While the developed world continues trudging through a slow economic recovery, parts of the developing world’s economy are being rapidly transformed by a new form of disruptive technology: mobile money.
Mobile money—a cash management service available on mobile phones or the internet—is having more than a moment; it’s making a profound impact, powerful enough to shift economies across country borders. Studying the impact of mobile money in its most successful beta launch to date in Kenya can teach us a lot about the impact and adoption of disruptive innovations within a country and beyond its borders.
In 2007, Kenyan-based SMS service “M-PESA” launched an application that allowed Kenyans to deposit, withdraw, and send money using their mobile phones. The results were almost immediately felt at the household level. In her research paper, The Risk Sharing Benefits of Mobile Money, MIT Sloan Professor Tavneet Suri conducted two surveys of 3,000 households in Kenya and discovered that nearly 60% of Kenyan households now use M-PESA for person-to-person transfers, as well as to pay for everything from school fees to mobile phone credit to electricity bills. And, in rural Kenya, M-PESA, has helped to increase incomes of the adopters by 5 to 30% by shielding against risk, enabling small businesses to expand and grow, and increasing the circulation of money in these communities.
Impact and Success of Mobile Money
Over the last six years, the impact of mobile money has had a profound impact on Kenya’s national economy, increasing their inflation rates and affecting Kenya’s GDP. mPay Connect Consulting reports that a 10% rise in mobile subscribers in emerging markets can lead to a 0.6 to 1.2% increase in GDP as a result of the rise in productivity that accompanies increased communications, as well as a rise in new jobs created by the new technology.
The success of mobile money in Kenya has inspired a new wave of copycats throughout the developing world, including Tanzania, Ghana, Uganda, and Afghanistan. In April of this year, Vodafone India and ICICI Bank—India's largest private sector bank—launched M-Pesa in a move to reach the approximately 700 million people who previously had no access to conventional banking.
With technology this new, it’s still too soon to predict the entirety of mobile money’s far-reaching effects. But, without a doubt, this innovation has the potential to promote real change and improve the quality of life for many people worldwide.
Tavneet Suri is a Maurice F. Strong Career Development Professor and an Associate Professor of Applied Economics at MIT Sloan. She teaches in the Advanced Management Program at MIT Sloan Executive Education.