Danielle Nesmith is a second-year MA student in the International Development program.

M-Pesa and Safaricom brought mobile banking to Africa in 2007 with the hopes of expanding financial inclusion to rural areas and the poor; however, the program has had far-reaching consequences beyond its original mission. The mobile banking phenomenon did two important things – firstly, by partnering with Vodafone, they increased cellphone ownership and service coverage to rural areas, and secondly, they lowered the cost and logistical difficulty of remittance transfers by migrants. So, mobile banking not only improved financial inclusion for rural Africa, but also affected communication frontiers, immigration flows, poverty rates, and remittances. 

M-Pesa was originally designed to allow microfinance loan repayments to be made by phone, which would reduce costs and lower interest rates. The pilot program began in Kenya in 2007 and quickly spread to Tanzania, South Africa, Afghanistan and India, where it became a general money-transfer scheme. By partnering with Vodafone and Safaricom, these programs worked to install new cellphone towers and distribute free or reduced-cost cellphones to increase access for poor and rural participants who otherwise would not have been able to purchase a cellphone and participate in the program. Once enrolled, participants could transfer cash more quickly, safely and easily than in the past, when they would take bundles of money in person, or ask others to carry it for them (The World Bank 2011). This is particularly useful in developing African countries where many workers in cities send money back home to their families in rural villages (The Economist 2013). M-Pesa effectively makes it easier, faster, and cheaper for individuals to send and receive remittances in Africa. As a result, technological advances such as mobile banking have enormous potential to improve competition and transparency in transfers, and in the process broaden the reach of formal remittance markets (Ratha 2011).

Before mobile banking, sub-Saharan Africa had the highest remittance costs in the world and the largest share of informal and unrecorded remittances among developing regions (Ratha 2011). Many remittance senders were forced into informal channels because banks charged exorbitant fees and interest rates on transaction costs. The limited reach of intermediaries in rural areas, lack of effective competition, and inadequate financial and regulatory infrastructure exacerbated this. These costs represent a burden on African migrants, reducing the amounts sent back home to their families and the transfers’ potential development impact. When mobile banking entered the scene, it offered remittance services that included a self-serve process and used electronic means of payment such as online and mobile remittances that tended to be significantly cheaper (The World Bank 2011). Remittances are now the continent’s largest source of net foreign inflows after foreign direct investment. Over the past two decades, remittance flows in Africa have quadrupled, reaching $40 billion in 2010, equivalent to 2.6% of Africa’s GDP (Ratha 2011). During the same time, mobile cellphone subscriptions in the region increased by 250%, leaving a total of 71% of the population with a cellphone (The World Bank Databank 2015). 

Nonetheless, critics still question whether mobile banking really does have a sustainable and observable economic impact on developing countries. Using data from the World Bank Development indicators, an econometric analysis of the relationship between personal remittances received and mobile cellphone subscriptions in Kenya, Botswana, Nigeria, South Africa, and Tanzania yielded mixed results (Nesmith 2015). These countries and years were chosen in order to create a natural experiment that would allow for a comparative analysis of mobile banking programs on remittance flows. Kenya was the first country to initiative a mobile banking program in 2007, followed by Tanzania in 2008 and South Africa in 2010. Nigeria and Botswana have similar economic and geographic conditions as the aforementioned countries but do not have mobile banking programs.

Results from this analysis indicated that when the countries are aggregated together, as mobile cellphone subscriptions per 100 people increase by one, remittances increase by $70 million. At the same time, as mortality rates increase by one, remittances increase by $110 million.[1] Since child mortality is often used as the proxy for poverty and a diminishing level of development, this indicates that as poverty rates increase, family members abroad are incentivized to send more money home. This finding is consistent with other country studies and cross-country analyses, which show that remittances reduce poverty (Ratha 2011). 

This link between mobile banking and remittances is an important one. Migrant remittances help smooth household consumption and act as a form of insurance for households facing shocks to their income and livelihood caused by natural disasters and unforeseen circumstances (Ratha 2011). Household surveys in Africa show that remittance-receiving households have greater access to secondary and tertiary education, health services, information and communication technology, and banking than households that do not receive remittances (Ratha 2011).

Consequently, this finding sheds light on the possibilities for development policy and interventions in the future. Remittances are a critical aspect of development, and in many ways can be a substitute for economic migration. Electronic transfers via cellphone save people time, freeing them to do other, more productive things, thereby improving employment, lifetime earnings, and economic growth (The World Bank 2011). Social scientists have long known the important role remittances play in emerging markets, but few development programs have been targeted at this sector. As access to technology becomes cheaper over time, this could all change. Using basic technology such as cellphones to improve financial inclusion and remittance flows to developing countries could become an important mechanism for poverty reduction going forward. 


[1] At the country level, mobile cellphone subscriptions only significantly impact personal remittance flows in Kenya and Tanzania. This result suggests that mobile banking programs become more successful over time.


Nesmith, D. (2015) Estimating the Impact of Mobile Banking Programs on Remittance Levels: A Comparative Analysis of Kenya, South Africa, Tanzania, Nigeria, and Botswana. Johns Hopkins School of Advanced International Studies.

Ratha, D., et al. (2011) Leveraging Migration for Africa: Remittances, Skills and Investment. The World Bank Group.

The Economist. (2013) Why Does Kenya Lead the World in Mobile Money? Available from:

The World Bank. (2011) Migration and Remittances Trends in Africa. African Institute for Remittances Consultative and Experience Sharing Forum Leveraging Remittances for Development Leveraging Remittances for Development.

The World Bank Databank. (2015). World Development Indicators.

PHOTO CREDIT: by AMISOM Public Information (public domain)