• Image by vodafone.com

Viewing the fact that societies can solve almost everything through mobile phones and the internet, we wonder what happens to places where the Internet is scarce or almost impossible. We can say that countries, like Kenya, know how to avoid that absence very well.

Kenya is an Outrider for Financial Services via Mobile Phone

It is the first thing we see in the morning and the last thing we look at in the evening: The mobile phone. For many people it is even the most important partner in life. With our mobile we can shop online, check weather data, do online banking and many other things going hand in hand with the internet. But what happens when there is no internet?

In the financial sector the mobile phone sets new borders; payment transactions, management of bank accounts, loan taking or even complex insurances are possible only by using the mobile phone without internet connection. Data are sent via normal telephone network as we send SMS messages.

Kenya is known as an outrider for mobile phone-based financial services. In 2007 Vodafone launched in cooperation with the British Department for International Development the mobile money service M-Pesa (M for mobile, Pesa is Swahili for money). Run by Kenyan mobile network operator Safaricom, M-Pesa became world’s biggest mobile money service. In 2018 M-Pesa had around 20 million active customers in Kenya using it to deposit, withdraw and transfer money or to pay for goods and services. It has since expanded to Tanzania, Afghanistan, South Africa and India. In Europe „M-Pesa“ is available in Romania (2014) and Albania (2015).

Mobile Insurance in the Agricultural Sector

The latest release is a mobile phone-based crop failure insurance using weather-data to determine the loss. Kenyan farmers can buy insurance-vouchers in advance, then, when they arrive at their fields, they send a free SMS with the voucher-code to an operator and transfer through that the insurance fee. Within this, the operator records the farmer’s location and according to satellite data of the area, the insurance knows the exact strength and duration of rain through the complete growth cycle, from sowing to harvest.

Comparable to liability insurance, the damage determines the payout. In this specific case, damage means crop failure and is only defined by the amount of rain. Depending on the type of cereal and the ideal rainfall deviation – too less during sowing or too much during flowering – the payout is transferred automatically to the costumer’s mobile phone. There is no need to fill out countless forms or to undertake an elaborate trip to the next city.

Low Prices Make the Insurances Attractive

Mobile phone-based insurances are cheaper than traditional insurances, although they require higher initial investments. In the long run, digitalization leads to automation and cost reductions. A large number of insurances can be processed via M-Pesa simultaneously, automatically and independently of the location. Thanks to the popularity of this kind of system on the mass market, economies of scale can be achieved. In addition, digitalization is key to eliminate recurring and significant costs, such as expensive on-site damage inspections.

Due to their low prices, crop failure insurances based on mobile phones are affordable for smallholders. As the payout is made promptly, loans taken out at the beginning of the vegetation cycle can, in case of a crop failure, still be repaid. This reduces the likelihood of falling into financial distress or even poverty, while allowing smallholders to secure their agricultural investments.

Ultimately, as I see it, with only the mobile phone in hand, Kenya’s farmers get access to financial products, like insurances or credits, and thus a basis for healthy economic development. Without being online!