Unserved by banks, poor Kenyans now just use a cellphone

With a click of a cellphone key, Bernard Otieno makes the transfer – sending funds instantly from his residence in a sprawling Nairobi slum to his wife, who holds down their rural family farm some 250 miles away.

Mr. Otieno, a security guard who works the night shift, used to risk carrying cash on infrequent, slow trips to his hometown or pay high rates to send money through the post office.

Now, he's one of a growing number of Kenyans tapping into a service called M-PESA – M for "mobile" and pesa for "cash" in Swahili. Launched this year, it's one of the world's first cellphone-to-cellphone cash-transfer services for people who lack access to conventional banks.

Most banks have found it far too costly to set up services for the billions of poor people in developing countries. But with cellphone banking, which eliminates most administrative costs, banks could soon find it worth their while to serve the poor. On a continent with more than 225 million cellphone users – double what it had just two years ago, according to World Bank statistics – the impact could be profound on poor families' ability to save for a house, plan for emergencies, or get a loan.

"This could completely change the way banking is done, and what's interesting is that this is happening in the developing world, where 80 percent of people don't have access to banking," says Mark Pickens, a microfinance analyst at the Washington-based Consultative Group to Assist the Poor. "M-PESA is the kind of thing that can move the frontier for access to finance.... This is something that can actually change people's lives."

The technology is not new and the setup is simple: a customer selects from a short menu on the cellphone screen, including "send money" and "withdraw cash." The person receiving the transfer on his or her phone can visit an M-PESA agent or participating gas stations or store to pick up the money.

Joshua Ogol hopes the service, which is not connected to any bank, will change his life. He has a food kiosk and sells scrap metal in Nairobi's huge Kibera slum, but he's trying to build a house in his rural hometown. Usually he sends money back with people going that way, but sometimes they don't deliver all of it, he says.

He also sometimes has trouble collecting money from people who buy goats from his family back home, an important source of income. As he signed up for an M-PESA account at a small shop in Kibera, he said he was going to tell the person who bought the last goat that he no longer has excuses not to pay up.

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