Financial Security (FinSec) Series with Dr Philip Takyi: M-Pesa and the strategic power of agent banking: Unlocking financial inclusion and growth in emerging markets

M-Pesa, Kenya’s pioneering mobile money platform, has revolutionized financial inclusion by leveraging a vast network of local agents to provide essential banking services in underserved rural communities.

This agent banking model has not only enhanced access to financial services but has also spurred economic growth and fostered sustainable market expansion. M-Pesa’s success offers a strategic blueprint for scaling agent banking initiatives to drive growth, customer acquisition, and long-term value creation in emerging markets.

M-Pesa is a mobile money platform launched by Safaricom in Kenya in 2007 that allows users to store, send, receive, and withdraw money using their mobile phones, without needing a traditional bank account.

Designed to make financial services accessible to everyone, especially people in rural or underserved areas, M-Pesa works through a vast network of local agents who facilitate cash deposits and withdrawals, bill payments, and person-to-person transfers.

Over time, it has evolved into a comprehensive financial ecosystem offering savings, loans, and insurance services, transforming Kenya’s financial landscape by driving financial inclusion, reducing poverty, and enabling millions of people to participate in the formal economy.

A critical component of M-Pesa’s success is its agent banking model, which utilizes a network of local agents to provide financial services in areas with limited access to traditional banking infrastructure.

The Agent Banking Model: Why It Matters

Expanding Access through Local Agents

M-Pesa works through a system called agent banking, which uses a network of thousands of authorized agents across Kenya. These agents are usually everyday business owners, for example, small shopkeepers or local entrepreneurs, who provide essential banking services to people in their communities. Instead of going to a bank branch, M-Pesa users can visit these agents to deposit or withdraw money, send funds, or pay bills.

This system works especially well in rural or remote areas where bank branches are rare or non-existent. For many people living far from major towns, the nearest bank branch might be hours away. Agent banking brings financial services much closer to them, often just a short walk away. This convenience is one of the reasons M-Pesa has grown so quickly and become a lifeline for many communities.

Making Banking Accessible to Everyone

The agent banking model has played a major role in improving financial inclusion in Kenya. Financial inclusion simply means making sure people have access to useful and affordable financial services, like savings accounts, money transfers, and loans, whether they live in cities or remote villages.

According to the 2023 Economic Survey by the Kenya National Bureau of Statistics, M-Pesa now handles around 2,600 transactions every second and serves 50 million active users every month. This is remarkable in a country with a population of about 55 million adults.

Before M-Pesa, more than 60% of Kenyan adults didn’t have access to formal banking services. Today, that number has dropped to 49%, meaning millions more people can store, send, and receive money securely. M-Pesa has successfully bridged the gap for both the previously “unbanked” population and those who already use traditional banks (Fintech News Africa, 2024).

Boosting local economies and reducing poverty

The agent banking model has not only made financial services more accessible, it has also had a direct impact on economic growth, especially in rural areas. A 2016 study published in the journal Science found that M-Pesa helped improve household incomes and consumption levels, lifting about 194,000 households (around 2% of all Kenyan households) out of extreme poverty (Our World in Data, 2024).

When people have easier access to money, they can invest more in their lives. For example:

• A farmer can buy seeds and fertilizer in time for planting season.
• A small shop owner can stock more goods and grow their business.
• A family can save for education or health needs.

These individual benefits add up, strengthening local economies and creating a ripple effect that lifts entire communities.

Strategic Benefits of M-Pesa

Scalability and Cost Efficiency

One of M-Pesa’s biggest advantages is that it can grow quickly without requiring huge investments in traditional banking infrastructure such as brick-and-mortar bank branches.

Traditional banks face high costs when setting up branches, including rent, construction, security, and staffing, especially in rural areas where there may be fewer customers. M-Pesa bypasses this by working through a network of local agents. These agents are already in place in communities and can offer financial services using their existing shops or kiosks.

For financial institutions, this means:

• Rapid expansion into new markets without building expensive branches.
• Lower operational costs, since agents bear some of the physical costs of running the service.
• Flexibility to scale up or down depending on market demand without significant investment risks.

This model is especially effective in emerging markets with large, underserved populations, enabling financial institutions to reach more customers quickly and cost-effectively, and thus capture greater market share.

 Customer Acquisition and Retention

Customer acquisition refers to attracting new customers, while retention is about keeping them over time. M-Pesa’s agent banking model supports both in powerful ways.

• Convenience: Agents are located in communities where customers live, shop, and work. This proximity makes it easy for people to access banking services without long travel times.
• Accessibility: People can deposit and withdraw money, pay bills, and transfer funds without visiting a bank. This accessibility attracts new users who previously had no practical way to engage with formal financial services.
• Personalized Service: Local agents often develop close relationships with their customers. They understand their customers’ needs, build trust, and offer assistance, making users more likely to return.
• Customer Loyalty: Convenience, trust, and reliability create loyalty. Customers who find banking easy and dependable are more likely to continue using the service and recommend it to others.

For businesses, this means M-Pesa’s model not only attracts new customers but also encourages ongoing engagement, which is vital for sustainable growth.

 Data-Driven Insights

Every time a customer transacts through an M-Pesa agent, whether depositing, withdrawing, paying bills, or sending money, data is generated. This includes information such as:

• Transaction volumes and frequency
• Common locations for transactions
• Customer spending habits
• Preferred payment types and services

For financial institutions, this data is extremely valuable. It allows them to:

• Understand customer needs and design tailored products (e.g., microloans for small businesses, insurance products for rural families).
• Optimize services by improving agent coverage in high-demand areas and adjusting service offerings.
• Identify new opportunities by spotting trends, such as increased mobile payments for certain goods or services.
• Enhance risk management by detecting unusual transaction patterns that could indicate fraud or money laundering.

In other words, the agent banking model is not just a way to deliver financial services — it’s also a powerful source of strategic business intelligence that can guide decision-making, product development, and competitive strategy.

Challenges and Considerations

Agent Liquidity and Risk Management

Ensuring agent liquidity is crucial for the smooth operation of the agent banking model. Agents must have sufficient funds to meet customer withdrawal demands, which requires effective liquidity management strategies. Additionally, financial institutions must implement robust risk management frameworks to mitigate potential fraud, theft, and operational risks associated with agent banking.

Regulatory Compliance

Adhering to regulatory requirements is essential for the legitimacy and sustainability of agent banking operations. Financial institutions must collaborate with regulators to establish clear guidelines and standards for agent banking activities. Compliance with anti-money laundering (AML) and know your customer (KYC) regulations is particularly important to prevent illicit activities and maintain customer trust.

Agent Training and Support

Providing adequate training and support to agents is vital for ensuring quality service delivery. Agents should be equipped with the necessary skills and knowledge to handle financial transactions accurately and efficiently. Ongoing training programs and support systems can enhance agent performance and customer satisfaction.

Lessons for Global Markets

Adaptation to Local Context

While M-Pesa’s agent banking model has been successful in Kenya, its applicability in other markets requires careful consideration of local contexts. Factors such as mobile penetration, literacy rates, regulatory environments, and cultural norms can influence the effectiveness of agent banking initiatives. Therefore, financial institutions must tailor their strategies to align with the specific needs and characteristics of each market.

Collaboration with Stakeholders

Successful implementation of agent banking models necessitates collaboration with various stakeholders, including mobile network operators, regulators, and community organizations. Partnerships can facilitate resource sharing, knowledge exchange, and collective problem-solving, thereby enhancing the impact and sustainability of agent banking initiatives.

Innovation and Technology Integration

Leveraging technology and innovation can enhance the efficiency and effectiveness of agent banking operations. Digital platforms, mobile applications, and data analytics tools can streamline processes, improve service delivery, and provide valuable insights. Embracing technological advancements can also enable financial institutions to offer a broader range of services and stay competitive in the evolving financial landscape.

Conclusion

M-Pesa’s agent banking model has proven to be a transformative force in redefining how financial services are delivered, particularly in underserved rural markets where traditional banking infrastructure is limited or nonexistent. By leveraging a vast network of trusted local agents, M-Pesa has brought banking closer to the people, enabling secure, affordable, and convenient access to essential financial services such as deposits, withdrawals, money transfers, bill payments, savings, and microloans. This approach has not only expanded financial inclusion but has also driven measurable economic growth, empowering individuals and communities to improve their livelihoods, start or grow businesses, and strengthen local economies.

For financial institutions and corporate leaders, M-Pesa’s success offers a powerful blueprint for strategic innovation. Agent banking demonstrates that scalability, cost efficiency, and deep market penetration are achievable without heavy investments in physical infrastructure. More importantly, it highlights how financial services can be tailored to meet the specific needs of underserved populations, thereby unlocking new revenue streams, enhancing customer loyalty, and building sustainable competitive advantage.

From a broader strategic perspective, adopting and scaling agent banking initiatives can position organizations as catalysts for social and economic development, aligning business goals with sustainable development objectives. As emerging markets continue to evolve, embracing agent banking can become a decisive factor in achieving long-term value creation, expanding customer bases, and ensuring resilience in an increasingly digital and interconnected financial ecosystem.

References

• Kenya National Bureau of Statistics. (2023). Economic Survey 2023. Retrieved from https://www.knbs.or.ke
• Suri, T. (2017). Mobile Banking: The Impact of M-Pesa in Kenya. National Bureau of Economic Research. Retrieved from https://www.nber.org
• Van Teutem, S. (2025). There are now more than half a billion mobile money users worldwide. Our World in Data. Retrieved from https://ourworldindata.org
• World Bank. (2022). Mobile Money and Economic Activity. Retrieved from https://openknowledge.worldbank.org

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