14 July 2013

Africa: Bitcoin Fuels Africa's Banking Revolution


Bitcoin has landed in Kenya.

The online currency that was, until recently, the preserve of tech entrepreneurs and only the most pioneering financiers, is to go mainstream in Nairobi while the rest of us continue to look on gingerly from the sidelines.

This is thanks to Kipochi a Bitcoin wallet that will enable users to transfer bitcoins to each other before converting them into local currency.

Kipochi – Swahili for “wallet” – will allow Kenyans to send money quickly and cheaply, effectively avoiding the high transaction fees charged by existing services such as moneygram. Enabling the transfer of funds between countries is significant given the huge importance of remittances to Africa’s economy. Remittances from outside Africa dwarf Western aid, for example, and the growth of economic migration across African borders means that transactions are increasingly international.


Mobile phone banking is already flourishing in Africa much more quickly than here in the UK. It is driven by widespread mobile phone use and the relative scarcity of banks. The numbers are illuminating. In Kenya, the heartland of M-Pesa – the world’s leading mobile money service, approximately 70% of adults do not have access to a formal bank account. At the same time around 70% do have access to a mobile phone, and the overwhelming majority of those with phones have used them to access M-Pesa to transfer money.

M-Pesa, M for mobile and Pesa – Swahili for money – is one of the relatively rare examples of “technological catch-up”, where the rapid adoption of a new technology allows less developed parts of the world to make substantial strides forward.

M-Pesa is very straightforward. Once one has registered an account and deposited some money, one simply dispatches cash to the intended recipient via a text message. The recipient then converts the text message into cash at one of the 40,000 agents dotted around the country. The service is a godsend in many ways, it avoids lengthy bank queues, it negates the rigmarole of setting up a formal bank account and it facilities the support of the many rural-urban households that stretch across the country in an effort to secure a livelihood.

Leaping forward

Many parts of Africa have managed to effectively leapfrog the era of wired telecommunications by taking advantage of cheap, contract-free mobile phones to keep in touch. In turn, the massive demand for communication has driven private sector investment to ensure the growth of wireless networks across the continent.

It was therefore only a matter of time before a company woke up to the potential of a service like Kipochi. The advent of Bitcoin has provided the perfect vehicle for the next stage in the revolution.

What mobile phones have done in Africa is meet a need in a way that is affordable to the majority of the population in many African countries. And he growth in their use demonstrates the power of the African consumer to mobilise the private sector. Tellingly, by 2012, more than 30% of Kenya’s GDP was transacted through M-Pesa.

There are risks, however. Bitcoin has proved itself to be volatile, fuelled by speculators – although this is not something that Africans are unaccustomed to. M-Pesa as a brand might be a trusted one, but the more abstract connection to Bitcoin might be a harder sell. Currently, Kipochi above all else represents possibility, as M-Pesa once did.

The growth of mobile money also represents something more profound. In Kenya, this emergent global economy isn’t about the internet, or mobile phones, or new technological platforms and opportunities. Ultimately its about customers.

The transformative power of technology for Africa is actually a story of the transformation of Africans from recipients to customers, and the emergence of Africa as a place of opportunity and entrepreneurship. Monetary innovation is a story of needs finally being met.

James Smith, University of Edinburgh , Smith receives funding from the Economic and Social Research Council, the European Research Council and the Scottish Government.

The ConversationThis article was originally published at The Conversation. Read the original article.

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