M-PESA (Swahili term for Mobile Money) is the name of an innovative mobile-phone based money transfer service sponsored by DFID in 2003–2007 and developed for Vodafone and its partners. M-PESA system enables its users who do not have bank accounts to: (i) deposit and withdraw money, (ii) transfer money to other users and non-users and (iii) pay bills. M-PESA is highly popular in the remote areas because of its accessibility by the rural population. M-Pesa provides access to formal financial services for livestock markets in Kenya and significantly improved the ability of the market’s actors to better manage their businesses. The present case study was developed within the framework of an IFAD/Procasur project: the Learning Route on Innovative Livestock Marketing from Northern to Eastern Africa that took place in Kenya from the 27th of February to the 9th of March 2012. To achieve the main and specific objectives of the Learning Route, five (5) host cases were identified as best practices and innovations in the region by advisors and experts within the livestock sector. For each host case, the knowledge and learning systematized around specific themes was collected and redacted in a case study document. [Originally posted on http://www.cop-ppld.net/cop_knowledge_base]

1.
CASE
3:
USING
M-­‐
PESA
AS
AN
INNOVATIVE
LIVESTOCK
MARKETING
TOOL
FOR
PASTORALISTS

2.
TABLE
OF
CONTENTS
1.0
BACKGROUND.....................................................................................................................3
2.0
The
Innovation....................................................................................................................4
3.0
Benefits
of
the
M-­‐pesa
Money
Transfer
System ................................................................6
3.1
Financial
Inclusion .......................................................................................................6
3.2
Enhanced
Economic
Activity........................................................................................6
3.3
Reduced
Cash
in
the
Economy
and
Increased
Transparency ......................................7
3.4
Security........................................................................................................................7
3.5
Convenience ................................................................................................................7
4.0
How
M-­‐PESA
Services
Works
for
pastoralistS
at
Keekonyokie
livestock
market ..............8
5.0
Challenges...........................................................................................................................8
6.0
References ..........................................................................................................................9

3. 1.0
BACKGROUND
The
Maasai
pastoralist’s
livelihoods
revolve
around
their
livestock
and
this
is
reflected
in
aspects
of
their
rich
tradition,
which
have
been
passed
down
for
generations.
One
of
the
main
problems
related
to
pastoralists’
livestock
markets
in
Kenya
has
been
how
to
get
payments
through
to
the
thousands
of
livestock
producers
who
live
in
remote
and
distant
areas,
many
of
whom
are
women.
Carrying
cash
from
markets
back
to
the
rangelands
is
risky
for
traders.
Since
2007,
Kenya
has
been
leading
the
way
with
an
innovative
mobile
phone
technology
that
has
transformed
the
lives
of
millions
of
people
and
businesses.
M-­‐Pesa
allows
herdsmen
not
to
carry
cash
around;
also,
people
without
a
bank
account
can
transfer
funds
as
quickly
and
easily
as
sending
a
text
message.
Mobile
technology
has
proven
to
be
very
beneficial
for
Maasai
livestock
enterprises
and
traders.
Leveraging
mobile
devices
has
helped
the
Maasai
people
to
cope
with
one
of
Kenya’s
worst
droughts
in
history;
a
drought
that
threatened
their
ability
to
graze
and
water
their
cattle.
Through
mobile
devices
and
shared
information,
herders
can
find
out
where
to
bring
their
cattle
for
grazing
instead
of
roaming
in
search
of
water
and
pasture.
The
M-­‐Pesa
service
has
helped
the
Maasai
(who
often
live
miles
away
from
banks
and
are
usually
on
lone
grazing
or
livestock
marketing
trips
with
their
cattle)
to
transfer
money
back
home
or
sell
their
livestock
easily.
Finally,
the
service
provided
cash
transfer
security
on
transit
from
and
to
the
rangelands,
a
vital
element
in
livestock
trading.
One
of
the
clearest
demonstrations
of
the
transformative
power
of
the
M-­‐Pesa
service
is
the
availability
of
mobile
network
coverage
in
pastoralist
communities.
Almost
80%
of
herders
and
livestock
traders
have
purchased
mobile
phones
and
use
them
as
tools
for
trade.
They
communicate
with
their
contacts
at
livestock
markets
while
still
being
in
the
rangelands,
and
bring
their
cattle
to
those
markets
that
offer
the
best
prices.
Prices
became
more
uniform
and
predictable,
which
led
pastoralists
to
increase
their
profits.
Unsold
livestock
(which
ranged
between
5
to
10
%
per
day)
decreased
when
buyers
and
sellers
started
communicating
more
effectively.
This,
in
turn,
results
in
reduced
transaction
costs
for
livestock
trading.
In
short,
M-­‐Pesa
provided
access
to
formal
financial
services
for
livestock
markets
in
Kenya
and
significantly
improved
the
ability
of
the
market’s
actors
to
better
manage
their
businesses.

4. 2.0
THE
INNOVATION
2.1
What
is
M-­‐PESA?
M-­‐Pesa
is
an
innovative
mobile
payment
solution
that
enables
customers
to
complete
simple
financial
transactions
including
person-­‐to-­‐person
money
transfers.
M-­‐Pesa
is
available
to
all
Safaricom
telephone
subscribers
in
Kenya.
M-­‐Pesa
allows
making
transactions
in
a
simple,
secure,
fast
and
effective
way
by
using
SMS
technology.
This
has
many
benefits
for
customers
in
terms
of
convenience,
security
and
because
it
is
user-­‐friendly.
In
addition,
pricing
is
competitive
compared
to
other
formal
money
transfer
services.
M-­‐Pesa
enables
users
to:
• Transfer
money
from
person
to
person
• Transfer
money
from
individuals
to
businesses
• Withdraw
cash
at
designated
outlets
• Receive
loan
receipts
or
repayments
• Buy
Safaricom
airtime
• Pay
bills
2.2
How
does
M-­‐PESA
work?
Safaricom
subscribers
register
for
the
Mesa
service
by
filling
in
a
simple
form
and
providing
identification
proof.
Once
registered,
Safaricom
replaces
their
SIM
card
with
an
M-­‐Pesa
enabled
one
(if
they
want
to,
all
new
mobile
subscribers
now
get
the
M-­‐Pesa
enabled
SIM).
To
charge
the
money
in
the
telephone
the
user
needs
to
visit
the
nearest
agent
and
deposit
cash
in
exchange
for
“e-­‐Float”.
This
e-­‐Float
is
like
currency
that
can
be
used
to
make
payments
or
transfers
to
any
other
person
or
merchant
via
an
encrypted
SMS.
The
receiver
of
the
virtual
currency
can
either
use
it
for
further
transactions
or
cash
it
from
M-­‐Pesa
designated
outlets.
The
chart
below
illustrates
how
an
M-­‐Pesa
transaction
is
carried
out.

5. Chart
1:
The
M-­‐Pesa
system
Source:
Agritrade
To
load
money
into
an
M-­‐Pesa
account,
the
user
makes
a
cash
deposit
with
an
Mpesa
agent.
The
electronic
money
is
then
transferred
to
the
user’s
account,
and
the
deposit
is
confirmed
by
an
SMS
received
by
both
the
agent
and
the
customer,
who
can
then
conveniently
transfer
money
to
other
mobile
phone
users
by
SMS
transactions.
To
withdraw
cash
from
an
M-­‐Pesa
account,
users
and
unregistered
customers
make
an
electronic
transfer
to
the
M-­‐Pesa
agent,
who
will
exchange
this
for
cash.
The
withdrawal
fees
for
unregistered
customers
are
usually
higher.
To
send
or
put
money
into
an
M-­‐Pesa
account,
the
user
tells
the
agent
the
amount
he/she
wishes
to
deposit,
and
gives
it
to
the
agent.
The
agent
then
sends
the
e-­‐money
by
phone
in
exchange
for
the
deposited
amount.
The
operation
is
completed
when
the
user
receives
an
SMS
from
Safaricom
confirming
the
transaction.

6. 2.2
Lessons
Learned
1) M-­‐Pesa,
by
providing
access
to
formal
financial
services
to
livestock
markets
in
Kenya,
has
significantly
improved
the
ability
of
the
market’s
actors
to
better
manage
their
trading
business.
2) Network
operators
understand
the
market
needs.
This
has
brought
the
necessary
discipline
and
compliance
aspects
that
the
managing
of
money
transfers
entails,
and
a
combination
of
key
skills
have
been
put
together
to
improve
access
to
financial
services
-­‐especially
for
the
un-­‐banked
pastoralists.
3.0
BENEFITS
OF
THE
M-­‐PESA
MONEY
TRANSFER
SYSTEM
3.1
Financial
Inclusion
Developing
countries
are
severely
constrained
by
road
infrastructure,
which
makes
financial
institutions
difficult
to
access
from
remote
areas.
This
implies
that
a
large
part
of
the
population
ends
up
being
excluded
from
the
formal
banking
system.
M-­‐Pesa,
with
its
over
fifteen
thousand
agents,
is
much
more
accessible
for
an
ordinary
Kenyan.
M-­‐Pesa
helped
Micro
Finance
Institutions
(MFIs)
to
effectively
access
distant
areas
without
substantial
increases
in
costs.
Financial
inclusion
has
a
multiplier
impact
on
the
lives
of
people
drawn
into
the
formal
financial
system,
as
it
leads
to
social
inclusion.
Poor
people
with
access
to
financial
services
see
an
improvement
in
their
cash
flow
management
and
enhance
their
financial
planning,
which
in
turn
increases
their
saving
capacity.
M-­‐Pesa
has
brought
many
unbanked
customers
into
the
formal
financial
system.
Finally,
it
is
important
to
say
that
M-­‐Pesa
user
households
are
two
times
more
likely
to
have
a
bank
account
than
non-­‐user
households.
3.2
Enhanced
Economic
Activity
People’s
access
to
cash
is
more
limited
on
the
supply-­‐side
than
on
the
demand-­‐side.
More
than
the
shortage
of
funds,
the
blockage
happens
when
there
is
no
ability
to
move
money
from
the
sender
to
the
receiver.
Since
the
creation
of
money,
the
ability
to
send
the
cash
from
A
to
B—the
so-­‐called
“velocity
of
money”—
has
been
a
fundamental
cornerstone
of
economic
activity.
The
issue
at
stake
is
knowing
exactly
how
a
money
transfer
can
happen
in
an
emerging
market
where
the
infrastructure
is
poorly
developed
and
where
very
few
people
have
or
even
want
to
have
a
bank
account.
The
Mobile
Money
Transfer
platform
is

7. key
in
substituting
the
banking
infrastructure
as
in
most
of
the
emerging
markets
the
mobile
phone
penetration
is
deeper
than
the
bank
account
penetration.
In
fact,
the
ratio
is
3
to
1:
for
every
three
mobile
phone
owners
there
is
one
bank
account
holder.
M-­‐Pesa
has
been
instrumental
in
generating
growth
and
development
in
Kenya.
This
system
has
brought
higher
remittances
and
increased
economic
activity,
leading
to
faster
growth.
In
a
survey
conducted
by
the
Consultative
Group
to
Assist
the
Poor
(CGAP)
it
was
found
that
the
incomes
of
rural
recipients
increased
by
5
-­‐
30%
since
they
started
using
M-­‐Pesa.
3.3
Reduced
Cash
in
the
Economy
and
Increased
Transparency
In
the
absence
of
a
formal
banking
system,
most
transactions
are
cash
based
and
therefore
no
audit
trail
is
available
for
regulators.
M-­‐Pesa
brought
transparency
in
the
money
transactions
by
reducing
the
cash
economy
and
digitising
financial
operations.
M-­‐Pesa
is
equivalent
to
a
credit
or
debit
card,
which
allows
regulators
to
monitor
the
trail.
There
is
more
visibility
on
the
money
flows
as
the
remittances
move
from
informal
channels
to
formal
channels.
3.4
Security
M-­‐Pesa
provides
mobile
phone
customers
with
a
secure
platform
that
uses
simple,
tailored
menus
in
their
devices
and
sends
fully
encrypted
PIN
locked
messages
to
a
thoroughly
audited
financial
accounting
system.
M-­‐Pesa
not
only
increased
the
micro
finance
activity
but
is
also
used
as
a
way
of
keeping
money.
Informal
saving
channels
are
much
less
secure
than
formal
saving
facilities.
Being
user
friendly
and
accessible,
both
the
banked
and
unbanked
M-­‐PESA
customers
are
using
it
to
store
their
cash.
M-­‐Pesa
agents
are
higher
in
number
than
bank
agents
and
this
allow
customers
not
to
travel
long
distances
to
withdraw
money.
With
M-­‐Pesa,
there
is
no
need
to
carry
cash
and
hence
there
is
no
risk
of
the
cash
getting
lost
or
stolen.
3.5
Convenience
Many
people
in
emerging
economies
have
to
travel
far
from
home
to
find
work
and
need
to
be
able
to
send
money
back
to
their
families.
In
most
parts
of
the
world
the
cost
of
money
remittance
is
very
high
-­‐ranging
from
3%
to
10%.
According
to
the
IMF,
“M-­‐Pesa
now
processes
more
transactions
domestically
within
Kenya
than
Western
Union
does
globally,
and
provides
mobile
banking
facilities
to
more
than
70
per
cent
of
the
country’s
adult
population.”

8. (http://thenextweb.com/africa/2011/10/24/local-­‐transactions-­‐by-­‐kenyas-­‐mobile-­‐money-­‐
service-­‐m-­‐pesa-­‐exceeds-­‐western-­‐unions-­‐global-­‐transactions/).
Based
on
that,
more
people
depend
on
informal
channels
(through
friends
and
family)
to
send
money
or
physically
deliver
it.
Traditionally
this
means
high
fees,
risky
unregulated
services,
or
long
expensive
trips
carrying
cash
in
an
unsafe
and
unpredictable
environment.
It
has
been
observed
that
M-­‐Pesa
users
need
to
make
fewer
trips
back
home
to
deliver
money
and
the
transaction
size
also
comes
down
as
transfers
become
more
frequent.
Moreover,
unlike
banks,
the
M-­‐Pesa
service
is
accessible
24
hours
a
day
seven
days
a
week
and
there
are
no
limits
for
sending
money.
4.0
HOW
M-­‐PESA
SERVICES
WORKS
FOR
PASTORALISTS
AT
KEEKONYOKIE
LIVESTOCK
MARKET
The
Maasai
pastoralists
and
livestock
traders
at
Keekonyokie
livestock
market
use
M-­‐Pesa
services
for
the
following:
• To
purchase
meat
(butchers
send
money
to
meat
traders
to
deliver
supplies);
• To
purchase
livestock
from
distant
livestock
producers;
• To
send
money
to
their
families,
who
live
miles
away
from
markets,
so
that
they
can
take
care
of
basic
needs;
• To
buy
from
distant
producers,
thus
reducing
transaction
costs
in
livestock
trading
and
shortening
transaction
time;
• To
book
hotel
accommodation
when
travelling
to
distant
markets
to
buy
livestock;
• To
buy
phone
credit
while
in
remote
rangelands
without
agent
services.
“All
a
Maasai
pastoralist
needs
is
a
mobile
phone
and
the
ability
to
remember
his
telephone
number”
“I
don’t
need
to
go
to
the
bank
when
I
have
the
bank
in
my
phone”
–
Ole
Masyi,
livestock
trader.
5.0
CHALLENGES
A
research
carried
out
by
a
doctoral
candidate
at
the
University
of
Edinburgh1,
notes
however
some
barriers
in
the
adoption
of
the
M-­‐Pesa
service.
According
to
it,
both
agents
and
customers
complain
of
cash
flow
problems,
especially
in
the
rural
areas.
Because
the
1
Source: http://technology.cgap.org/2008/06/17/why-has-m-pesa-become-so-popular-in-kenya/

9. majority
of
transactions
in
the
village
are
withdrawals,
agents
must
maintain
their
cash
flow.
They
do
this
by
making
frequent
trips
to
the
bank.
This
can
be
problematic
if
the
agent
is
not
close
to
an
urban
centre,
where
most
banks
in
Kenya
are
located.
Such
situation
is
frequent
despite
great
efforts
made
by
Safaricom
regarding
the
store
liquidity
management.
Finally,
other
important
challenge
arises
when
noticing
that
the
service
availability
is
not
uniform
across
the
country;
in
fact,
accessing
the
service
depends
on
the
network
coverage,
which
is
stronger
in
the
southwest
of
Kenya
but
not
sufficient
to
serve
the
entire
country.
6.0
REFERENCES
http://www.safaricom.co.ke/index.php?id=745http://en.wikipedia.org/wiki/M-­‐Pesa
http://siteresources.worldbank.org/AFRICAEXT/Resources/258643-­‐1271798012256/M-­‐
PESA_Kenya.pdf
http://thenextweb.com/africa/2011/10/24/local-­‐transactions-­‐by-­‐kenyas-­‐mobile-­‐money-­‐
service-­‐m-­‐pesa-­‐exceeds-­‐western-­‐unions-­‐global-­‐transactions/
http://technology.cgap.org/2008/06/17/why-­‐has-­‐m-­‐pesa-­‐become-­‐so-­‐popular-­‐in-­‐kenya/