Do the M-PESA Rails Contribute to Financial Inclusion?

This note examines changes in Kenya’s mobile money services that will increase financial inclusion in the country. It examines reasons why M-PESA does not seem to have realized its full potential.

M-PESA provides money transfer services and a convenient way to set aside money in Kenya. The average Kenyan is also happy with its impact on their lives. Financial inclusion proponents, however, are worried that poor people will use M-PESA as a full scale substitute for formal institutions. Other problems with M-PESA is that users do not have access to a wide range of financial services, transactions costs are high and Safaricom does not have the necessary back-end applications that will help banks integrate its services with Safaricom’s. The note suggests that:

• Multiple systems competing for customers are likely to result in reduced costs, improved products and customer service, and interoperability between mobile money and m-banking systems;
• These changes will enhance the quality of financial access in Kenya;
• Financial institutions and mobile network providers MNOs will be compelled to offer products and services that maximise the competitive advantage of each player;
• This should result in reductions in the cost of mobile money-based services.