Mobile phone banking for Kenya’s poor? Not so fast

    Sophisticated mobile phone banking may sound promising given the rise of similar mobile financial services but its success has yet to be proven — at least in Kenya.

    This is according to Garbriel Demombynes, senior economist at World Bank’s office in Nairobi, Kenya. Demombynes and a colleague, Aaron Thegeya, analyzed a sophisticated “branchless banking” service that makes use of mobile phones as part of a working paper they wrote about Kenya’s mobile revolution.

    Dubbed M-KESHO, the service allows uses to keep an interest-bearing savings account and apply for microloans or personal accident insurance — all accessible using a mobile phone. It was inspired by the success of M-PESA, another mobile money service that allows people to store and transfer money through electronic accounts.

    But unlike the widely used M-PESA, the mobile banking service enjoyed limited success in its first six months, Demombynes says. One explanation may be the low marginal gain of using M-KESHO to store savings versus using M-PESA for the same purpose, he notes.

    M-KESHO’s 3 percent interest rate is better than M-PESA’s zero offering but still unimpressive considering Kenya’s 16 percent inflation rate, Demombynes says. He explains that M-KESHO may be unable to offer higher interest rates because of “the complex technical and institutional arrangements the system requires.”

    “The bottom line is that sophisticated ‘branchless banking’ via mobile phone remains an unproven approach in Kenya,” Demombynes writes. “This is not to say that such efforts are doomed: other similar experiments are under way, and we may eventually see one succeed.”

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    About the author

    • Ivy mungcal 400x400

      Ivy Mungcal

      As former senior staff writer, Ivy Mungcal contributed to several Devex publications. Her focus is on breaking news, and in particular on global aid reform and trends in the United States, Europe, the Caribbean, and the Americas. Before joining Devex in 2009, Ivy produced specialized content for U.S. and U.K.-based business websites.