The Impact of Cell phones in Kenya

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The Impact of Cell phones in Kenya

• Isaac M. Mbiti
• Southern Methodist University

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Cell phone Growth

• Rapid growth in cell phone usage in SSA
• Number of cell phone users grew from about 7.5
  Million in 1999 to almost 77 million in 2004.
  (ITU)
• Average annual increase of 58 over that period

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Mobile Phone vs. Fixed Lines in Kenya
Mobile
Fixed Line
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Mobile Growth in Kenya

• The rapid growth in cell phone subscribers
  continued
• 45 growth from 6.48 Million in June 2006 to 9.30
  million in June 2007
• Fixed line subscription has actually decrease
  from 320,000 in 2001 to approx 290,000 in 2006

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Mobile Companies in Kenya

• 3 Main Providers
• Safaricom (GSM)- largest operator
• Celtel (GSM)
• Telkom Kenya (CDMA network)- new service rolled
  out in the past year

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Population density and Network Coverage

• 80 of Kenyas population is covered by the
  network
• 96 of Ugandas population is covered
• 50 of Tanzanias Population is covered

Source GSM Association
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Population density and Network Coverage Across
Africa
Source GSM Association
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Success Network Coverage Vs. Night lights data
GIS work by Adam Storeygard
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Factors Associated With The Rapid Growth of
Mobile Phones

• According to Vodafone (2005) some of the main
  factors are
• Lower installation costs. (up to 6x lower)
• Use of appropriate business model
• Use of pre-paid model
• Rollout requirements (in some cases)
• Uganda, S. Africa, Ghana have specific
  requirements for rolling out services to rural
  and low income areas
• Low provision of fixed lines

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Economic Research on the Impact of Mobile Phones

• Small literature on the effects of mobile phones
• Effects of cell phones on economic growth
• Effects on cell phones on price dispersion
• Aker (2007), grain markets in Niger
• Jensen (2007), fish markets in Kerala, India
• Reductions due a reduction in search costs

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Outline of TalkOther Effects of Mobile Phones

• Politics
• Entrepreneurs and Small businesses
• Job Search
• Banking and Remittances

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Politics

• Campaigning
• Used to organize and rally supporters
• Nefarious activities
• Rumor spreading e.g. Raila Odinga in Jail
• Hate SMS (text messages) e.g." Eradicate the
  foreigners from our land
• Peace efforts
• Safaricom sent out mass SMS to all subscribers
  urging them to refrain from violence.

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Entrepreneurship

• Selling Airtime
• Buying wholesale prepaid airtime cards for resale
• Buying and loading phone with a large amount of
  airtime and re-selling it (Arunga and Kahora,
  2007)
• Informal businesses that charge cell phone
  batteries.
• Mainly use car batteries and solar panels
• Community phones

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Business

• Anecdotes suggest cell phones have enhanced the
  productivity of business
• Arunga and Kahora (2007) investigate the effect
  of cell phones on businesses in different sectors.

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Businesses

• Matatu (minibus)
• Owners better able to manage fleet. Esp. when
  drivers had phones.
• Enabled better monitoring and management
• Quick response to crises e.g. breakdowns, bribing
  police
• Restaurant owner
• Cell phone allowed owner to order supplies of
  fish by phone saving on travel costs.
• Owner reports that pre cell phone profit margins
  were 20-35 vs. 47-60 post cell phone.

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Repairmen and casual Laborers

• Pre-cell phone electricians, plumbers etc would
  wait at hardware stores
• Casual laborers would loiter outside a factory
  all day in hope of work
• Cell phone allows them to distribute their phone
  number and enables them to be on call
• Plumber interviewed by Arunga and Kahora (2007)
  reports that his business grew by 50 due to cell
  phones
• Cell phones reduce search costs in labor mkt

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Need a Painter?
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Impacts on Mobile phones in Small Business

• Samuel et al (2005) reports that prior to
  acquiring a mobile phone 27 of business in Egypt
  and 15 in S. Africa had no access to a telephone
• Their survey data from Egypt and S. Africa shows
  that between 60-70 of businesses felt that
  mobile phones
• Increases revenues and profits
• Reduced travel time and costs

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Mobiles and Banking

• the challenge is not getting the unbanked to the
  Bank but getting the Bank to the unbanked Brian
  Richardson CEO- Wizzit

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Overview of Banking Sector in Kenya

• FSD 2006 survey shows
• 38 of respondents did not use any type of
  banking service
• 35 used informal services e.g. ROSCAs
• 26 used formal institutions.

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Reasons for not Banking

• The FSD (2006) survey reported some of the major
  reasons that people for not having a bank
  account
• Cost
• 23 stated they could not afford a bank account
• CBK (2007) survey shows for banks with national
  coverage
• Avg. cost of operating a checking account was
  about 17/ mo
• Avg. cost of operating a savings account was
  about 8/ mo
• Avg. min balance on savings account was about 15
  / mo

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Reasons for not Banking

• The FSD (2006) survey reported some of the major
  reasons that people for not having a bank
  account
• Convenience
• There are 44 banks with 443 bank branches, and
  about 600 ATMs in Kenya
• Approx 45 of these located in Nairobi alone
• 68 reported that the nearest bank was very far
  away.
• 20 reported the nearest trading center was very
  far
• 27 reported that nearest high school was very
  far

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Mobiles and Banking

• the challenge is not getting the unbanked to the
  Bank but getting the Bank to the unbanked Brian
  Richardson CEO- Wizzit
• How could this be achieved?
• Focus on the effects of a mobile money transfer
  service in Kenya M-Pesa

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• M-pesa is a service of Safaricom
• Provides very simple banking services to mobile
  customers on Safaricom network.
• Uses
• Deposit Money
• Withdraw Money
• Transfer Money
• Buy Safaricom airtime
• Charged on a per transaction basis.
• No interest earned on deposits.

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M-Pesa

• Free to register
• No minimum balance is required
• Max. account balance is about 700
• Maximum daily transaction value is 1000

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Transaction cost

• No charge to deposit money
• 0.3 to withdraw money
• 2.50 to send 100 to a non user
• 1.10 to send 100 to a user
• 5.70 to send 500 (max transfer) to non user

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Adoption of M-Pesa

• Adoption rate has exceeded expectations
• According to Vaughn (2007) In the first 3 months
• 111,000 registrations
• 450 service points (compared to 443 banks, 600
  ATM's and 350 western union outlets)
• Approx 6 million transferred person to person.
  (avg transfer about 45)
• According to Safaricom (2007), by the end of
  November
• 1.1 Million registered
• Almost 1,400 service points (agents)
• Cumulative total 87 Million had been transferred
• 24 Million transferred in November alone

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Why has the adoption been phenomenal?

• Predominant use of M-Pesa has been in person to
  person transfers. (domestic remittances)
• Especially for migrants to urban areas
• FSD survey shows that 16 of respondents had sent
  money and the same percentage had received money
  domestically

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Pre M-Pesa Remittance Delivery Methods
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M-Pesa and Remittance

• Ethnographic work by (Morawcynzski 2008)
  respondents reported the following advantages of
  M-Pesa
• Cheaper
• Safer / more reliable
• Quicker
• More coverage- (lots of M-pesa agents)

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Costs of Other Money Transfer Services

• To send 100 it costs about
• 15 via western union
• 6 via postal money order
• 12 via Moneygram
• 2-3 via Akamba bus (0-10kg parcel)
• 20 wire transfer
• Compared with
• 2.50 via M-pesa
• Sources Kabbucho et al 2003, internet

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Commercial uses of M-pesa

• Vaughn (2007) reports that M-pesa is being used
  by companies to pay workers esp. casual laborers.
  (e.g. Safaricom)
• Transportation sector has adopted this heavily.
• Allows managers to send money to drives in case
  of breakdown.
• Williams and Torma (2007) report that M-pesa is
  being widely adopted in procurement of goods.
• Rather than cash on delivery, it is now M-pesa on
  delivery

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Other uses of M-pesa

• Deposits
• Vaughn (2007) shows that many users are using
  M-Pesa to store money safely
• Personal safety
• Bank too far
• Bank closed before M-Pesa shop
• Morawczynski (2008) found that some respondents
  put money in different accounts to minimize risk
  of losing money in event of a bank collapse

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Other uses of M-Pesa

• Purchasing Airtime
• Users can purchase airtime at any time.
• Morawczynski found that users in Kibera were fond
  of this as they didnt not have to leave their
  homes at night to get airtime.
• During first week of post-election violence there
  was a shortage of airtime due to logistical
  disruptions. Those with money in M-pesa accounts
  were the only ones with uninterrupted access to
  airtime.

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Reported Drawbacks

• Morawczynski (2008) shows
• Users found that the system could be slow during
  peak text messaging times
• One user didnt use it because she wanted to send
  goods rather than money
• Her relatives were in debt and any money sent
  would go to debtors

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The Future of M-Pesa

• International transfers
• Testing is currently underway for UK? Kenya
• Linking M-Pesa to banks
• Linking M-Pesa to companies (e.g. utilities)

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Research Questions

• What is the effect of M-pesa on the previously
  unbanked?
• What is the effect on rural receiving community?
• What is the effect of M-Pesa on banking sector?
• Transfer services?
• What is the effect on the telecommunication
  sector?
• Main Competitor and new entrants?

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Concluding Remarks

• I think its time that we recognized that for
  the majority of the worlds population, and for
  the foreseeable future, the cell phone is the
  computer
• Paul Mason, BBC News 2007

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Remitting Airtime?/ Airtime as currency?

• Prior to introduction of M-Pesa there was
  anecdotal evidence of people using airtime
  balance transfer system
• To make purchases
• To remit funds to rural areas
• Limitations of this
• For balance transfers/purchases who bears the
  burden of the taxes? (taxes on airtime are about
  28)