What is M-Pesa?

Established back in 2007 by Safaricom, one of the largest mobile phone operators of Kenya, M-Pesa is a mobile banking service that enables users to transfer and store money through their phones.

This one acts as an alternative for Kenya’s population to have financial services access. Their service is a combination of two different entities, wherein M signifies mobile, and Pesa stands for payment or money in Swahili language.

How Does M-Pesa Work?

As mentioned above, M-Pesa is a virtual banking system. It basically offers transactional services through a SIM card. Once you have inserted the card into your phone’s slot, you can then start transferring money and making payments with SMS messages.

What makes it different is that even if you don’t have a Bank account, you can still access a variety of M-Pesa outlets that have been distributed across Kenya. The money that should be stored is provided to a kiosk attendant who transfers it digitally to the M-Pesa account of a user.

Cash that is collected from M-Pesa can easily be deposited in Safaricom held bank accounts. These accounts are serving as regular checking accounts and can insure up to $1000 (or 100,000 shillings) by the Deposit Protection Fund.

To offer a transaction proof, M-Pesa issues a Receipt. To make a transaction, both of the parties will have to exchange their phone numbers as these numbers act as the account numbers. Once a settlement has been done, both parties get an SMS notification with the amount of money withdrawn or deposited in the account and the full name of the other party.

Received just within a few seconds, this mobile receipt helps to promote transparency for everybody who is involved in the transaction.

M-Pesa Example

Let’s understand more about M-Pesa through an example. Suppose there is a farmer who doesn’t have a bank account but wants to deposit 1000 shillings. He will visit the M-Pesa outlet and deposit the same amount with a kiosk attendant or agent.

In turn, this attendant will use his phone to access the account of the client with the registered phone number of the client and credit that account with 1000 shillings. Now, the farmer will get an SMS confirming the deposit and the balance available in his account. Through the same procedure, the farmer can also withdraw the amount whenever required.