Introducing Digital Money to the Unbanked: What Kenya Can Teach the Rest of the World about Financial Inclusion

Introducing Digital Money to the Unbanked: What Kenya Can Teach the Rest of the World about Financial Inclusion
Picture: Fiona Graham / WorldRemit

In the light of globalization and accelerated economic development, the figure of 1.7 billion of the world’s adult population not having bank accounts in 2018 seems shocking. Until only recently that would mean total financial exclusion of a quarter of the planet, but the easier access to mobile phones and blockchain technology has become a real game changer. Kenya is a unique example of introducing people to conventional financial services that have been beyond their reach and scoring a world record in the process. It increased financial inclusion from 6,5% to 73% over 10 years, and not without the help of digital money.


But it’s not what you think.


Excluded from life


Billions of financially excluded people are deprived from conventional financial services that we can’t imagine our lives without. Although the unbanked, or people not having a bank account, are somewhat an issue in the developed countries, too, they really raise a concern in the developing countries, where deposits, money transfers or lending remain beyond the reach for more than half of a country’s population. It is not a surprise that financial exclusion walks hand in hand with poverty, and the highest percentage of the unbanked population is in Bangladesh, Colombia, Ethiopia and Nigeria. Among other barriers to access the global financial system are bureaucracy, corresponding costs, and travel distance to the closest bank. The amount of the unbanked is particularly high in rural areas. In 2017, cash remained the prevailing method for agricultural payment for 235 million people, according to Global Findex.


Dhaka, Bangladesh. Photo: Adli Vahid / Unsplash


Kenya was also on the list of developing countries suffering from financial exclusion: barely 6,5% of the population used to have a bank account in 2007. And then M-Pesa appeared.


The M-Pesa revolution


Back then, galloping inflation added up to the already unbearable transaction cost in many developing countries in Africa and Latin America. At the same time, mobile phones became relatively cheap and more people could finally afford them. Unluckily, there were still impediments to global inclusion, and sparse internet connection was the main one. In conditions of poverty and underdeveloped infrastructure, primitive forms of transactions were still in place, but took a new form. In Kenya, prepaid minutes were turned into commodity money: the population started to barter them for other products.


Safaricom, Kenyan biggest mobile operator, saw an opportunity there and decided to develop a service that would allow cheaper money transfers among customers. M-Pesa turned into a separate payment system independent from traditional banking. There was no need in internet connection either, since the funds were sent via SMS. The transaction fees were nothing compared to 10%+ that opaque entities charged with impunity, enjoying lack of competition and accountability. The tremendous success of M-Pesa is better demonstrated in figures: 66,5% was the increase in financial inclusion of the population.


Photo: Rosenfeld Media / Flickr


Needless to say, traditional financial institutions wanted their piece of a pie. A partnership with CBA Bank led to the creation of the loan service, M-Shwari, and further expansion of the country’s mobile money ecosystem. In the process of introducing basic peer-to-peer transactions to its unbanked population, Kenya seems to have scored a world record. Now it is told to have the highest per capita mobile money market on the planet.


The dark side of a coin


Regardless of the resounding success of M-Pesa at home, Kenyans suffered from the lack of ways to conduct international payments and receive funds from abroad. Departing from that sounding local achievement, an international exchange BitPesa was founded by Elizabeth Rossiello to solve that problem. In 2011 they were the first in the world to link mobile money to Bitcoin. Of course, Western Union or Moneygram could be a reasonable alternative, if they didn’t lose money to conversion and days to process the transaction. After beta-testing digital currency in their own way and getting hooked on mobile transactions, Kenyans were ready to welcome the real digital revolution.


No matter how successful M-Pesa was at home, its scope was still limited by the reach of the parent mobile operator (although its owner Vodafone now operates in 10 countries, including Eastern Europe). A large, but secluded ecosystem, it couldn’t integrate to the global one. Not without the help of blockchain. However, the blockchain-based startup didn’t set out on a quest to take on M-Pesa as a competitor. On the contrary, given their dominance in Kenya, it would have been shortsighted not to build on their client base and use already existing accounts as digital wallets. However, the operator wasn’t really helping, and even created legal problems for BitPesa that ended up in court in 2015. The exchange had to secure other partnerships, like with China and Japan, to continue providing the service.


Meeting the need in cross-border payments, BitPesa helps local companies run international business and attract funds not only to Kenya, but to the whole region, including Tanzania, Nigeria and Uganda. The size of clientele is much below M-Pesa’s 30 million yet, but the startup has a bigger potential to grow internationally.



The optimists would say, that the fully-fledged cryptocurrency revolution in Africa is yet ahead of us. Meanwhile, there are other impediments for wide crypto adoption, such as Bitcoin still trading with a high premium and extremely low credit card penetration (as little as 1% in some countries), according to Forbes. However, the latter wasn’t an issue for M-Pesa, just a leapfrogged intermediate step.


As we have seen, the Kenya’s case is not about the boom of cryptocurrencies, at least not in a mainstream sense. It serves as an example of the alternative way to financial inclusion that, as Trace Mayer put it in an interview, ‘skips entire generation of currencies, going directly from only using cash to using Bitcoin.’


Vanessa Emrith