The term unbanked refers to individuals who don’t have access to traditional banking services at formal financial institutions like checking accounts, savings accounts, loans, or lines of credit.
This means they often have to rely on cash transactions, which can be inconvenient and unsafe.
The unbanked situation in Kenya
A significant portion of the Kenyan population has historically been unbanked, particularly those living in rural areas or from lower-income households.
This has been due to several factors:
- Lack of physical bank branches: Many rural areas in Kenya have limited access to formal bank branches, making it difficult for people to open and maintain traditional accounts.
- High costs and fees: Traditional banking can involve fees and minimum balance requirements that are out of reach for those with low incomes.
- Bureaucracy and documentation: Opening a bank account often involves complex paperwork and proof of identity, which can be a barrier for many.
How M-pesa and Airtel Money are changing the game
M-Pesa (operated by Safaricom) and Airtel Money are mobile money services that have been pivotal in increasing financial inclusion in Kenya.
Here’s how they work and their impact:
- Accessibility:
- Mobile money operates through a vast network of agents spread across the country, even in areas without traditional banks. All you need is a basic mobile phone and a registered SIM card.
- Ease of use:
- Transactions are simple โ users can send and receive money by entering the recipient’s phone number and a PIN. No complex forms or bank jargon.
- Affordability:
- Mobile money fees are significantly lower than traditional banking fees, making them accessible to lower-income Kenyans.
- Range of services:
- Beyond just sending and receiving money, these platforms have expanded to include:
- Bill payments (utilities, school fees, etc.)
- Small loans and savings products
- Purchasing goods and services
- Beyond just sending and receiving money, these platforms have expanded to include:
Impact on the unbanked
- Financial inclusion: M-Pesa and Airtel Money have brought millions of previously unbanked Kenyans into the formal financial system, providing secure and convenient ways to store and transfer money.
- Economic empowerment: Access to financial services opens up opportunities for saving, investing in small businesses, and managing finances more effectively. This boosts both individual economic well-being and contributes to overall economic development.
- Reduced risk: By moving from cash-based transactions to mobile money, people minimize the risk of theft and loss.
Both M-Pesa and Airtel Money have been instrumental in reducing the number of unbanked individuals by providing alternative means of financial services that are more accessible to the general population, including those in remote areas.
This has helped increase the proportion of Kenyans with access to formal financial services and has contributed to the overall economic growth and financial stability in the country.
Challenges and the future
Despite the progress, challenges remain:
- Mobile money scams: With over 35 million Kenyans using mobile money services, scammers are improvising ways to con the populace.
- Limited financial literacy:ย Many users need more education on effectively using advanced financial products offered through mobile money. This is part of the reason we built Money.Ke, to be a one-stop for all matters financial literacy in Kenya
- Regulation:ย The balance between encouraging innovation and protecting consumers needs careful management by regulators.
Kenya is a leading example of how mobile money can transform financial access for the unbanked population. The ongoing expansion of services promises to further increase financial inclusion and economic opportunities across the country.