Food for Thought: The M- PESA System

‘But let us now focus our undivided attention on banks and their recent failures which have been, in most cases, left unpunished.’

Said no- one, ever.

I am not normally a hateful person mainly because hating is too much effort and I must really care for something before I start hating it.

A sequence of events, however, has managed to get each and every legal fibre in my body to scream its lungs out.

I shall very briefly summarise the sequence in the hope that you will share, albeit partly, my frustration.

• The Royal Bank of Scotland went downhill because of its investment banking ‘strategies’- it was saved by the taxpayer.
•  HSBS recently admitted that, in 2000, it had inefficient measures of battling money laundering and might have unintentionally assisted several individuals in doing their ‘washing- up’. It got fined.
•  Barclays admitted to manipulating LIBOR. It got fined.
•  UBS admitted to manipulating LIBOR. It got fined.

All of the above carry a degree of criminality (professional negligence, aiding and abetting money laundering, insider dealing, fraud, etc.). However, many newspapers and journalists have recently noted that banks were simply ‘too big to jail’ and the only sanction that we would ever be able to impose on them was…fines.

That’s ok, though, because banks pay their fines with their own money. Oh, no, wait; they don’t.

Regardless of how immensely frustrating the above is, however, we are often reminded that we cannot really exist without the banking sector (although, we are rarely ever, mind you, reminded that about 20% of the world’s GDP goes towards paying off debt…).

Indeed, we need banks, often in their physical manifestations (the branches), to pay our bills, make transfers, pay off a credit card, etc.

But what if we didn’t? What if banks played but a minimal part in our everyday payments and transfers?

Is that even possible?

Yes. Yes it is.

Let us stray away from the ‘developed’ world for a second and focus our attention on the ‘developing’ one.

In 2007, a group of Kenyan students developed software that would allow people to send and receive money via their mobile phones and with the use of the SMS (texting) system.

They called it M- PESA (‘pesa’ is Swahili for ‘money’); the system allowed people to transfer small sums of money between themselves at a small flat fee.

The software was adopted and implemented by Safaricom (Vodafone’s African subsidiary) and further developed and improved in time.

Today, over nine million Kenyans use the system on their mobiles so that they can easily:

• Transfer money between themselves
• Pay their bills
• Pay for the shopping
• Purchase mobile phone airtime
• Deposit and withdraw money from their bank accounts

The maximum that an individual can send at one ago has recently been increased to $ 500 and the flat rate charge for the service remains minimal.

Furthermore, the M-PASA system allows people to be in control of their own money and to access it whenever they need to without the need of a branch or a bank, for that matter.

The software has been labelled by some as quite unrealistic and rather dangerous as it devalues money, turning it into an electronic currency.

Such an argument is, of course, quite shallow and rather absurd as, in the UK for instance, money has not been based on gold since 1931 and has, thus, considerably devalued.

The above system has been developed by students. In a developing country. As a SCHOOL project.

And it works swimmingly well (I’ve always wanted to say that!)

Surely, the developed countries will be able to come up with an even more effective system that would resemble M-PESA and will make people less dependent on banks?

If there’s a will, there’s a way.

IF there’s a will…