Upstart: "A person of humble origin who attains sudden wealth, power, or importance, especially one made immodest or presumptuous by the change." and "an arrogant or presumptuous person"
It seems "upstart" has a pretty negative connotation. Using that in the first sentence as the first description of this company sets a dim tone around the company which seems to be doing something very worthwhile. The balance of the article seems to indicate that the concern (by a few) for inflation may simple go away as the market balances itself as heathy markets can and should.
I'm left wondering why the use of the dim word "upstart" in this article? What else is there to earn describing them as an arrogant group?
JOHANNESBURG — In just five years an upstart Kenyan company that set out to make banking more accessible has revolutionized the way money flows throughout the region. Millions of Kenyans who were once unable to perform simple financial tasks now use M-Pesa, a mobile money transfer service. M-Pesa, and many of its competitors that have sprung up in the past few years, are used as de-facto banks by people who used to deal only in cash.
But while the service was built to address a fundamental problem in the developing world, getting the so-called “un-banked” to use banks, some say the rapid growth of M-Pesa is linked to inflation within the Kenyan economy.
At its core M-Pesa (Swahili for mobile money) was designed to be a “payment service for the un-banked” Betty Mwangi of M-Pesa’s parent company Safaricom, told MarkWatch recently. “M-Pesa allows customers to use their phone like a bank account and debit card,” she said.
M-Pesa is not simply another way to transfer money. What separates it from many similar products that came before it is the addition of a pseudo checking account. With only a phone number an M-Pesa user can store up to $1,200 in an account that’s almost identical to a regular checking account.
In a country where 58 percent of adults don’t use formal banks, M-Pesa has taken off. The service boasts 15 million users in Kenya alone, roughly 60 percent of the adult population. A tenth of all savings in the country are held by mobile money transfer providers. Last December more than $1.4 billion moved through M-Pesa’s system. By some accounts, a quarter of Kenya’s GDP is processed on it.
Part of the reason for M-Pesa’s success was the failure of Kenya’s formal banking system to serve its people. M-Pesa was able to leapfrog existing institutions and regulations. As Kenyan tech expert Erik Hersman put it in his blog:
It’s a good thing that Mpesa happened in Africa. It offered a new way of thinking about money and payments, without the legacy baggage of banks and regulations meant for another century. The powerful banking interest were held at bay, not by great power, but by indifference
Adoption of M-Pesa and similar systems has made life easier for many Kenyans, simplifying everything from sending remittances to transferring payments. Now these activities-that were once done face to face or through a series of expensive middlemen-are as easy as making a phone call.
Some say this convenience has had unexpected consequences.
In a recent report (pdf), the African Development Bank identified M-Pesa as a contributing factor to high Kenyan inflation. The bank believes that the efficiency and near ubiquity of M-Pesa has increased the speed with which money moves through the Kenyan economy. In turn, this speed, or “velocity” in economics parlance, has affected supply and demand. The report finds:
Evidence shows that the transactions velocity of M-PESA may be three to four times higher than the transactions velocity of other components of money. The increase in the velocity of money induced by these activities may have in turn propagated self-fulfilling inflation expectations and complicate monetary policy [implementation].
Kenyans equipped with an easier way to transfer money and spend money are transferring and spending more. The African Development Bank argues that this has increased demand on goods across the board in Kenya, in turn inflating prices of those goods.
These may only be short-term effects on the economy. Few argue against having more people involved in the formal economy in Kenya, and with time, Kenyan businesses should adjust to the demand. The Kenyan Central Bank has also taken steps to reduce inflation in the country, and its policies seem to be working.
Safaricom’s Mwangi disagreed with the assertion M-Pesa causes inflation in an interview with Kenya’s Business Daily. “We facilitate the transfer of money and do not influence the amount of money in the system or the lack of it,” she said. “Velocity of money and inflation are two very different things.”
Photos: Teach and Learn and Ken Banks/Flickr
