Why M-Pesa Balances Are Interest-Free

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Millions of Kenyans using M-Pesa and other mobile money services might be surprised to learn they could be earning interest on their deposits. A 2014 law stands in the way, making Kenya an exception compared to its African counterparts where mobile money flourishes.

Before 2014, the system operated differently. Vodafone, the parent company of Safaricom, controlled M-Pesa Holding Company.

This organization managed the billions of shillings that Kenyans had in their mpesa accounts. Vodafone had the discretion to invest these money and keep any profits.

However, the situation changed dramatically with the introduction of the National Payment System Regulations in 2014.

The Act introduced an important clause: “An e-money issuer shall not earn interest or any other financial return from the E-Money holder or customer.”

This effectively prohibits mobile money service providers like Safaricom from profiting from interest on customer deposits.

So, where does the interest go now? The law dictates that “Any income generated from placement of these trust funds shall be donated to a public charitable organization for use for public charitable purposes.”

The M-Pesa Foundation currently operates as the charitable arm of Safaricom, transferring interest earnings from customers’ deposits to various social causes.

It’s worth noting that this was not always the intended path. A 2008 amendment to the trust deed governing M-Pesa Holding allowed Vodafone to use the profits for “such other purposes (charitable or not)” as it chose.

The current situation in Kenya is in stark contrast to other African countries such as Uganda and Tanzania. A recent report from the International Monetary Fund (IMF) revealed how mobile money customers in these countries can earn interest on their balances similar to traditional bank accounts.

Their study focused on five of the fastest growing e-money markets in Africa (Kenya, Tanzania, Nigeria, Ghana, and Uganda). It stressed that Kenya is the only country where the law does not allow service providers and consumers to benefit from interest on mobile money deposits.

Laws in these other African countries require mobile money operators to set up trust accounts at banks.

These accounts work like regular bank accounts, holding customers’ funds and accumulating interest.

It is worth noting that the 2008 amendment to the trust deed allowed Vodafone discretion in using the interest earned.

It’s unclear if any portion went directly to M-Pesa users before 2014.

Additionally, M-Pesa wasn’t originally designed as an interest-bearing account, so the concept of earning interest might not have been widely advertised.

Currently, M-Pesa has revolutionized financial transactions. Sending money to family across town, groceries at the corner store, or filling up your air time – it can all be done with a few taps on your phone.

But before you fully embrace a cashless lifestyle, it’s important to understand the costs associated with it.

M-Pesa offers a hierarchical payment system. While sending small amounts between users is completely free, larger transactions come at a cost.

Similarly, the mpesa withdrawal charges from mpesa operators vary depending on the withdrawal method and location of the agent. These mpesa charges can range from small fees for quick withdrawals of Ksh 50 to higher fees for larger bills.

The beauty of mpesa extends beyond basic services. You can also use it to buy airtime for yourself or others on mobile networks like Airtel.

Do you have to pay your utility bill, monthly subscription, or even your NHIF contribution? M-Pesa simplifies the process, allowing you to settle these bills directly from your phone.

On how to reverse mpesa, send the transaction message via SMS to 456, or use mySafaricom APP. The mpesa app additionally provides a detailed overview. It allows you to manage your account, check your balance and mpesa statement.