Econet’s EcoCash versus Kenya’s M-Pesa

From Zimbabwe Independent

ECONET WIRELESS, Zimbabwe’s largest telecommunications service provider, has introduced Zimbabwe’s first mass attempt to tap into the potentially lucrative unbanked segment. That has been done through launching the EcoCash product. The EcoCash product allows money to be transferred between mobile users across all mobile telephone networks, a mobile phone-based version of MoneyGram or Western Union.

Ecocash potential Eldorado
One would have thought that Econet’s share price would have rallied at the news. It didn’t.
It is reported that Econet learnt the workings of its new offering from Safaricom of Kenya who run a similar service called M-Pesa. The Kenyan experiment has been a runaway economic success, exploding from 20 000 users within a month of its launch in March 2007 to the current 14 million users. That represents over 60% of Kenya’s adult population or 48% of Kenya’s entire population. M-Pesa processes transactions worth US$4,98 billion annually, translating to 17% of Kenya’s Gross Domestic Product (GDP)!

Currently, M-Pesa accounts for 9% of Safaricom’s annual revenues at US$54 million. Using profitability trends established from research on Blue Ocean creations (M-Pesa is a Blue Ocean), the M-Pesa’s contribution to overall profits could be as high as 20%. But what is a Blue Ocean?

A Blue Ocean is an entirely new industry, created by bringing in neglected potential customer segments through offering them compelling buyer utility not currently offered anywhere. In a recent research, four buyer utility values were mentioned by the users of M-Pesa. Ninety-eight per cent (98%) cited speed, 98% picked safety, 96% identified convenience and 96% cited affordability (M-Pesa costs between 0,2% and 0,9% of amount to be transferred). In a Blue Ocean competition is irrelevant. With no competition, profits are sterling.

M-Pesa is branching into other creative product offerings. Some firms are using M-Pesa to collect instalments. M-Pesa is now used to pay Matatus (equivalent of our commuter buses). Safaricom itself recently distributed dividends through M-Pesa to 180 000 shareholders, representing 26% of its shareholder base. Econet can use its well-known capability of innovation to come up with groundbreaking extensions of EcoCash.

Given Econet Wireless’s current subscriber base of around 5 million and its wide network coverage, reaching into our rural enclaves, Econet’s ability to replicate the Kenyan success appears realistic. At about 5 million subscribers, which is almost half of Zimbabwe’s population Econet has a similar profile to Safaricom. Assuming that Econet, like Safaricom, will within the first five years move about US$1,74 billion ( 17% of GDP and assuming a GDP growth of 5% per annum) through EcoCash, EcoCash should be able to generate about US$80 million annually and contribute about 40% to Econet’s overall profitability.

These are conservative figures, given that there is an estimated US$3 billion believed to be circulating outside Zimbabwe’s formal banking system. If Econet manages to coax half of that into the EcoCash pipeline, annual revenues from EcoCash can easily dash past the US$100 million mark.

One of the problems faced by Safaricom agents in remote areas is the issue of float. An agent of M-Pesaneeds to have a daily float which is replenished from a bank designated by Safaricom. Econet’s partnership with Tawanda Nyambirai’s TN Bank should easily solve that potential challenge. TN Bank uses its vast network of furniture retail shops as banking malls. That should provide accessibility to agents in rural areas to a supporting bank. That makes EcoCash a notch ahead of M-Pesa in this regard.

If Econet’s EcoCash, like M-Pesa is a Blue Ocean, then the market is undervaluing Econet.

Mobile cash innovation origins
Mobile banking targeting the unbanked is the brainchild of Nick Hughes, employed at UK telecommunications giant, Vodafone. Hughes was driven by a passion to make banking accessible and affordable to underserved communities who either cannot afford or do not see value in using the formal banking system.

Nick Hughes impressed a UK government representative who at the 2003 World Summit on Sustainable Development had heard him passionately and eloquently argue for private sector organisations to embrace sustainable development in their business plans. The UK government representative from the Department for International Development (DFID) invited Nick Hughes to submit a proposal to secure funding under the Financial Deepening Challenge Funds project. Vodafone secured the funding under a ‘if you put so much I will put so much’ funding partnership. Vodafone chose Safaricom, its Kenyan subsidiary to develop a pilot project.

In March 2007, after almost four years of navigating regulatory hurdles and bringing together project partners with divergent business models in mobile telephony, banking and microfinance, M-Pesa, the mobile micro-lending service was launched in 2007. Pesa means cash in Swahili. Thus M-Pesa simply means Mobile Cash.  Within a month of its launch, M-Pesadrew in close to 20 000 users.

The original M-Pesa product was developed for microfinance institutes in Kenya to facilitate the lending and repayments of microloans through Safaricom’s network of airtime distributors.
M-Pesa  a blue ocean

M-Pesa can be looked at from many angles such as Private Public Sector Partnership, Inclusive Banking and developmental economics. M-Pesa can be analysed from a business strategy viewpoint. M-Pesa is quoted by the Insead business school by Renee Mauborgne, co-author of the two-million-copy best seller Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant as an example of a Blue Ocean. A Blue Ocean is a new industry consciously created by a business strategist through doing two things simultaneously namely providing a leap in value for non-customers and lowering costs.

Traditional strategic thinking, which business academics call structuralism or determinism dictates that industry factors of competition are a given. In the structural determinism classroom, companies can only respond to the fixed rules of a given industry, using the competition mentality. To make profits, firms have to outsmart and outdo each other in responding to these so-called fixed rules.  Insead Business School, currently ranked the world’s 4th powerful business school, a position it shares with Stanford, one ranking behind third place Harvard, have challenged the structural determinism approach to strategy thinking popularised by one of Harvard’s most famous sons, Michael Porter. Insead has through the Blue Ocean Strategy argued that smart business strategists can pursue both high value and low cost simultaneously based on the premise that boundaries of industry are not fixed as argued by the proponents of the structural determinism. To do so they suggest that business strategists should look to non-customers and create a leap in value for them. This leap in value can be created by looking for clues outside your own industry and strategic groups and by studying alternatives to your products. Creating a leap in value is costly. To counter this cost increase, the business strategists needs to lower the cost of the value innovation.
Here is how M-Pesa fits as a blue ocean.

• First, M-Pesa looked into potential clients not served by banks. These include semi-illiterate rural dwellers and the poor urbanites who found either the formal banking system prohibitively expensive or inconvenient and inaccessible.
• Second, M-Pesa developers looked to alternatives such as international money transfer. You do not to have a bank account to access money sent overseas through Western Union. All you need is a reference number.
• Third, having created a leap in value for the unbanked customer (convenience and accessibility), cost management became equally important. By challenging accepted practices in banking, M-Pesa developers found opportunities to shave unnecessary costs.

But, is Econet’s EcoCash a Blue Ocean? We will attempt to answer that next week.

Nigeria: How LAPO MFB grew customer base to 650% in 9 years

By Hope Moses-Ashike, Businessday Online

Following the strong partnership between Lift Above Organisation (LAPO) Microfinance Bank, Nigeria, and Grameen Foundation, LAPO has grown its customers’ base by 650 percent, from 40,000 in 2002 to 300,000 in 2011. Since 2002, the Foundation has been working closely with LAPO, helping it to secure funding needed from commercial banks to provide loans and other services to their clients.

It has also helped the micro institution to build its institutional capacity, so that it can run its operations smoothly, manage its staff effectively, and provide the best service possible to its clients. More so, the Foundation provided guidance as LAPO transformed from a non-governmental organisation (NGO) to a regulated financial institution.

More recently, the Grameen Foundation has helped LAPO to pilot the progress out of poverty index, a poverty assessment tool that will enable it to more accurately measure the poverty levels of its clients, and track their movement out of poverty over time, as well as improve its products and services to effectively meet their clients’ needs.

Steve Wardle, manager of investments, Grameen Foundation, speaking at a media briefing commemorating the achievements of LAPO in the past year, said: “Last year, MoneyGram has been a critical ally for our work in Nigeria. It provided a grant of $20,000 that helped to support the day-to-day operations of our capital markets team – the group that manages Grameen Foundation’s financing initiatives for microfinance institutions.

That funding, he noted, enabled his team to work with LAPO to renew its funding from a leading commercial bank, securing N500 million that was used to provide approximately 22,000 loans to clients, including women. “When we began working with LAPO in 2002, it had 40,000 clients, mainly in and around Benin City. Today, it serves over 300, 000 across Nigeria, making it one of the country’s largest microfinance institutions – and also one of the largest in sub-Saharan Africa,” he stated.

Godwin Ehigiamusoe, CEO, LAPO, in his opening remarks, disclosed that the long standing relationship with Grameen Foundation has provided a flow of funds to women and families to proudly earn their way to a brighter future. While commending MoneyGram for its financial efforts over the years, Ehigiamusoe disclosed that the company provides an important service to the people of Nigeria, stressing that it recognises the works LAPO is involved in, and therefore, contributed financially to such efforts.

According to him, “Our partnership with the Grameen Foundation since 2002 has tremendously enhanced our capacity to implement our core mandate, beyond financial and technical assistance, LAPO has received tremendous moral support from the Grameen Foundation.”
While recounting the activities of the company in the past year, the LAPO boss revealed that in the year under review, the microfinance bank extended loans valued at 21 billion to women engaged in micro-enterprises, adding that it hopes to target 35 billion in this financial year.

Meanwhile, the LAPO Group disbursed a total loan of N22.9 billion in 2010 financial year, representing 55 percent increase compared to N14.8 billion disbursed in 2009. Moreover, the number of active clients of the Group increased by 46 percent to 355,502 in 2010, from 243,056 in 2009, as well as the number of branches rising to 235 in 2010 with nine additional branches, as against 226 branches in 2009.
In addition, the Portfolio at Risk (PAR) reduced by eight percent from 3.5 percent in 2009 to 2.7 percent in 2010.