Despite the hyping of mobile money, on a visit last fall to Tanzania, a country poorer than its Kenyan neighbor, I barely saw evidence of M-PESA at least in rural areas around Arusha.

Likely places to see “M-PESA” – shopping strips filled with money-changers, banks, and other transfer facilities – do not feature it, or at least do so less than in Kenya where signage and stalls are chock-a-block.

Why is this so? Various theories explain thinner uptake ranging from fragmented telco markets to differing patterns of migration and household behavior. And others say, “no”, it’s growing just fine. But, when I asked why members of savings groups in and near Arusha why they were not using M-PESA, they said: “it is too expensive.”

The M-PESA site itself tells this story:

“Registered M-PESA customer Goodson Kimani needs to send Tsh 4,000 to his mother in Tanga. Mama Kimani (who is also a registered M-PESA customer) has no money in her M-PESA account.

Goodson must have at least Tsh 4,700 in his M-PESA account. He sends Tsh 4,500 to his mother via M-PESA. Tsh 200 is deducted from Goodson’s M-PESA account as a ‘Send Money to Registered Customer’ transaction fee.

Mama Kimani is notified via SMS that she has received Tsh 4,500 from Goodson. Mama Kimani’s M-PESA account now has Tsh 4,500. Mama Kimani goes to an M-PESA agent in Tanga and withdraws Tsh 4000. Tsh 500 is deducted from Mama Kimani’s M-PESA account as a transaction fee for withdrawal by a registered customer.

Mama Kimani and her good son end up paying, 700 on a 4000 on a remittance: 17.5%.

Perhaps the expense factor plays a role in why a recent study by Guy Stuart finds that even in Kenya, motherland of M-PESA, the service facilitates 4% of household transactions, with the rest transacted by cash. This finding comes as somewhat of a surprise to those of us impressed by M-PESA’s reach of 17 million people in Kenya. 

As major donors rush to catalyze the creation of mobile money infrastructure, they might weigh in on the business policies that surround it. Poor consumers might feel a little more than trapped inside each new currency: it costs a lot to move or withdraw digital money or to switch digital currencies (from M-PESA, say, to Zap). The moneychangers are making all the money. No wonder cash is king.

To be clear, M-PESA is a breakthrough. Along with other providers of mobile services, it is one of a handful of bright and shiny things in inclusive finance. In fact, savings groups at the core of this blog use M-PESA expedite savings and loan payments of members. But maybe it’s time to reign in our glee around M-PESA’s possibilities. The service is costly and won’t help our groups much until this new currency feels less like a rip-off and more like a bonus.  That, indeed, would start to feel like real inclusion.

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Reader Comments (4)

Yes Kim I agree with reining in that enthusiasm. M-Pesa is present in South Africa, but none of our groups are using it. Granted, it is early days, but our members say the same thing about M-Pesa that they do about the banks....too expensive. And right now, banks are LESS expensive than M-Pesa.

Also, here in SA, access to M-Pesa agents is not yet convenient. And security is a risk for those in the township that might want to become an agent. So......we will wait and see what else is on offer before marketing M-Pesa to our group members

Thu, January 26, 2012 | Jill Thompson

Hi Kim, thanks for sharing your observations from your trip to Tanzania.

Let me just add a fact your readers might wish to ponder: the 4000 shillings that Goodson is sending to Mama Kimani amount to all of $2.50. I don't know how many other ways there are to send $2.50 across the country.

It is true that mobile money pricing is not optimized for such small transactions. But if the transaction was ten times bigger, say $25, the fees would be the same in shilling terms -- and much smaller in percent terms.

As you know, I've been in rural Tanzania during the last two weeks. While I agree that mobile money agents have largely not yet left the tarmac, there's something really significant I've observed: most farmers seem to know about M-PESA and TigoPesa and AirtelMoney, even if they themselves couldn't use them for lack of agents. There's a powerful word-of-mouth thing going on, a pent-up demand which will facilitate the spread of mobile money agents into smaller towns and villages.

Kenya is in a league of its own for the speed in which mobile money swept the country. In Tanzania and in Uganda, progress may be slower but mobile money will spread, all the signs are there. Mobile money is growing out of Kenya, and becoming an East African phenomenon.

Thu, January 26, 2012 | Ignacio Mas

Hi,Kim
I much appreciate the information presented in this article more so on M-pesa.I being a kenyan and having worked with group saivng micro-credit mobile money transaction have been and are being utilized at maximum by these groups,in contrast to Tanzania the key factor being that the cost of travelling to where banks are is almost as expensive as doing more than 100 mobile tranasaction hence being cheaper and more realible.
We should also not ingore the fact that though Kenyan have embrassed this techlnology there also other folks who have limitaions towards the same as result of poverty and illiteracy.
Going by the above illustration of the Goodson and his mother this transaction is much cheaper in Tanzania than in Kenya because the total charge at Tanzania is$0.439 while in Kenya this amount bracket costs 0.883 which is almost twice.

Fri, January 27, 2012 | Jane Kakai

I rather think that electronic money is over-sold as having the potential to revolutionise financial services for the poor. The success of M-Pesa in Kenya and its relatively slower uptake in Tanzania may have to do with the fact that there is a much deeper and longer tradition of migrancy in Kenya than Tanzania, in which the breadwinner goes off to the capital city and regularly remits money home. It is perhaps more significant that average balances on M-Pesa are very small (less than $5, I believe) and this tends to suggest that, apart from remittances, it's used as a low balance wallet. The idea that everyone will fall in love with a mobile 'phone for its convenience and accessibility begs the question as to how that differs from a piggy bank - except that it's more expensive and more liable to be stolen or lost. In the context of savings groups it is likely to be a different outcome. Is it not plausible that in a savings group the mutual agreement regularly to save is the principal force that drives savings mobilisation? Introducing a mobile 'phone, makes it low rsk and low cost and allows access to a regulated account, but is not what drives the decision to save. That's more determined by the implicit social contract and established profitability of a savings group, to which the mobile 'phone is, I think, a handy adjunct.

Wed, February 22, 2012 | Hugh Allen