Overview of Kenya

Maestro cards. The user base of Wizzit between its inception and 2008, stood at 250,000 in South Africa. Nonetheless, it has rolled out pilot projects in Romania, and intends to expand into other African countries such as: Kenya, Botswana, Namibia, Zambia, and Malawi (Lapper, 2009), and figures of its present user-based is unavailable. Mindful of this backdrop, the uptake of Wizzit (250,000 users within four years) is absolutely incomparable to that of M-pesa (8.6 million with two years), and as of 2009, Wizzit was not yet profitable (Nobel, 2011). There are speculations on causes of Wizzit’s failure but scant empirical evidence exists to support the claims. The failure of Wizzit highlights the need to understand the real needs of customers and not vendor perception. In light of this study, M-pesa has thus far attained an astounding initial and rolling uptake; however, it is the first success story of a financial service proliferation amongst the masses in a developing country. To uphold this pace, and alleviate the possibility of a stall or decline in use, it of utmost importance to investigate drivers that sustain its use, which would aid circumvent an emphemeral success story.

Next, the researcher provides an overview of Kenya-the geographical focus of the study, and subsequently, discusses the financial sector profile of the country, and then provides background to the inception of M-pesa.

Fig 2.1 Kenya’s situation on the Map of Africa Table 2.1 Kenya in a Nutshell

Geography Location: East Africa, bordering the Indian Ocean, between Somalia and Tanzania

Area: Total: 580,367 sq km Land:569,140sq km Water: 11, 227 sq km

People and Society Languages: English (Official), Kiswahili (official), and other indigenous languages

Population: 45,010,056

Age Structure: 0-14 years: 42.1% (male 9,494,983/ female 9,435, 795) 15-24 years: 18.7% (male 4,197,382/female 4,202,399) 25-54 years: 32.8% (male 7,458,665/female 7,302,534)

55-64 years: 3.7% (male 751,296/female 910,523) 65 and over: 2.7% (male 548,431/female 708,048) Urbanization: Urban population:24% of total population

Rate of Urbanization: 4.36% annual rate of change

Major urban area population:

Nairobi (Capital) 3.363 million; Mombasa 972,000 Education

Expenditure:

6.7% of GDP Literacy (age 15 and over can read and write):

Total population:87.4%

Male:90.6%

Female:84.2%

Economy Currency: Kenyan Shillings (KES)

GDP (Purchasing Power Parity): $79.9 billion

Agriculture Products: Coffee, tea, wheat, corn, fruit, vegetables, beef, fish, pork, poultry eggs, and sugarcane.

Labour Force: 19.67 million

Labour force in Agriculture sector: 75%

Labour force in industry and services:

Unemployment Rate: 25% 40%

Population below poverty line: 43.4%

Telecommunications Telephone Lines: 251,600 (2012 estimates)

Mobile Cellular: 30.732 million

Internet Hosts: 71,018

Internet Users: 3.996 million

Source: CIA FACTBOOK, 2014.

Fig 2.1 and table 2.1 have respectively presented Kenya’s location on the map and an overview of the country’s geography, people, society, economy, and telecommunications state. This information should provide the reader with fundamental knowledge of the country. Next, the researcher presents a discussion on the financial sector of Kenya as it is M-pesa’s operational sector.

2.4.1 Kenya’s Financial Sector Profile within Africa

Within the past decade, there have been broad economic and financial sector reforms in Sub- Saharan Africa; however, several African countries still face austere financial development gaps compared to the developed economies and peer-developing countries (Allen, Carletti, Cull, Qian, Senbet, & Valenzuela, 2012). Lack of access by majority of a population to finance is a key impediment to the financial development process, as otherwise would promote economic growth at a broad level. Contemporary research account that in Sub-Saharan Africa over 80 percent of the adult population required accounts in the early 2000s; a figure over half of the population (Chaia,

Alberto, Goland, Gonzalez, Morduch, Schiff, 2013; Honohan, 2008). To understand this circumstance, Demirguc-Kunt and Klapper (2012) explain that in Sub-Saharan Africa, the most commonly mentioned cause for being unbanked is lack of enough money to use one.

The afore-noted lack of access to cash by low-income individuals necessitated initiations of the financial sector deepening program (FSD¹⁷) in Kenya. The FSD programme was launched in early 2005 to foster the growth of financial markets in Kenya; a goal to fuel wealth creation and alleviate poverty. As of 2006, only 19% of the Kenyan population possessed bank accounts, 8%

used SACCO’s¹⁸ and micro-finance institutions¹⁹, 35% used informal and ASCA’s²⁰ and ROSCA’s²¹, and 38% were unbanked (GSMA, 2013b). In light of these percentages, the majority of Kenyans lacked access to formal established institutions that could provide them with access to a pool of capital and finance in general. This circumstance drove the need to create a financial service that could cater to the majority of the population.

2.4.2 Mobile Services in Kenya

Kenya is credited with uncommonly adopting and using mobile technology across the globe (Jack

& Suri, 2010). As of 2002, merely 15,000 persons had mobile phones in the country; yet by 2009, mobile subscription rates stood at 14.5 million (CCK, 2009). Increasing, in 2010, about 20 million subscribers were reported in Kenya (CCK, 2010), and this figure amplified to 29 million subscribers within two years amongst a population of about 41 million (CCK, 2012). These mobile subscription levels have enabled vendors the opportunity to offer services on mobile technology platforms. Presently, four telecommunication vendors (i.e., Safaricom, Airtel, Yu Mobile and Orange) operate in Kenya. Amongst these vendors, Safaricom holds the largest market share of 78% (GSMA, 2012), whereas the remains (22%) is shared by the others (Orange, Airtel, and Yu). These vendors competition to attract and retain customers have favoured consumers’ in Kenya as prices of telecom services reduced and infrastructure improved (Morawzcynski, 2011). Illustrating this, in 2009, the monthly average revenue per user (ARPU)

17 http://www.fsdkenya.org/

18 SACCO means Savings and Credit Cooperative Organization, and it is a non-profit, member-owned financial cooperatives funded largely by voluntary member deposits.

19 Micro-finance institutions are associations typically funded by external loans, grants and/or investors.

20 Accumulating Savings and Credit Associations (ASCA) refers to fund groups where member make contributions for lending loans which are paid back with interest.

21 Rotating Savings and Credit Association (ROSCA) refers to a group of individuals who contribute for a defined period, to save and borrow collectively. It is also considered a form of combined peer-to-peer banking and peer-to-peer lending.

declined from Ksh 389 to Ksh 384, owing to cheaper calling rates (CCK, 2012). Consequently, telecom vendors in Kenya persistently seek ways to deliver services outside their core operations to complement their investment returns. Currently, a complementary beneficial venture of telecom vendors in Kenya is mobile money. M-pesa was the first MMS introduced to the Kenyan market in 2007 by telecom vendor- Safaricom, and successively replicated by other market entrants.

Alongside M-pesa, three other vendors provide MMS: Airtel captures 5.5 million subscribers (18% market share), Yu Mobile with 2.7 million subscribers (9% market share) (Wachira, 2014;

Vikas, 2014), and Orange serving 2.2 million subscribers (7% market share) (Okutoyi, 2014). As such, mobile money is consistently embraced in enabling several transactions such as airtime purchase, cash transfer, and payment of bills, etc. Ex-post M-pesa’s launch, the total sum of money transacted via ‘M-Pesa’ was US $ 3.7 billion, close to 10% of Kenya’s annual gross domestic product (GDP) (Safaricom, 2009), and this figure has steadily risen eventually.

Contemporary statistics show that within 2011-2012, approximately Ksh 672.3 billion (US$ 8 billion) was transacted by MMS in the country (CCK, 2012). This amount represents 24% of Kenya’s GDP (CCK, 2012). From a global outlook, M-pesa independently handles more transactions domestically than western union does internationally (Kendall, Machoka, Veniard. &

Maurer, 2012; International Monetary Fund, 2011, p.50). Finally, M-pesa’s proliferation spans a substantial number of the Kenyan population, with 17 million active users in 2012 (Demirguc- Kunt & Klapper, 2012).

2.4.3 The Inception of M-pesa service

The initial offering of M-pesa was P2P, which enabled transactions between individuals with mobile phones. Ex-ante of M-pesa’s inception, informal services of money transfer was offered by individuals and non-financial licensed companies (e.g., friends, posts, and public transport companies) (Mbiti & Weil, 2011). By virtue of pressing demand for financial inclusion, only 22%

of the adult population in Kenya operated bank accounts (Finscope, 2011). Transport companies offered money and posts, where recipients could collect their cash at a selected terminal.

However, these unlicensed mediums were risky; remittances were not certain to reach the recipient. Hence, the introduction of M-pesa afforded Kenyans a financial service that all with mobile phones could use. Aforementioned, Kenya has 29 million mobile phone owners out of a population of about 41 million (CCK, 2012). Ex-post 2007, M-pesa captivated a substantial part of the informal financial service market- 38.13% by 2008 (Consultative Group to Assit the

Poorest, 2009). A notable decline was also apparent in former money transfers medium, such as:

deliveries using public buses (29% in 2006 to only 5% in 2009). This switch in domestic transfer mechanisms is confirmation that M-pesa is now a preferred medium of transacting. As such, M- pesa persistently seeks to expand its offerings, as its services have developed to include: sending and receiving money, saving, purchase of airtime, payment of utility bills and salaries (Jack &

Suri, 2010). More recently, M-pesa has expanded to include banking services such as interest based accounts, loans, and insurance (World Bank, 2011, p.55).

2.4.4 The Need to Examine M-pesa Within the Global Mobile Eco-system

Mobile is a pulsating and sprouting industry that is positioning the mobile phone as an integral part of the social lives of an emerging group of the world’s population. As such, mobile service providers are collaborating with various industries to deliver innovative service to users (GSMA, 2013a). Credence in the prospective of mobile phones to bridge the banking needs of underprivileged persons has been fostered by the proliferation of networks into earlier unserved areas and vicinities of developing countries within the past decade (Duncombe, 2012). The value of the mobile phone is evident in developing nations within sub-Saharan Africa and notably Kenya, where fixed-line groundwork was mostly infirm and immature. As mobile phones are progressively gaining a foot hold in the lives of the underprivileged, a plausible proposition is their prospective to emerge as an economic delivery means for financial data, administration, and proceedings (Porteous, 2006). Consequently, mobile phones aid the expedition of novel service offerings across electronic payment services. Duncombe & Boateng (2009) submit that the preponderance of the underprivileged require, and are continuously demanding an expansive range of micro-financial services that the mobile phone could enable. These are considered economical solutions to fortify customary savings, aid spendings, facilitate small cash transfers and offer micro-finance. Given the mobiles phones increasing entrenchment in our daily lives, it becomes of equal importance to understand human behaviour towards use of mobile technology- enabled services. An understanding of this phenomenon could foster incremental use of this technology across a wider range of services.

Next, the researcher discusses consumer behaviour towards technology-enabled services.