M-pesa - Free Banking in Africa?
A number of my readers have an interest in monetary reform and especially in Free Banking. In that regard developments in Kenya are in fact very interesting, but I guess little known to Free Banking theorists. Since 2007 a new “currency” has come to live in Kenya. It is the so-called m-pesa. M for mobile and pesa is money in Swahili. Here is how M-pesa is described on Wikipedia: “M-PESA is the product name of a mobile-phone based money transfer service for Safaricom, which is a Vodafone affiliate…The initial concept of M-PESA was to create a service which allowed microfinance borrowers to conveniently receive and repay loans using the network of Safaricom airtime resellers. This would enable microfinance institutions (MFIs) to offer more competitive loan rates to their users, as there is a reduced cost of dealing in cash. The users of the service would gain through being able to track their finances more easily. But when the service was trialled, customers adopted the service for a variety of alternative uses; complications arose with Faulu, the partnering microfinance institution (MFI). M-PESA was re-focused and launched with a different value proposition: sending remittances home across the country and making payments.” Today, it is common to pay for services and goods around Kenya with M-pesa and as such the it has developed in to payment form, which is commonly accepted and trusted – some would say even more than the local currency – Kenyan shilling. In fact the Kenyan government will now even accept taxes paid with M-pesa. I don’t know enough about M-pesa, but I don’t think it is a real currency at the moment and one cannot say that the M-pesa system is a Free Banking system. However, in my view would it could be developing in that direction. I would be very interested in hearing what your views are on these developments and whether it can teach us anything in terms of monetary theory. For more on M-pesa see this interesting NBER Working Paper. PS for those interested in Kenyan monetary policy should note that the Kenyan central bank hiked its key policy rate by 550bp to 16.50% from 11.50%. PPS when I started this blog I promised that it would not be US centric - I hope this post confirms this.