer further services such as international transfers, loans and health provision. M-Pesa is credited with some impressive achievements – from making economic activity in rural areas easier and stimulating entrepreneurialism, to changing the whole banking system. It has also generated a range of unexpected social benefits.

The idea came originally from the communications company Vodafone and was developed with funding from the UK’s Department for International Development (DFID)’s Challenge Fund. By reducing the costs associated with handling cash, they planned to enable microfinance providers to lower their interest rates and widen access to loans. But pilot testing with Vodafone’s mobile operator Safaricom revealed that people wanted to use M-Pesa in all sorts of ways: businesses used it to pay other business, or as an overnight safe; and people used it to transfer airtime as currency to relatives and to people outside the pilot areas. Safaricom shifted direction and launched M-Pesa as a general money-transfer scheme.

The system works by getting users to sign up and pay cash into the system via one of Safaricom’s 130,000 agents (typically someone in a corner shop selling airtime). They credit the money to your M-Pesa account and you can then withdraw cash from any agent, who checks you have sufficient funds before debiting your account. You can also transfer money directly to others. Sending cash this way is quicker, safer and easier than carrying bundles of money in person, or asking others to carry it for you. This is particularly useful in a country where many workers in cities send money back home to their families in rural villages and for women, who are more vulnerable to personal theft.

Today the scale of the operation is impressive: Safaricom reported over 6 billion M-Pesa transactions in 2016 and in its 2017 Annual Report registers £1.39 billion worth of “social impact”. It has also started a charitable foundation with some of the profits made.

Wider relevance

The M-Pesa model is interesting because of the speed with which it grew; its ability to reach poor populations that most innovations bypass completely; and the accompanying social benefits it has brought. These include better personal security, faster response to emergencies, reduced opportunity for corruption and more time for productive activities.

Choosing to base payment transfers on simple texting technology made the system cheap to install and available to anyone with a mobile phone, which meant it could grow fast. Many people in developing nations have jumped straight to mobile services without ever owning a landline. Creative, speedy and safe new services are therefore instantly available even to the poorest. Between 2008 and 2011 alone, the percentage of people living on less than $1.25 a day who used M-Pesa rose from below 20% to 72%. In Kenya today, over 80% of adults own a mobile and more have access to one.

One M-Pesa service allows users to fundraise for a variety of purposes, including medical needs, education, and disaster relief. Family networks can help absorb the economic shock of an emergency better by lending or giving money immediately via their phones. In times of natural disaster, climate change and war, mobile money can be a lifeline as populations are forced to move at short notice and leave their belongings behind. Digital humanitarian cash transfers and affordable international remittances give refugees safe and convenient ways to meet their immediate needs. Governments could be putting these systems in place now to help with responsiveness in the future.

Meanwhile, in more stable places, smallholder farmers can use the service to access credit and maximise supply chain efficiencies. This helps bridge the divide between city and county. It also cuts down on corruption by reducing the opportunity and access to funds; when users  transfer money directly to each other there is simply less cash floating around. Cash is so much easier to steal or embezzle – and it is the poorest who suffer most from corruption, because they are usually forced to use cash more.

The media has widely praised M-Pesa for empowering Kenyan entrepreneurs and it is true that many small companies – including sustainable and community-led projects – rely on the system for nearly all transactions. Micro-grids set up near Lake Victoria take payments via M-Pesa to provide solar generated electricity directly to local communities. Subsistence farmers now have better access to markets, using refrigeration to keep produce fresh for longer. And it has provided their communities with safe, clean cooking – inhalation of smoke from cooking fires is a huge health problem in Africa and cutting firewood contributes to deforestation.

Many small business owners in Kenya are women, who often travel long distances to buy stock or make a sale. M-Pesa enables them to make transactions remotely, without the need to close up shop, and perhaps take children out of school. This means increased time for education and business development, children can stay in school, and women no longer have to worry about being robbed as they travel with bundles of cash. One study showed how mobile money payments also improved community trust between fishermen and local women wholesalers by enabling faster and more consistent payments.

This technology is already being replicated in other countries and has proved particularly effective in situations of national emergency. In nearby Zimbabwe, mobile payments replaced cash after the fall of their currency. The country adopted the US dollar in an attempt to stabilise the economy, but insufficient notes and coins were available and long queues outside banks ensued. Mobile phone banking came to the rescue and today over 80% of the country’s transactions are made digitally. With more research and technology sharing, new and productive uses for handheld mobile technology will undoubtedly arise that could prove useful in climate related emergencies.

One unexpected outcome has been the birth of the M-Pesa foundation, which uses profits from the service to focus on large scale, long term projects in the areas of education, environment and health. Projects funded include the fencing and reforestation of the vast Mau Eburu forest, and planting an indigenous tree buffer zone called “The Nairobi Greenline” between the Nairobi National game reserve and the capital city. Through partnerships with existing projects, it claims to have reached more than four million Kenyans through programmes to reduce poverty, increase access to high quality education, and improve maternal health care and access to clean water.

Context and Background

Access to banking and credit for the majority was limited in Kenya and transporting cash was both risky and slow. The rural population is still highly dependent on agriculture, which is often at subsistence level. This means they are vulnerable to shocks – economic, social and climatic – and rely on family support from outside the country or from workers in the cities to help them through hard times.

Women were particularly at risk when carrying cash; many run shops, stalls and roadside businesses that rely entirely on cash. Non-cash options were limited to: expensive services, such as MoneyGram, Postapay or Western Union; ferrying money in unaccompanied parcels via bus companies (these are open to being stolen or interfered with) or travelling long distances in person with cash on public buses at the risk of being robbed.

Restricted access to cash prevents businesses from growing. In unstable states and countries where people distrust the police and authorities, a lack of redress from theft, violence and corruption can also act as a brake on community development and cohesion. This effect is particularly strong for women, who already suffer from a higher level of deprivation. Innovations that free up women to look after their own and their children’s health and education, have a better chance of bringing about long-term economic and societal change.

Enabling factors

This transition came about rapidly because different actors along the way responded effectively to the challenge at hand and because there was a huge gap in the market. As far back as 2002, researchers at Gamos and the Commonwealth Tele-communications Organisation had discovered that people were using airtime as a proxy for currency, transferring credits between themselves in return for services.

Meanwhile, Vodafone’s Head of Global Payments, Nick Hughes, had been tasked with helping the company to understand its role in addressing the Millennium Development Goals (MDGs). He was considering ways to use mobile phone banking to widen access to financial systems but his board was unable to support product development that was not profitable. Funding from the UK’s Department for International Development (DFID), brought the two together by offering match funding through their Challenge Fund – established specifically to finance public-private partnership projects that would improve access to financial services. They decided to look for a way to improve systems for repaying microfinance loans.

The development of M-Pesa looks straightforward in hindsight, but it was far from easy. It took tenacity, vision and flexibility. Mobile phone banking did not come under financial regulation in Kenya, which meant the banking sector was concerned it could be used to launder money. So the development team at Vodafone/Safaricom were forced to go ahead without a financial partner. Once the pilot proved successful, the Central Bank of Kenya agreed to give them a special licence. Under this, all customer funds had to be deposited in a regulated financial institution with interest on deposits going to a not-for-profit trust and the e-float could not be invested.

The software to make such a system work did not exist and it needed to work on the most basic models of mobile phones. Smartphones were a rarity in 2007 and even in 2018 they account for just 20% of Kenya’s mobile phone ownership. The British company Sagentia worked with local developers and users to create a platform that could be used with minimal training at low cost.

The last piece in the jigsaw was the strong need to move small amounts of money around – both within a large country with a relatively poor road and rail system, and internationally from the diaspora back home. Traditionally in Kenya many people work long distances from home and send money back to their families. Using the simple marketing message ‘Send Money Home’, M-Pesa filled a gap that was crying out for a secure and cheap service. Once trust in the system was established, it grew quickly and additional services were developed.

Scope and evidence

• In 10 years, M-Pesa has grown from zero to moving transactions with a value of £51 billion. Kenya’s total annual GDP in 2018 was estimated at £63 billion.
• In June 2015, 83.9% of the population had a mobile phone subscription. In December 2007 this number was 30.5 per cent.
• As recently as  2014, only 55.2 per cent of the Kenyan population over 15 had an account at a formal financial institution, compared to 93.6 per cent in the United States.
• By 2013, 74 per cent of the population over 15 had an account with one of four MFS providers: M-PESA, Airtel Money, yuCash, and Orange Money. M-Pesa accounts for over 90% of these.
• Income shocks force households without access to M-Pesa to reduce their consumption by 7% more than households in the M-Pesa network.
• Other green financing initiatives in Kenya are taking off, with the country’s first Green Finance Conference in 2018. Kenya’s Green Bond Fund plans to launch in 2019, giving smaller companies access to financing for viable green initiatives.
• Cash is still king in Kenya because people are mostly paid in cash. Once this changes, the picture could look very different.

References

• Suri, T., Jack, W.,(2016). The long-run poverty and gender impacts of mobile money. Sciencemag.org, 9 December 2016 • VOL 354 ISSUE 6317. https://www.jefftk.com/suri2016.pdf
• CNN, How M-Pesa changed banking in Africa, 24 February 2017. https://edition.cnn.com/2017/02/21/africa/mpesa-10th-anniversary/index.html
• Dubus, A., Van Hove, L., (2017) M-PESA and financial inclusion in Kenya: of paying comes saving?  https://hal.archives-ouvertes.fr/hal-01591200/document
• Economist (7 May 2018) Access to banking services is spreading throughout the developing world. https://www.economist.com/graphic-detail/2018/05/07/access-to-banking-services-is-spreading-throughout-the-developing-world
• GSMA, (2015), State of the Industry Report: Mobile Money.  www.gsma.com/mobilefordevelopment/wp-content
• Flood, Z., Zimbabwe and Kenya lead the way in Africa’s dash from cash, The Guardian, 22 February 2018. https://www.theguardian.com/world/2018/feb/22/kenya-leads-way-mobile-money-africa-shifts-towards-cash-free-living
• McGee, H., How the mobile phone changed Kenya, Irish Times, 14 May 2016. https://www.irishtimes.com/news/world/africa/how-the-mobile-phone-changed-kenya-1.2646968
• Ngunjiri, J., Kenya tops in phone internet traffic globally, Business Daily Africa, 20 March 2018. https://www.businessdailyafrica.com/corporate/tech/Kenya-tops-in-phone-internet-traffic-/4258474-4349966-3m4lrez/index.html
• Runde, D., M-Pesa and the rise of the global money market, Forbes, 12 August 2015. https://www.forbes.com/sites/danielrunde/2015/08/12/m-pesa-and-the-rise-of-the-global-mobile-money-market/#7c61e0cf5aec
• T.S., Why does Kenya lead the world in mobile money, The Economist, 2 March 2015. https://www.economist.com/the-economist-explains/2015/03/02/why-does-kenya-lead-the-world-in-mobile-money
• White, D., (2012), The Social and Economic Impact of MPESA on the Lives of  Women, SIT Digital Collections. https://digitalcollections.sit.edu/cgi/viewcontent.cgi?article=2254&context=isp_collection
• Zins, A., Weill, L., The determinants of financial inclusion in Africa, Review of Development Finance, Volume 6, Issue 1, June 2016, Pages 46-57.  https://www.sciencedirect.com/science/article/pii/S1879933716300549#bib0055

Andrew Simms is Coordinator of the Rapid Transition Alliance, an author, political economist and activist. He is co-director of the NewWeather Institute, Assistant Director of Scientists for Global Responsibility, a Research Associate at the University of Sussex, and a Fellow of the New Economics Foundation (NEF). His books include The New Economics, Cancel the Apocalypse: the New Path to Prosperity, Ecological Debt and Do Good Lives Have to Cost the Earth? He tweets from @andrewsimms_uk

New economic stories are needed to unblock the political embrace of rapid transition

By Katherine Trebeck and Jeremy Williams on 28 January 2019

The breakdown of the climate will only be averted by rapid and radical action, but political courage and imagination are blunted blocked by narrow definitions of success. In their new book, The Economics of Arrival, Katherine Trebeck of the Rapid Transition Alliance member organisation, the Wellbeing Economy Alliance, and Jeremy Williams propose a new story:

Countries come in all kinds of political colours and stripes, legacies and histories, with important or marginal roles in global affairs. But whatever their stage of development, their governments (almost) all operate with one central measure of success: economic growth measured by GDP.

If the economy is growing, then the country is doing well, is the assumption. Wealth is increasing, so presumably people are being lifted out of poverty, jobs are being created and citizens are enjoying greater freedom, so the thinking goes.

If only it were so simple. Indeed, if it were, it is likely that many of the challenges facing the world wouldn’t be as acute.

Of course, in lower income countries, growth has a vital role to play. Where people don’t have enough to meet their basic needs, more is obviously necessary. Used well, economic growth can unlock opportunity and build out the infrastructure and services that people need. But is it such a legitimate goal in GDP-rich countries?

Previous generations in Britain would look at envy at our time, when poverty could be eradicated by fairer distribution – by sharing its great wealth better. In a sense Britain has arrived in the place its ancestors hoped for. Yet the central purpose of government remains economic growth, not better sharing of our bounty. Growth was the government’s “number one priority” according to Gordon Brown. David Cameron boasted of a “relentless focus on growth” and Theresa May promised to “drive growth up and down the country”, which makes it sound like a bus.

When growth is universally viewed as positive, expansion goes unchallenged and the downsides are ignored: the business media celebrate a rising housing market despite growing numbers of low earners and younger generations who are priced out. High levels of new car registrations are reported as good news regardless of the implications for traffic, CO2 emissions, air pollution and personal debt. Supermarket firms open new branches and increase their market share, but in GDP metrics no heed is paid to dying town centres or bankrupt farmers.

Most of us would agree that we want thriving town centres, clean air, low congestion, a stable climate, affordable homes and equal opportunities for young people. Some of the solutions to those problems are compatible with growth, and some aren’t. Anything that may result in lower economic growth is off the table.

Take the example of aviation, which should not be expanding in an age of climate change. The trade-off was starkly expressed in the airport town of Luton recently: “I quite take on board the air quality point being made”, said the council leader in a debate about pollution. “But we’re not going to not grow the airport… We’re not going to stop economic growth. It’s not going to stop, is it?”

There’s a striking powerlessness in that statement – ‘it’s not going to stop, is it?’ Like a runaway train or an avalanche.

The unstoppable demands of growth are apparently a given. It’s common wisdom, part of the guiding mythology of our time. But it’s a story, a shorthand way of making sense of the world: the economy will grow, and we will all be better off as the rising tide lifts all boats.

But what if we took growth to its logical conclusion? All growth leads somewhere. Nothing grows forever, but proceeds to maturity. If we prize economic growth, shouldn’t we look forward to a point of ‘arrival’, at which the economy is fully grown?

This Arrival would be something to celebrate. It would be the fulfilment of hopes, and the start of a new purpose. It would defuse the drive for more that slows down genuine solutions. New priorities would emerge beyond growth: inclusion, participation. Industry and business would focus on the resources it already has rather than extracting more, creating a regenerative circular economy. Politics would look to the wellbeing of citizens to measure their success. Having arrived in a place of plenty, nations could now make themselves at home.

To see what this might look like in practice, we can look at cooperative and employee-owned businesses that know that creating good workplaces and decent incomes are as important – or more important – than profits and expansion. We can see cities using participative budgeting or community planning processes to give residents a voice. There are businesses finding new opportunities in sustainable materials. Democratic forms of energy are emerging in the confluence of renewable technologies and community business models. The internet is facilitating a shift from consumerism to ‘experientialism’, and opening up all kinds of spaces for shared ownership or exchange. Governments are experimenting with new metrics. From Vivir Bien in Latin America to the traditional notion of ‘Nuka’ in Alaska or the ‘sufficiency economy’ in Thailand, people are drawing on older and more holistic visions of success.

Many of these are isolated examples, and they need to be amplified, scaled up and championed. But there’s no question that all the tools we need for a fairer and more sustainable world are already out there. A transition is possible – and necessary too. Without some sense of Arrival, of enough, the richer countries of the world risk throwing away all the gains so far. Prosperity would be eroded by debt, inequality, climate change and extreme politics. The hard work of previous generations would be wasted, leaving a poorer future for those who come after us. And that would indeed be a tragedy.

The Economics of Arrival: Ideas for a grown-up economy is out now from Policy Press. 

Katherine Trebeck is Knowledge and Policy lead for the Wellbeing Economy Alliance. Jeremy Williams is a writer and blogger at http://www.makewealthhistory.org.

We need a fossil fuel non-proliferation treaty – and we need it now

Posted on 30 October 2018

The publication of the IPCC special report on global warming of 1.5 degrees concluded that only “rapid, far-reaching and unprecedented changes in all aspects of society” can deliver the globally agreed target. This suggests the need for a new line in the sand, especially in the already industrialised countries where any growth of fossil fuel dependent infrastructure will be clearly incompatible with meeting the 1.5 degree target.

⇑ Andrew explains why the fossil fuel sector needs to do more to tackle climate change on BBC World News

Therefore, to underpin the existing climate agreement, and to exert influence over the immediate choices of policymakers, at the very least, the new findings of the IPCC mandate a moratorium in rich countries on any further expansion of fossil fuel industries, or any infrastructure dependent on it. This moratorium could be realised as a Fossil Fuel Non Proliferation Treaty.

We made our case for a Fossil Fuel Non Proliferation Treaty in a submission to the United Nations Talanoa Dialogue, which you can view below.

Find out more:

• ‘We need a non-proliferation treaty for fossil fuels’ – Hugh Richards
  Guardian letters, published 12.12.18
  • Hugh Richards supports the call for a “non-proliferation treaty” for fossil fuels.

• ‘We need a fossil fuel non-proliferation treaty – and we need it now’
  Guardian opinion, published 23.10.18
  • Climate breakdown is an imminent threat to humanity. But an international treaty could avert calamity.

• ‘To save the planet we need a treaty – and to consider rationing’      Guardian letters, published 29.10.18 
  • Bill McKibben, Naomi Klein, Caroline Lucas, John Sauven, Craig Bennett, Ann Pettifor and Leo Murray add their voices to calls for a fossil fuel non-proliferation treaty.