The M Pesa Technological Revolution for Financial Services in Kenya: A Platform for Financial Inclusion
M Pesa is an electronic money transfer product that enables users to store value in the SIM cards of their mobile phone a mobile account, in the form of electronic currency that can be used for multiple purposes including transfers to other users, payments for goods and services, and conversion to and from cash. M Pesa has become a technological platform that has enabled financial transactions with ease and in real time efficiently. Other products have endogenously been developed and rolled out on this technological platform. The platform has provided a virtual savings network and a virtual system of applying and receiving short term credit. This technological platform has endogenously developed in four stages of virtuous process: from a payments platform to a virtual banking and saving services; to a credit supply platform and finally to a platform for cross border payments/transfers and international remittances. This chapter provides details on innovations and policy reforms that have supported the M Pesa financial services and products to revolutionize the financial inclusion landscape in Kenya. The chapter shows the importance of financial inclusion in a low income developing economy with nascent financial sector. At the outset, mobile phone based financial services, starting with M Pesa, were viewed as a technological platform that would allow a menu of financial services that would be offered to Kenyans and would drive financial inclusion: it has stood the test of time and has been vindicated. The success of financial inclusion in Kenya shows that formal financial inclusion has increased to over 75% of the adult population in 2016 from about 26% in 2006. This chapter thus demonstrates how innovations in the financial market accompanied by appropriate policy design, appropriate regulatory technology and regulatory capacity, in addition to partnerships among regulators and the Governments, can build a successful case of financial inclusion, financial development and support to financial stability. Thus, in Kenya, the mobile phone has become an instrument of communication, but also an efficient tool for information gathering and processing and also an important platform for a menu of financial services.