Cellphone banking takes Kenya by storm

Those deposits can amount to several million dollars, and traditional banks argue that M-Pesa is operating as an unregulated financial institution. Kenyan government auditors issued the service a clean bill of health last month, saying that by imposing transaction limits and requiring customers to transfer money through licensed agents, Safaricom minimizes the risk of money laundering.

Chief Executive Officer Michael Joseph, who's built Safaricom into East Africa's most profitable company by marketing to low-income consumers, said M-Pesa didn't aim to compete with banks.

"The average transaction is $30. You go to a bank and try to transfer $30, it probably will cost you $5," Mr. Joseph said. "It's not worth it to them. They can't afford to do what we do."

Safaricom doesn't expect M-Pesa to become a major profit center – it only recently ended its first month in the black – but it's spawned a host of imitators. Vodafone has introduced the concept in Afghanistan and Tanzania, and the rival Orange network plans to launch mobile banking in Cote d'Ivoire, Senegal, and Mali. Safaricom is exploring a low-cost service to transfer money to and from Britain, which is home to tens of thousands of expatriate Kenyans.

Experts say that the services have improved financial security dramatically for rural families because urban relatives, freed from having to travel to deliver the money themselves, can send more cash more often.

"The biggest thing M-Pesa has done is released money flows in Kenya," said Olga Morawczynski, the author of a forthcoming study of M-Pesa for the Consultative Group to Assist the Poor, a research arm of the World Bank. "People know they can send money more easily, and that's starting to increase the money that's coming into the rural household."

The service isn't without hitches. In rural western Kenya, Ms. Morawczynski said, some families complain that their city-dwelling relatives don't come home as often. Rural agents handling numerous withdrawals sometimes run out of cash, forcing them to make long trips to banks.

There also are the hiccups that accompany any new technology. One morning this month, a distraught middle-aged woman in a smart business suit presented herself at the reception desk of Safaricom's gleaming glass headquarters in Nairobi.

She'd entered one wrong digit on her M-Pesa transaction and inadvertently sent $380 to a stranger. Not knowing what to do, she pleaded with the receptionist, who called the unwitting recipient and explained what had happened. The man agreed to return the money.

"That is a great Kenyan," the woman said, shaking her head in relief. "That is a great Kenyan."

Joseph said that such mistakes were common, but that M-Pesa agents got the senders' money back with surprising regularity.

"The concept," he said, "is still catching on."

For more on cellphone banking in Africa, click here.

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