Several undertakings in the field of microfinance or, in this regard, in its growth and development, were as fruitful as M-PESA: three and a half years after the launch of the initiative, more than 70 per cent of individual households in Kenya and, what is more significantly, more than a half of the deprived, non-banking and rural population use the platform. The number of people who do not have inspiration or even have doubts about M-PESA is really impressive. Such lack of trust is often generated due to the lack of awareness. Our post today is to provide you with the important information that can either broaden your knowledge in the field or present the info in an understandable way.
What can you tell about yourself? Are you aware of what M-PESA is and how it works? We would like to propose to your attention ten things you have doubts about M-PESA or just want them to be clarified. Also, we will bust some myths about the platform we believe are very popular among the people who have some doubts.
Did you think that M-PESA money is launched beyond the banking industry?
Any sum going through M-PESA is 100 per cent secured by credited accounts in commercial financial institutions. From the perspective of monetary aggregates, mobile money stored and moved by clients of M-PESA is considered to be a part of M1.
You can check out Mpesa rates and charges in 2018 here.
Did you think that M-PESA funds are used and owned by Safaricom?
In fact, the funds are placed on deposit in different commercial financial institutions that are prudently regulated in the country. Furthermore, the funds are held by the Trust and therefore are not available from Safaricom, which neither have access to them nor use them. If such unfortunate thing as the bankruptcy of Safaricom will occur, the creditors of the company will not have access to M-PESA funds. The Central Bank of Kenya (CBK) controls M-PESA, and this is its requirement. The funds always belong to users of M-PESA.
Did you think that success of M-PESA and significant systemic risk are interconnected?
The balance accumulated on all accounts of M-PESA is only 0.2 per cent of deposits (in the bank) at a cost. So, we may conclude that M-PESA does not have systemic risk. Eight years ago, M-PESA transactions accounted for about 70 per cent of transactions (performed electronically) in Kenya, but only 2.3 per cent were in value. The success of M-PESA means that there is an urgent necessity of small transactions and preservation of value. It was created with limitations for funds that can be spent (maximum 70 thousand Kenyan shillings, leaving the account per day) and stored (the maximum balance on the account is 50 thousand Kenyan shillings). Payments in cash, cash, and P2P also have their limits (35 thousand Kenyan shillings per transaction).
Did you think that cash merchants of M-PESA own fund of the company or its clients?
The cash merchants of M-PESA (or as they are also called ‘agents,’ we also will call them so hereinafter) pre-purchase mobile money. In such a way, they are able to sell them for cash to clients who have visited their retail store to perform cash transactions. They invest their own floating capital and do not mediate other people’s means. For redemption operations, they sell their money and buy mobile money.
Consequently, M-PESA balances and cash managed and kept by agents belong to them. Agents are mainly super-users who make the resell of their own floating capital. At the same time, the level of their access to the M-PESA platform is the same as any other clients have. Except for one difference: the transaction limits for agents are higher.
Did you think that M-PESA transactions are not monitored at all?
All the transactions performed through the M-PESA platform are done in electronic form and are monitored by Safaricom. The company is an owner of special anti-money laundering system. What is more, cash-out and cash-in operations are electronically based and placed on record in the system. The CBK receives reports of M-PESA transactions on the regular basis.
Did you think that there is no supervision of M-PESA agents?
Safaricom recruits only diligent agents of M-PESA and only after special training. Regular monitoring and re-training are performed. It also should be mentioned that Safaricom visits the agents bi-weekly. Such process is the same all over the country, so any customer at any part of Kenya will receive the same level of services.
Did you think that if a person does not possess some special financial knowledge, there may be some risks for such a customer?
Of course, there is a risk that the opportunity to pay more easily than before can be abused (for example, with the help of creditors), but this is not an access problem. The financial literacy efforts associated with M-PESA will not be effective in addressing this issue. This is more a credit problem (in this case), and tools for protection of consumers in order to mitigate such risks, including also financial education, should focus on the credit side.
Did you think that the clients of M-PESA cannot be identified?
Every prospective client who wants to open an M-PESA account is obliged to identify him/herself with an identification document (only originals are accepted, photocopies of the document won’t be enough). All the retailers are aware of the requirements for the registration of the clients so you can be sure that every customer will be identified properly. What is more, every customer is obliged to show his or her ID card to perform a transaction. Three-factor authentication has place (SIM card, ID card, PIN).
Did you think that M-PESA offers only a transactional service?
In fact, this is true, and you were right on this, M-PESA does not balance an equation on financial inclusion. Low-income people need various financial services, including savings, and the ability to make transactions, regardless of their effectiveness, is not enough. But let’s clarify here the goal: which is access. M-PESA is a tool for ensuring financial inclusion.
Did you think that M-PESA can be used by criminals?
Again, our answer will be: “YES” because fraudsters can use this payment platform which requires identification, has limitations of daily transactions, checks all transactions, and, finally, has information about the location of the gadget used for performing of a transaction.
We hope you have found the answers to your questions and we have managed to bust some myths about the platform.