Digital finance in Africa cannot be told without the mention of m-pesa and mobile money in Kenya. The story is told of a post-independence Africa that was pursuing its quest for industrialization and urbanization. This resulted in increased rural to urban migration, often leading to family members, pursuing job opportunities in the urban areas with an intent of sending money back to their family members in rural Africa. Common demand for money transfer was established, often served by post offices through money orders or other ‘sealed envelope’ mechanisms.
These posed serious problems including delays, uncertainties and insecurity. It is said that m-pesa was first designed to aid in the transfer of urban-to-rural money transfer among such communities, by establishing agent networks where the money could be withdrawn, by a recipient upon receiving text message confirmation from the telco provider (Safaricom) of deposits made by a sender.
Interestingly, the recipients started realizing that there was no immediate need to withdraw money once a notification was received; they could wait overnight and collect the money the following day, or any day, for that matter (bankability) and furthermore, their money could not be easily robbed; they also realized that they could as well send money between themselves, regardless of whether they were two feet apart or hundreds of kilometers apart (cashless transactions), and soon started using the money transfer service, which was intended for urban-to-rural cash transit, for normal daily financial transactions, as both a store of value (bankable) and a rapid means of payment.
This dimension of m-pesa is often glossed over, as often the media would interview executives within the telco and policy leaders for the m-pesa story (do a simple google on m-pesa and you’ll see). But in truth, m-pesa, much as it was designed by the executives in one form, was eventually appropriated, by an unbanked and cash-driven society, into a digital currency that led a revolution in commerce within a nation that took over financial transactions equivalent to more than half the entire GDP of a nation.
Presently, m-pesa as a digital finance product is used for paying bills, saving, loans, investments, and continues to evolve daily to meet the needs of the society it serves. M-pesa is quintessentially a grassroots-driven digital finance innovation. It took the form and character of the needs perceived at that moment, by people who required a banking solution, a safe, secure and convenient store of value and additionally a rapid means of payment. This underlines the importance that technology is not only grassroots but essentially people-driven.
The success of any technology is for and inevitably by the people; a lesson I believe any current m-pesa executive will attest to. And this is something we should not take for granted as we enter into an era of decentralized finance.
Words exclusively for PCI by Ndemo Bitange, the godfather of m-pesa and an attendee at the founding meeting of PCI.