Working Paper: NBER ID: w17129
Authors: Isaac Mbiti; David N. Weil
Abstract: M-Pesa is a mobile phone based money transfer system in Kenya which grew at a blistering pace following its inception in 2007. We examine how M-Pesa is used as well as its economic impacts. Analyzing data from two waves of individual data on financial access in Kenya, we find that increased use of M-Pesa lowers the propensity of people to use informal savings mechanisms such as ROSCAS, but raises the probability of their being banked. Using aggregate data, we calculate the velocity of M-Pesa at roughly four person-to-person transfers per month. In addition, we find that M-Pesa causes decreases in the prices of competing money transfer services such as Western Union. While we find little evidence that people use their M-Pesa accounts as a place to store wealth, our results suggest that M-Pesa improves individual outcomes by promoting banking and increasing transfers.
Keywords: M-Pesa; mobile banking; financial inclusion; Kenya
JEL Codes: E40; O16; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased use of mpesa (E29) | lower propensity of individuals to utilize informal savings mechanisms such as roscas (D14) |
| increased use of mpesa (E29) | likelihood of being banked (G21) |
| increased use of mpesa (E29) | decrease in the prices of competing money transfer services (F24) |
| increased use of mpesa (E29) | increased frequency of sending remittances (F24) |
| increased use of mpesa (E29) | enhanced access to formal financial services (G20) |
| increased use of mpesa (E29) | shift from informal to formal saving mechanisms (D14) |