Monetary Theory and Electronic Money: Reflections on the Kenyan Experience

I n 2007, the leading cell phone company in Kenya, Safaricom Ltd., launched M-PESA, a short message service (SMS)-based money transfer system that allows individuals to deposit, send, and withdraw funds from a virtual account on their cell phones and that is separate from the banking system. M-PESA has grown rapidly, currently reaching more than seven million users, approximately 38 percent of Kenya’s adult population, and it is widely viewed as a success story to be emulated across the developing world. Indeed, similar products have recently been launched in a growing number of countries across Africa, Asia, and Latin America, with the intent of expanding financial services to previously unreached populations.1 M-PESA is used not only for remittance purposes, but also to save, to purchase pre-paid phone credit and other goods and services, to pay bills, and to execute bank account transactions. However, consumers do not need bank accounts in order to use M-PESA, and Jack and Suri (2009) found it was used by more than half of the unbanked in their sample. It is used by a broad cross section of Kenyan society, but has increasingly been adopted by those at the