Kenya is widely considered the poster case for how mobile payments can broaden financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More 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 launderingThe operation of attempting to disguise a set of fraudulently or criminally obtained funds as legal, in operations undeclared to tax authorities, and therefore not subjected to taxation. Money laundering activities are strongly pursued by authorities and in most countries, there are strict rules for credit institutions to cooperate in the fight against money laundering operations, to declare and report any transactions that could be considered suspicious. More, 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.
Like other peer institutions in Africa, the Central Bank of Kenya (CBK) decided to minimize the use of physical cashMoney in physical form such as banknotes and coins. More 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):
During the first year of the Covid-19 pandemic, Kenya experienced an increase in the precautionary demand for cash as a store of valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More 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
As with other countries, the demand for higher denominationEach individual value in a series of banknotes or coins. More 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
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.