Mbiti presentation

The Impact of Cell phones in Kenya : The Impact of Cell phones in Kenya Isaac M. Mbiti Southern Methodist University


Cell phone Growth : 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


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


Mobile Growth in Kenya : 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


Mobile Companies in Kenya : 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


Population density and Network Coverage : Population density and Network Coverage 80% of Kenya’s population is covered by the network 96% of Uganda’s population is covered 50% of Tanzania’s Population is covered Source: GSM Association


Slide7 : Population density and Network Coverage Across Africa Source: GSM Association


Slide8 : Success: Network Coverage Vs. Night lights data GIS work by Adam Storeygard


Factors Associated With The Rapid Growth of Mobile Phones : 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


Economic Research on the Impact of Mobile Phones : 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


Outline of TalkOther Effects of Mobile Phones : Outline of Talk Other Effects of Mobile Phones Politics Entrepreneurs and Small businesses Job Search Banking and Remittances


Politics : 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.


Entrepreneurship : 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


Business : 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.


Businesses : 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.


Repairmen and casual Laborers : 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


Need a Painter? : Need a Painter?


Impacts on Mobile phones in Small Business : 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


Mobiles and Banking : Mobiles and Banking “the challenge is not getting the unbanked to the Bank but getting the Bank to the unbanked” Brian Richardson CEO- Wizzit


Overview of Banking Sector in Kenya : 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. ROSCA’s 26% used formal institutions.


Reasons for not Banking : 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


Reasons for not Banking : 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 ATM’s 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


Mobiles and Banking : 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


Slide24 : 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.


M-Pesa : M-Pesa Free to register No minimum balance is required Max. account balance is about $700 Maximum daily transaction value is $1000


Transaction cost : 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


Adoption of M-Pesa : 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


Why has the adoption been phenomenal? : 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


Pre M-Pesa Remittance Delivery Methods : Pre M-Pesa Remittance Delivery Methods


M-Pesa and Remittance : 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)


Costs of Other Money Transfer Services : 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


Commercial uses of M-pesa : 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


Other uses of M-pesa : 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


Other uses of M-Pesa : 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 didn’t 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.


Reported Drawbacks : Reported Drawbacks Morawczynski (2008) shows: Users found that the system could be slow during peak text messaging times One user didn’t use it because she wanted to send goods rather than money Her relatives were in debt and any money sent would go to debtors


The Future of M-Pesa : 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)


Research Questions : 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?


Concluding Remarks : Concluding Remarks “I think it’s time that we recognized that for the majority of the world’s population, and for the foreseeable future, the cell phone is the computer” Paul Mason, BBC News 2007


Remitting Airtime?/ Airtime as currency? : 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%)