M-Pesa is a mobile banking app that lets you save and send money from your smartphone or tablet. M-Pesa is a mobile money transfer service launched in Kenya to give residents an alternate method of receiving financial benefits. Safaricom, Kenya's largest mobile phone provider, was first introduced M-Pesa in 2007.

Fintech developments like M-Pesa are motivated in part by the goal of financial inclusion, which primarily targets those who are either underbanked or unbanked. In the age of digital banking, financial inclusion aims to reach out to those who don't have access to banks or can't afford the needed minimum deposits. Diverse sectors must collaborate to share data and develop a relevant digital platform for this endeavor to succeed.

Understanding the M-Pesa

It's a virtual banking system that uses a phone's SIM card to process transactions. Once the SIM card is placed into the mobile device's slot, customers may use SMS messages to make payments and transfer money to merchants and family members.

M-Pesa shops are widely available in the country, even if you don't have a bank account. You hand your cash to the kiosk attendant, who electronically transfers the funds to your M-Pesa account. M-Pesa cash is put into Safaricom bank accounts. The Deposit Protection Fund insures the bank accounts up to a limit of 100,000 shillings (or $1,000) as standard checking accounts.

As an Example of M-Pesa

A farmer who does not have a bank account and wishes to deposit $1,000 in the M-Pesa account of a kiosk agent or attendant goes to an M-Pesa outlet. To make things even more convenient for the customer, the agent uses her phone to log into her account using the client's registered phone number and deposit $1,000 into the account.

Within seconds after making a deposit, the farmer receives an SMS message on his mobile phone notifying him of the amount placed and his current account balance. A personal PIN and the M-Pesa attendant or agent number supplied at the outlet allow the farmer to withdraw cash from his account.

Facts You Probably Didn't Know About M-PESA.

M-PESA is one of the most successful microfinance or development efforts to date, with more than 70% of Kenyan families and more than 50% of the country's impoverished, unbanked, and rural populations using the service within three and a half years after its introduction. It always amazes me how few individuals are motivated by or even believe in M-PESA. Lack of information can lead to skepticism, which can then lead to doubt.

Safaricom utilized M-PESA money.

Several commercial banks in Kenya, all of which are closely regulated, hold the money. Furthermore, because the assets are housed in a Trust, Safaricom cannot access or use them. Safaricom's creditors would be unable to access M-PESA cash if the company were to declare bankruptcy. The Central Bank of Kenya, which is in charge of M-PESA, mandates this. M-PESA customers retain ownership of their funds at all times.

M-PESA produced nonbank money.

Commercial banks' pooled accounts fully guarantee any money sent through M-PESA. According to monetary aggregates, M-PESA clients' mobile money storage and movement are counted as M1.

M-PESA Was Unmonitored

Because every transaction on the M-PESA platform is electronic, Safaricom can keep track of it using its bank-grade anti-money laundering system. Whether a trade is a cash-in or cash-out, it is tracked electronically. M-PESA transactions are regularly reported to the Central Bank of Kenya, much like other payment service providers.

M-success PESA's posed a systemic risk.

Only 0.2 percent of all bank deposits are held in M-PESA accounts, which is a fraction of the total. M-PESA does not pose a risk to the economy as a whole. About 70 percent of electronic transactions in Kenya were made using M-PESA in June 2010, yet just 2.3 percent of those transactions were worth more than a thousand Kenyan dollars.

The success of M-PESA shows that modest electronic transactions and value storage are in high demand. A cap of 70,000 Ksh per day can be taken out of the account and held in the system. There is a 35,000Ksh limit on cash in, cash out, and P2P transactions.

Do M-PESA cash merchants hold M-PESA or client funds?

To sell it to consumers who come to their retail shop for cash-in operations, the M-PESA cash merchants pre-buy mobile money. They are making investments with their own money and not acting as a middleman. Mobile money is used instead of cash for pay-out procedures. Cash merchants always handle and hold their own money in M-PESA or cash. Merchants that sell their working capital balances on the M-PESA network are generally "super users," who are only granted more significant transaction limits than regular M-PESA users.