Dial M For Money: Can Mobile Banking Lift People Out Of Poverty?

If you live in Kenya there's a jingle you hear on television and radio a lot.

"Things are now modern!" they sing. "Things are now developed." It's an ad for a type of banking service called M-PESA that's run entirely through your mobile phone. You set up an account with the phone company. You can send and receive funds by text. Or, if you need to make a cash deposit or withdrawal, you do it through a vast network of agents — small-time vendors in kiosks and shops, for example, that the company has set up.

M-PESA was launched nine years ago. Today almost every single household in Kenya uses it. Most Kenyans didn't have access to traditional banks before. Which already makes mobile banking a game-changer.

Now scientists say there could be an extra benefit for poor customers: Mobile banking might lift people out of poverty. That's the subject of a study out this week in the journal Science about M-PESA.

Geoffrey Ombati doesn't need a study to tell him how transformational M-PESA can be. The 32-year-old says it changed his life.

"I grew up in a rural area," Ombati explains. There weren't any banks nearby, so he never had an account. He was making a tiny bit of money working in his village's general store. But as soon he'd get the cash in his pocket he'd fritter it away on things like sweets for his kids on his way home from work.

"I can't resist, yes!" says Ombati.

Once Ombati started uploading his wages directly to his M-PESA savings account, it created a sort of psychological barrier.

"In a way it was hindering me from accessing it easily," he says. "I'm protecting my money against myself," he adds, laughing.

All over Kenya, people were noticing effects like this. It caught the attention of a Kenyan-born economist at MIT named Tavneet Suri. She focuses on poverty issues. And the sudden expansion of mobile banking made her wonder: "Is this like a new toy for people. Or does it actually fundamentally change their lives? Does it solve poverty?"

And so Suri set up an experiment. While the mobile phone company was still rolling out M-PESA across Kenya, Suri and her collaborator — Georgetown University economist William Jack — started a multiyear series of surveys to track Kenyans' finances. Essentially they wanted to see how mobile banking was affecting people's economic well-being over the long term.

When the results came in, "I was blown away," says Suri.

It turns out mobile banking made a big dent in poverty. The impact was particularly strong for households led by women.

Compared to households in areas without M-PESA agents, those women-led families with access to a large number of agents set aside 22 percent more in savings between 2008 and 2014. And they bought 18.5 percent more basic goods.

What's more, among the poorest families — those who'd been living on less than a $1.25 a day — nearly 1 in 10 got enough of a boost to lift them out of extreme poverty.

That's a better track record than a lot of aid programs, Suri says.

"And we didn't give them anything right?" she says. "We just gave them an app."

Isaac Mbiti, a professor of policy and economics at the University of Virginia who was not part of the study, calls the findings "a big deal."

"This is the first time we actually have hard data to show there is a relationship between having access to mobile money and reducing poverty," says Mbiti.

As with any study, there are limitations. The authors had to find ways to account for dropoff in responses to the surveys, for instance. And Suri says more research is needed to determine if this system would work in other countries and why mobile banking appears to have such a powerful effect. Maybe it lets people become more entrepreneurial by making it easier to run a business. Maybe they're more willing to take risks because they've got more of a safety net — in a pinch relatives far away can send cash. Or maybe it comes down to putting away more money. Which brings us back to Geoffrey Ombati.

In those months after he signed up for M-PESA, he says, "Yeah, I actually managed to save a lot of money."

About $215. He used his savings to move to Kenya's capital Nairobi, where he's found better paying work in construction. He bought two goats for his wife to raise back in the village. "They multiplied to five," he says. Now he's saving for the next step.

"I'm looking at buying two cows," he says. "I want to start selling milk because there is a short supply in our area."

And maybe one day, he says hopefully, I'll save enough to go to college.