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Cash in Kenya during the First Year of the Pandemic

Categories : Cash and Crises, Cash is a contingency and fall-back solution, Cash is a public good, Cash is available to all users
December 17, 2021
Tags : Africa, Cash and Crises, Covid-19, Financial inclusion, Kenya
In Kenya, currency in circulation increased by 30% during the first year of the Covid-19 pandemic, in spite of efforts to promote digital payments.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

Three in Four Kenyans Hold a Mobile Money Account

Kenya is widely considered the poster case for how mobile payments can broaden financial inclusion thanks to being the cradle of M-Pesa. This mobile payments system has broadly been credited with improving Kenyan’s access to financial services compared to their peers in African countries such as Nigeria, Ghana, South Africa, and Egypt.

According to the World Bank’s Global Findex Database, in 2017

According to the World Bank’s World Development Indicators, in 2019,

M-Pesa is not without problems, such as excessive indebtedness and criminal activities, including money laundering, corruption, and ransom payments. Cash was (and still is) the underlying technology propelling economic growth in the leading African economies, well before the Covid-19 pandemic.

The Covid-19 Pandemic and the Kenyan Payments Infrastructure

Like other peer institutions in Africa, the Central Bank of Kenya (CBK) decided to minimize the use of physical cash and promote the use of mobile money and banking solutions (Kenya Financial Stability Report, 2020: 38):

Regarding the payments infrastructure, by December 2020 (Kenya Financial Stability Report, 2020: 40-41):

Currency in Circulation Grew Nearly 30% between September 2019 and September 2020

During the first year of the Covid-19 pandemic, Kenya experienced an increase in the precautionary demand for cash as a store of value amid a crisis, more than compensating for the fall in the transactional demand for cash.

Currency in circulation in Kenya went from KES246.78 billion (USD2.19 billion) in March 2020 to KES281.586 billion (USD2.49 billion) in March 2021, an increase of 14.1% (see Graph 1).

The increase was even more significant (29.49%) if we compare the figures for September 2019 to September 2020: currency in circulation went from KES207.01 billion (USD1.84 billion) in September 2019 to KES268.12 billion (USD2.38 billion) in September 2020.

Graph 1. Kenya: Currency in Circulation, January 2020-October 2021

Source: CashEssentials, based on CBK Statistical Bulletin statistical series (2020: 11) and Monetary and Finance Statistics (2021).

As with other countries, the demand for higher denomination banknotes increased markedly in Kenya during the pandemic. As can be seen in Graph 2, the volume of higher denomination notes grew dramatically between June and July 2020.

Regarding smaller denomination notes, the most notable growth occurred with KES50 notes (equivalent to USD0.44). The volume of KES50 notes grew 15% between May and June 2020, going from KES4.26 billion (USD37.8 million) to KES4.91 billion (USD46.57 million).

Graph 2. Kenya: Banknotes by Denomination, January 2020-December 2020

Source: Cash Essentials, based on CBK Statistical Bulletin (2020: 11), currency in circulation series.

Interestingly, fewer micro and small businesses reported that their customers were using mobile money for transactions in July 2021, compared to the lockdown period between April and July 2020, according to the CBK’s FinAccess MSE Covid-19 Tracker Survey.

This post is also available in: Spanish