A Revolution in Savings: The Impact of M-PESA on Savings Patterns in Kenya

Abstract

M-PESA is a mobile money program that has redefined Kenya’s financial landscape since its introduction in 2007. This program has created access to finance and savings in even the most remote areas of Kenya. Survey respondents report increased levels of savings and amount of remittances sent and received due to this program, but the actual effect of the program has been debated in the literature. I venture to examine how M-PESA has affected savings patterns in Kenya in three specific ways: by influencing overall savings rates, leading to the crowding out of other methods of savings, both formal and informal, and encouraging the individualization of savings. I use data from the FinAccess surveys collected by the FAP Kenya to examine this question. I use a 2SLS-LPM model to estimate the relationship between M-PESA usage and these savings patterns. I use individual elevation demeaned at the regional level as an instrument for M-PESA usage, taking advantage of the effect of altitude on cell phone reception and thus M-PESA usage. I find that M-PESA has led to a large and significant increase in overall savings levels, the crowding in of most savings methods, including informal, semi-formal, and formal methods of savings, and a marginally significant increase in rates of group savings, or in the same vein, decrease in the individualization of savings.