But his colleagues weren’t his main concern. What worried him more was what his parents would think. After an estranged aunt shared the message within his village, Kiragu’s father accused him of bringing shame on the family.
This was nearly two years ago, but the memory is still raw, so much so that Kiragu asked to use a pseudonym for this article. “If you pay on time, they are angels,” Kiragu said as he sipped his tea and stared at a potted plant behind me. “They keep texting you to take out another loan with them. If you do and won’t or can’t pay, then it’s pretty simple: Pay or we damage what you value most.”
In 2007, Safaricom, Kenya’s biggest telecoms provider, launched M-Pesa, a mobile wallet that allowed users to send and receive money and buy airtime. Smartphones were just becoming popular, so Safaricom tailored its fintech product to the basic cell phones most Kenyans already owned. It was immediately hailed as a revolutionary way to bring millions of “unbanked” customers into the formal financial sector. The Clinton Global Initiative and other major philanthropic organizations were vocal supporters, and it was soon being taught as a case study in business schools around the world. It was also a success on the ground: Safaricom aimed to sign up 350,000 M-Pesa users by the end of 2007, but by November it had already attracted over 1 million. From there, it only continued to grow. As of last September, 23.6 million Kenyans – nearly half of the country’s population – were using it regularly.
M-Pesa was initially meant to be a microfinance project; its first sales pitch to users was “Send Money Home.” It was banking on the fact that while working-class Kenyans who lived away from home wanted to support their families, cash is expensive. This was not a new concept; among Somalis, the Hawala system exists to address this same problem. If you want to send money to someone, you give it to a local agent, who then contacts a second agent located in the same area as the intended recipient, and that agent then disburses the money. Both good site agents earn a small commission, and they sort each other out.
In Kenya, there were several factors behind M-Pesa’s rapid ascent. One was that 2007 was an election year, and when violence erupted over the results, having a way to transfer money without leaving the house felt to Kenyans like a godsend. Another, more structural, reason was that before M-Pesa, the country’s banking sector served only a portion of the population. Kenya’s economy collapsed four times between the mid-1980s and the early 2000s, by which point the banks were heavily regulated. No such legal barriers applied to fintech.
When fintech took off, banks, Silicon Valley–backed products, private-equity products, and Kenyan companies all began competing for the same clients. Some of its earliest users were Kenyans in the informal economy. In a 2017 social media post, for example, a business journalist noted that “up to a third of loans are taken between the hours of 3am and 5am. Most are repaid within twenty-four hours.” When the Central Bank looked into what was going on, they discovered that a typical user was a market seller who would wake up early and borrow enough money to pay everybody in her supply chain that day.