By Mark Okuttah and Victor Juma, Business Daily Africa
Safaricom’s foray into the financial services market is expected to deepen on Tuesday morning with the launch of a mobile banking service that allows users of its revolutionary M-Pesa platform to save and borrow money using their phones.
The service, which mainly targets micro-savers and borrowers, requires users to open a mobile bank account, M-Shwari , into which they can deposit as low as Sh1 in savings and borrow up to Sh100,000 payable with a one-off interest rate of 7.5 per cent.
All loans are payable within a month of disbursement.
People familiar with the product told the Business Daily that deposits in M-Shwari accounts will earn a graduated interest up to a maximum of five per cent per annum.
Safaricom is offering the service in collaboration with Commercial Bank of Africa (CBA), which has been the primary banker for M-Pesa, Safaricom’s mobile money platform.
Users of the mobile banking service will remotely open the M-Shwari account by simply clicking on their phones. This will spare them the pain of filling application forms as happens with traditional banking.
“It is simple. There are no ledger fees, no limits on the frequency of withdrawals, no minimum operating balance and no charges on deposits for M-Pesa to M-Shwari account,” said Bob Collymore, the Safaricom chief executive officer.
Safaricom is positioning M-Shwari as a groundbreaking financial service that promotes a culture of saving among ordinary Kenyans and allows those with no collateral to access loans through their mobile phones.
Mobile money enthusiasts declared the service another revolutionary product with the potential of taking the ongoing convergence between telecoms and banking sectors higher but critics warned of the dangers that lie in the high interest rates and the one-month loan term.
The M-Shwari service is designed to act as a rudimentary credit facility for those who have been locked out of the loans market for lack of collateral and credit history.
“M-Shwari will attract a one-time facilitation fee (read interest rate) of 7.5 per cent of the borrowed amount,” Safaricom said in a statement.
Though the 7.5 per cent interest looks competitive compared to interest charged on commercial bank loans, that advantage is severely eroded by the one-month lending period that will mostly require borrowers to pay a lump sum amount to settle the debt compared to smaller monthly instalments paid by those who borrow from commercial bank.
For instance, a loan of Sh100,000 from the mobile bank account would attract a Sh7,500 interest charge, which means that the borrower pays back Sh107,500 within 30 days, including the principal.
A similar bank loan attracting interest at the current average rate of 20 per cent, would be repaid at the rate of between Sh9,150 and Sh9,200 per month for a year on reducing balance.
This would translate to an interest burden of Sh11,161 spread over 12 months – compared to Safaricom’s Sh7,500 interest payable in a month.
Safaricom is relying on the spending patterns of its customers, traceable from their airtime top-ups and M-Pesa transactions to determine the creditworthiness of subscribers.
Credit evaluation experts see this as giving the telecoms firm an edge over banks, especially with regard to target market that is mainly made up of informal sector operators who have been unable to secure loans for lack of cashflow statements, payslips and collateral.
To qualify for an M-Shwari loan, one needs to be an M-Pesa subscriber for at least six months, deposit some savings in their M-Shwari account and be a regular user of other Safaricom services such as voice, data and M-Pesa.
And to open an M-Shwari account, consumers will go to the Safaricom menu in their phones, select “M-Pesa”, go to “My Account”, “Update Menu”, enter “M-Pesa PIN” and wait to receive the updated M-Pesa menu.
Commercial Bank of Africa is hoping to hook a large segment of Safaricom’s 19 million subscriber base to M-Shwari as well as the telecom firm’s network of 47,000 distribution agents to deliver the service.
It is estimated that more than Sh300 billion of money in circulation in Kenya is outside the formal banking system and M-Shwari is designed to bring some of that money into the formal banking channels by targeting the 12 million Kenyans identified by the Central Bank of Kenya and the Kenya Bureau of Statistics as unbanked.
Safaricom launched a similar service with Equity Bank in May 2010 but the initiative collapsed a few months later amid reports of disagreements over fees and revenue sharing.
It also comes just six months after Airtel launched its credit-over-the-mobile service offer, targeting commercial banks’ core lending business at the lower end of the market. Airtel’s loans are capped at Sh10,000 and are issued in partnership with Faulu Kenya, a micro-financier.
The partnership between Safaricom and CBA comes after last week’s release of Central Bank of Kenya data showing that Kenyans transferred Sh1.117 trillion through their mobile phones, helped by the interface between banks and cash transfer services of telephone firms.
The value of all economic activities in Kenya — or the Gross Domestic Product — was Sh3.7 trillion last year.
CBK said the increase in mobile money transfers was being fuelled by the high number of consumers moving money into and from their bank accounts using mobile phones.
Kenya’s six biggest banks have established mobile banking platforms that allow consumers to access their accounts through their phones.
Kenya’s mobile phone operators first rattled the banks with money transfer services five years ago, forcing the lenders to form partnerships with the telecom operators for a share of the fees charged on the multi-billion-shilling domestic transfers.
The direct entry of Safaricom into the lending market is expected to lift its earnings from M-Pesa, which was introduced as a money transfer tool but has evolved into a utility bills payment and credit service.
Daily M-Pesa transactions stand at two million and are valued at Sh2 billion. M-Pesa users now stand at 15.2 million, having grown from 52,452 at its launch in April 2007.
Revenues from the service rose 32 per cent to Sh10.4 billion in the first half of the year ended September 30, making it a critical growth area compared to the voice business, which has been hit by a vicious price war.
M-Pesa’s contribution to Safaricom’s total revenue rose to 18.6 per cent from 17.1 per cent, with Safaricom’s parent company, Vodafone, set to take the service global by signing more partnerships in multiple markets.
MOMBASA, Kenya (MarketWatch) — Agnes Ngooro, a small trader in the bustling central market of Mombasa, spends her days sitting behind a wooden table selling trousers for a few dollars a piece, and while it may not look like it at first glance, she is an international businesswoman.
The clothes displayed on her table are manufactured in China and Thailand, and they arrive in East Africa in the region’s major cities including Nairobi, Kenya and Kampala, Uganda.
“If I want to buy something from Nairobi, I send money to the wholesaler. When he receives it he sends me the goods,” Ngooro said on a recent day while tending her goods.
This may seem like a perfectly normal 21st century retail operation. But not so long ago, it was very difficult, if not impossible, for Ngooro to pull off. Like millions of people in Kenya, she has no bank account and, until recently, no easy way to pay distant suppliers.
But now, thanks to an innovative, inexpensive mobile phone-based financial network, she can use her hand-held to pay her suppliers in faraway cities with money stored in her wireless account. Ngooro is one of the millions of East Africans long considered too poor or isolated for traditional banking services who has used the mobile money system to take a big step up the economic ladder.
The system she uses is called M-Pesa, a play on the Swahili word for money, and over the past five years it has transformed businesses and lives across East Africa. Introduced in 2007 by Safaricom, a Kenyan telecommunications company, M-Pesa now boasts around 15 million active users, over a third of Kenya’s population.
Before M-Pesa, Ngooro said, the only way small traders like her could obtain their merchandise was to pick it up in person, spending days on long, arduous bus rides. “It was very difficult,” she said. “Sometimes they rob you on the bus, they take your money.” Plus, traveling increased the cost of doing business significantly.
Simple and easy
The M-Pesa concept is simple — accounts are easy to set up, and subscribers can deposit money into them through thousands of M-Pesa agents scattered throughout the country. People can then send this money to other mobile phones, pay bills and even buy groceries, all from their handsets. It costs from 10 to 250 shillings ($0.12-3.00) to send money, depending on the amount and whether or not the recipient also has M-Pesa. Account information is stored in each phone’s SIM card, and can only be accessed by entering a PIN code.
The system was intended to be a “payment service for the un-banked,” said Betty Mwangi, General Manager of Financial Services at Safaricom, in an email. “M-PESA allows customers to use their phone like a bank account and debit card.”
According to Mwangi, people like Ngooro are exactly the demographic M-Pesa was originally designed to reach. But it wasn’t long before M-Pesa took on a life of its own, as Kenyans of all socio-economic levels began signing up by the millions.
Mwangi said the idea came from U.K.-based Vodafone which owns a controlling stake in Safaricom and was looking for a way to boost the efficiency and security of microfinance programs that make small loans to help the poor set up businesses. The platform was originally developed with funding from the UK’s Department for International Development, in partnership with a microfinance company called Faulu.
“M-Pesa was designed to be used by the BOP [bottom of the pyramid] customers. However, early adopters of M-Pesa were the middle to high class,” said Mwangi. They began using the service to pay salaries to employees without bank accounts, and, of course, to send money to poorer relatives.
Sending money home
This is how Jackson Anunda said he uses it. A security guard at a swanky beach side Mombasa hotel, Anunda doesn’t earn much, but he still manages to send around 2,500 shillings ($30) every month to his parents and wife in a village in western Kenya.
“Before M-Pesa, people were using big buses” to send money home, he said. “You give the money to the driver, and you tell them that when they arrive someone will be waiting for them.” Money was sent in bundles of cash, with each delivery priced by the weight of the package.
Not only was this system more expensive and much less secure, Anunda said, it was also very slow. It takes two days to reach his village by bus. “Maybe someone is sick and needs the money immediately. They could die,” he said. “But with M-Pesa it’s there in a minute.”
When it comes to sending money home, mobile phone transfers are fast outstripping more traditional services. In 2009 Western Union jumped on board, partnering with Safaricom to make it possible to send money directly to Kenyan phones from the U.K. Since then the service has been expanded to 45 countries.
M-Pesa’s growth has been staggering. The African Development Bank (AfDB) reports that over 70 percent of Kenya’s adult population now uses the service. This compares with the approximately 38% of Kenyan adults who have traditional savings accounts, according to the World Economic Forum.
Safaricom stated in its half-yearly report that over 314 billion shillings ($3.8 billion) were moved between April and September 2011. M-Pesa now accounts for around 12% of the company’s total revenue.
Nor is mobile phone banking limited to Kenya — the service has been introduced by telecom providers across East Africa, including MTN n Uganda and Zantel, a unit of United Arab Emirates’ Etisalat, in Tanzania. Similar services have been launched in other countries as well.
Tough to copy
But Olga Morawczynski of Applab Money, who tests mobile banking products in Uganda, said most countries have been unable to replicate M-Pesa’s success.
“Operationally, it’s a little more difficult than they anticipated,” she said. “Kenya is an extremely powerful local remittance market,” which isn’t the case everywhere.
But where it works, mobile banking is creating real opportunities for economic development, according to observers.
“It’s an infrastructure that really gets down to the village much more easily than any other technology,” Morawczynski said. “Money can flow more easily. It can get into areas where it wasn’t before.”
A 2009 study by CGAP, an independent policy and research center, found that mobile money systems increased household incomes by five to 30 percent for over half of rural families surveyed.
Still, not everyone thinks the effects of mobile money networks have been entirely positive. An AfDB brief from earlier this year, “Inflation Dynamics in Selected East African Countries: Ethiopia, Kenya, Tanzania and Uganda,” said the growth of M-Pesa may have contributed to inflation in Kenya, as it increases the number and speed of transactions in the economy.
The Central Bank of Kenya should take note, the AfDB report said. “The increase in the velocity of money induced by these activities may have in turn propagated self-fulfilling inflation expectations and complicate monetary policy implementation,” the report said. “The monetary authorities may inadvertently follow looser monetary policy if the stock of e-money grows more rapidly than projected.”
But not all economists buy into this theory. Bruno Yawe, Senior Lecturer in Economics at Makerere University in Kampala, Uganda, said he doesn’t think mobile banking can explain inflation. “Mobile money platforms are not any different from traditional banking systems. The difference is only in the speed,” he said.
“If anything, mobile money is cutting costs of getting money across. There would be more inflation if we didn’t have it,” he said.
In any case, you won’t hear many Kenyans complaining. M-Pesa agents are now about 16 times more widespread than ATMs in Kenya, according to the World Economic Forum, and they’re doing a roaring trade.
“It’s like a merry-go-round,” said Jamila Yusuf, an M-Pesa agent in Mombasa. “People coming and going, coming and going.”
By Hilton Tarrant, Memeburn
It’s the runaway success story: From a standing start just four years ago, over 15-million Kenyans now use the M-Pesa mobile money service to transact. Billions of Kenyan shillings have been moved through the system. It’s this success which leads to M-Pesa being held up as a case study of mobile payments in emerging markets (try researching mobile payments without reference to M-Pesa!). It’s also made financial services companies and rival operators salivate.
True, the growth rates are staggering. There are only 40-million people in Kenya, which illustrates just how many economically active adults in that country use M-Pesa (practically all of them).
This success has led to Vodafone (majority owners of Safaricom) launching M-Pesa in other markets. To date, it has been rolled out in neighbouring Tanzania, Afghanistan as well as South Africa, with pilots in other countries including India. Try as it might (with millions of dollars of advertising and promotion), Vodafone simply cannot replicate M-Pesa’s success in any other market.
Its high-profile launch by Vodafone group-company Vodacom in South Africa, in partnership with Nedbank, has faltered to the degree that it has had to completely reinvent its offering.
M-Pesa flourished in Kenya due to conditions which aren’t easy to replicate simply with just a management team and a budget.
M-Pesa got traction as a means for workers in urban areas to send money home to their family. (Originally the service was designed for microfinance borrowers to receive and repay loans using Safaricom’s airtime reseller network.) “Sending money home” was a killer use case — creating a user base that grew exponentially.
The distribution network makes it all work — it’s far easier to find one of 25 000-odd agents, than it is to find one of 1 000 bank branches. Add to this the fact that Safaricom’s airtime resellers are agents — real people — not faceless banks. Safaricom also managed to successfully leverage its trusted brand. The low transaction fees for using M-Pesa was a further attraction.
None of the reasons why M-Pesa is unbelievably successful are technology-related. Sending money via a mobile platform is not particularly difficult. That explains the hundreds (thousands?) of competing services in every market worldwide.
Rival operators in Kenya have launched similar services (Airtel Money, Orange Money, and Essar yuCash), with dozens of other players also active in the market. With all the attention, nearly every operator on the continent has some sort of mobile money offering.
M-Pesa’s success will not, however, be repeated in other markets, and definitely not in South Africa.
Interestingly, Vodafone understands the competitive advantage it needs in order to launch M-Pesa. Executives have, in private conversations, been clear that it’s all about distribution. While it aims to blanket new markets with agents, distribution costs money and it takes time to build.
We’ve seen this first hand in South Africa, where it only has 3 000 outlets, almost entirely comprised of Vodacom shops, Nedbank ATMs and Pep stores. Fairly steep transaction fees aren’t exactly causing customers to rush to the service either. Vodacom is shifting focus to higher LSM groups, hoping to broaden its appeal, but tough regulatory hurdles make the service far less seamless than it ought to be.
Banking legislation isn’t unique to SA — all operators and banks on the continent will continue to grapple with complex regulations as they aim to convert the unbanked into banked.
It’s time for new services to emerge, instead of a template-style rollout by multi-nationals. In South Africa, we’re seeing competing offerings attract users. For example, since launch over R800-million has been sent via FNB’s eWallet. On average, R2-million is being sent daily, and over 500 000 eWallets have been created. Other unexpected players are also capturing market share. Shoprite Holdings has seen a 52 percent increase in money transfers at its Money Market counters in the past year, and is quietly eyeing the financial services space.
Distribution remains king. And that also means scale, something hardly ever understood by new entrants.
Bring on true innovation.
From TradeInvest Africa
Competition among financial institutions is intensifying in Africa as more governments relax barriers to entry and open their countries’ banking sectors to new players. The flurry of fresh entrants in some countries is credited with helping to drive down banking charges, improve access to banking services and spark off a wave of new products and services.
However, in most countries it is still far easier for companies to gain access to banking services and credit than it is for ordinary consumers, according to members of Lex Africa, a network of leading law firms in 30 African countries.
‘When it comes to banking access, it is important to distinguish between corporate transactions and services for the man in the street. There is often a vast difference between the two,’ says Richard Roothman, banking and finance specialist and director at South Africa-based Werksmans Attorneys.
Roothman says that in the business markets of the continent, an influx of foreign banks is behind the proliferation of corporate banking services such as project finance. ‘Many African countries have a huge desire for big mining, power, roads and water projects, and project finance is the only way to finance these transactions. Almost all of them are financed by foreign banks, which are why a lot more international banks are busy looking at Africa.’
Another reason for their interest is that banks are hungry for business in the aftermath of the global financial crisis. ‘Africa is not a safe haven but other avenues have dried up or are in limbo,’ he says. ‘Foreign banks see that they can make more money by taking a little bit more risk in Africa.’
While corporate banking services are growing strongly, many African consumers are turning to microfinance, mobile phone and retail companies rather than banks for access to financial services. Says Roothman: ‘Micro financiers and other non-banking lenders tend to be more accessible to the man on the street, who is often not seen as bankable. Still, as the purchasing power of Africans grows, there will be more scope and opportunities for banks to service them.’
Kenyan banks galvanised into action
In Kenya, where less than a quarter of the population has bank accounts, banks have been spurred into action in the consumer market by the success of the mobile money transfer services.
Money transfer services were first launched by Kenyan mobile operator Safaricom in 2007 via M-Pesa and other mobile operators now provide similar services. This is one of the main catalysts that have triggered far-reaching change in the country’s banking and financial services landscape, according to Binti Shah, partner at Kenya-based Kaplan & Stratton.
According to studies by Enhancing Financial Innovation and Access (EFInA), a non-profit organisation that promotes financial inclusion, around 20% of Kenyans had bank accounts and about 8% had access to other forms of formal financial services in 2006. By 2009, the percentage of people with bank accounts had crept up to 23% but those using other formal services, particularly M-Pesa, had shot up to 17%. Today’s figure is likely to be even higher because the number of M-Pesa subscribers using the service to deposit and withdraw cash and do money transfers has reportedly increased to 10 million.
This success has galvanised the banks into action. ‘Banks now have much lower entry fees, which means that less wealthy individuals can now afford to open accounts,’ says Shah.
According to Shah, the recent changes in legislation have also made it possible to introduce agency banking, which means banks no longer need to follow the traditional ‘bricks and mortar’ model. Banks are now allowed to recruit other businesses – notably telecommunications companies and retailers with a nationwide presence – to offer banking services on their behalf on an agency basis.
Shah notes that one of the latest boosts for financial access in Kenya is the partnership between mobile operators and commercial banks which, over and above doing away with account-opening fees and monthly charges, pays interest and offers account holders access to emergency credit and insurance facilities.
‘As a result of all these changes, the sector has become very competitive. Access to banking and financial services has improved greatly and charges are coming down. The greater circulation of money also means more businesses are coming up and helps investors feel a little bit more comfortable about investment prospects,’ says Shah.
Nigerian uptake on the increase
Although Nigeria lags behind Kenya in consumer access to financial services, there is “abundant proof of increased access to banking and other financial services “. Osayaba Giwa-Osagie, managing partner at Nigeria-based firm Giwa-Osagie & Co. points to Enhancing Financial Innovation and Access (EFinA) surveys showing significant increases in access between 2008 and 2010.
When EFinA released the results of its first Nigerian financial access survey in 2008, it found that only 21% of Nigerians were banked, while 2% were using micro financiers as banks and 24% were using informal facilities such as savings clubs. That left about 46 million Nigerians, or 53% of the population, without any access at all to formal or informal financial services.
Two years on, the percentage of banked Nigerians has increased from 21% to 30%, according to EFInA’s 2010 financial access study. Overall, the proportion of Nigerians without access to formal or informal financial services has dropped from 53% two years ago to 47% currently.
Citing reasons for the improvements, Giwa-Osagie says: ‘The new generation banks have brought some level of competition into the banking industry, with the introduction of new banking technology and better and faster service delivery.’ He says banks have also branched out from their traditional strongholds in centres such as Lagos into other geographical areas.
Interestingly, basic savings accounts and ATM cards are by far the most popular banking services in Nigeria. Only 1.5 million Nigerians have credit cards, according to EFInA’s studies, and fewer than two million people have overdraft, mortgage loan or vehicle finance facilities. Furthermore, despite the high level of mobile phone penetration in Nigeria, the country has yet to introduce a mobile money transfer service such as M-Pesa, which is proving so popular in Kenya.
A long road to travel in Angola
In Angola, most banking activity is concentrated in the capital Luanda, says Natacha Sofia Barrados, an associate specialising in banking law at FBL Advogados. ‘Outside Luanda, there is only one or two banks and people still keep their money at home.’
Even in Luanda, banking services are out of reach of many consumers. ‘To open an account, you must typically have $200, which is too much for most ordinary people,’ she says, estimating that between 10% and 20% of Angolans have bank accounts. ‘It is getting easier now because a lot of new banks are opening and some do not require a minimum amount.’
Barrados says competition in the commercial banking market is accelerating and that the Angolan Central Bank has made it relatively easy, theoretically at least, for international banks to start operating. ‘The minimum capital requirement is $6-million, there must be a local shareholder and if you are non-resident, you must have authorisation from the Council of Members.’
Far more arduous than applying for a banking license are Angola’s exchange control regulations, particularly around the expatriation of capital. ‘It takes a long time to issue a license to export capital out of the country. In fact, this is very difficult,’ she says.
‘For a new bank to succeed, it is very important to comply with all the rules and to be aware of the exchange control regulations. It is also most important to understand the Angolan environment and to realise that this is not a normal business environment,’ she says. ‘It is not at all like operating in America or Europe.’
How to be successful
Says Pieter Steyn, the chairman of Lex Africa and a director at Werksmans Attorneys: ‘This is the age of African Lions and increasing interest in the millions of African consumers. African demand for financial services will increase in future and although banks with an established African presence have an inherent advantage, they will face increasing competition not only from their traditional competitors but also from novel and innovative ways of providing financial services.’
Lex Africa, is a corporate legal network that comprises of law firms in 30 African countries.
By David Mugwe, Business Daily Africa
The Central Bank of Kenya (CBK) has warned against a proposal to harmonise money transfer systems currently offered by mobile phone operators, saying the move would kill innovation in a sector that has been a godsend to the bank’s efforts to bring more Kenyans into the formal economy.
CBK governor Njuguna Ndung’u said players in the mobile money sector should focus on increasing the number of agencies and customers they have before such a proposal to harmonise the systems be considered.
He pegged 24 million Kenyans using the systems as an acceptable threshold.
“Interoperability will help to reduce costs but if you reduce costs without following the rules of the game you will kill the innovation. There are proprietary rights that you have to respect,” said Prof Njuguna at the AITEC Banking and Mobile Money Comesa conference last Thursday.
Business Daily had a day earlier exclusively reported on a proposal presented to the Prime Minister’s office by Airtel that aimed at building a seamless money transfer platform that would allow rivals of Safaricom’s M-Pesa to merge their functions with M-Pesa.
It would mean that cash transfers could be sent between networks, as well as allow Safaricom’s rivals to use its agency network to extend their reach, a move aimed at diluting the market leader’s dominance.
Safaricom’s rivals had said that such a platform would remove the high cost that is preventing consumers from moving money across networks, but Safaricom argued that the move would infringe on its proprietary rights.
The development threatened to open a new front in the battle to win subscribers, as some service providers said the establishment of a central clearing house would offer them headroom to significantly cut costs as they had done in the calls market.
Safaricom’s rivals reckoned that a seamless platform would loosen each operator’s grip on the mobile money platform, pulling down the cost barriers and allowing free movement of money.
Though it is currently possible to send money across networks, the transfer process remains complex and costs 10 times more than the price of sending money within a network, adding new dimensions to the factors preventing consumers from changing mobile phone service providers.
Prof Ndung’u said CBK would be keen to see the number of unbanked Kenyans reduced before it can impose new regulations.
“If you do not have the numbers you cannot bring costs down. Let’s have the numbers then start debating how interoperability will reduce costs further but we should respect proprietary rights.”
He said that though the initiative would reduce costs, deposit accounts and access to financial services had grown over time because of innovation by mobile operators, agent banking and licensing of deposit taking microfinance institutions.
According to the CBK, the number of micro-accounts increased over five times to about 11.2 million last September from about 2.1 million in 2005.
In a presentation done in November, the CBK said that the number of deposit accounts had also increased to nearly 12 million from 2.55 million over the same period.
The CBK attributed the growth to reduced costs of maintaining micro accounts and introduction of innovative instruments such as mobile money transfer.
Prof Njuguna said that these numbers could improve further, a move that would see costs go down as more individuals use the existing structures.
“We have to follow the rules of the game but what we want is numbers on the table. Let’s not go for simple choices,” he said, adding that the deposit accounts could be increased to over 24 million.
M-Pesa remains a major attraction for Safaricom subscribers and is seen as one of the main reasons why consumers do not change from the network.
Safaricom has 13.5 million subscribers on the service with over 22,000 M-Pesa agents while Airtel, its main rival which operates a mobile money network dubbed Zap has about four million subscribers.
Orange, which runs a mobile money network dubbed Orange Money, has about 100,000 users and 1,500 agents, while Yu runs a mobile money network dubbed Yu Cash.
According to the CBK, as at the end of September last year, M-Pesa had transferred Sh68.02 billion with 28.45 million transactions since 2007.
Banks which have largely been left behind by the telecommunication firms in mobile money innovations have partnered with the providers so as to grow their customers.
CBK data shows that since the launch of a partnership between Safaricom and Equity Bank, 700,000 M-Kesho accounts had been opened as at the end of September last year with approximately Sh400 million mobilised.
UAP Insurance, Syngenta Foundation, Safaricom expand insurance plan to cover value of farm harvests, more crops to provide safety net for Kenya farmers
With Kenyan farmers increasingly fearing massive weather-related losses, UAP Insurance, Syngenta Foundation and mobile operator Safaricom announced today a major expansion of Kilimo Salama, an innovative and affordable crop insurance program that will now cover the expected value of farm harvests, more crops and many more farmers against drought and flooding, while also protecting against livestock losses.
The new program, called Kilimo Salama Plus, builds on the original Kilimo Salama—Kiswahili for “safe farming”—which was launched last year. It uses a low-cost mobile phone payment and data system that is linked to solar-powered weather stations to issue an insurance policy and rapidly compensate farmers for investments in seeds, fertilizer, and other inputs that are lost to either insufficient or excessive rains.
Kilimo Salama Plus retains this innovative approach while expanding from the initial focus to go beyond just inputs to give farmers the opportunity to insure the value of their harvest. In addition, due to high demand, farmers can now insure a wider array of crops including maize, wheat, beans, and sorghum.
Kilimo Salama Plus is available to farmers in the productive breadbasket regions of Southern Nyanza, covering Oyugis and Homa Bay, Busia and Northern Rift, including Kitale and Eldoret, as well as Embu and Nanyuki.
UAP Insurance Managing Director James Wambugu said that Kilimo Salama Plus had expanded the range of crops under cover due to rising popularity of its affordable and easily-dispensable nature.
“It also follows our drive to simplify insurance and in the process expand access to more crop and livestock farmers,” he explained.
“Agricultural insurance is particularly important in Kenya and elsewhere in Africa today as the extreme weather patterns generated by climate change are introducing greater volatility to food production and food prices,” said Dr. Wilson Songa, Agriculture Secretary of the Minister of Agriculture, during the launch ceremony in Kitale today.
Expounding on the successes of the initial program, Marco Ferroni, Executive Director of the Syngenta Foundation, said, “We have seen 12,000 farmers in Kenya take advantage of the original Kilimo Salama and we should be able to reach 50,000 farmers with Kilimo Salama Plus this year and provide far more insurance options.”
“We have quickly seen this initiative grow from a small pilot program in 2009 to become the largest agricultural insurance program in Africa and the first to use mobile phone technology to speed access and payouts to rural farmers,” he added.
Just as they did with the original program, farmers purchase Kilimo Salama Plus through local agro-dealers, who use a camera phone to scan a special bar code that sends the policy to UAP over Safaricom’s mobile data network. This innovative mobile phone application, which was developed by the Syngenta Foundation, then sends a text (SMS) message to the farmer’s mobile phone confirming the insurance policy.
Payouts are determined by data collected through 30 weather stations in the targeted regions that have been renovated with automated, solar-powered systems capable of broadcasting regular updates on weather conditions and rainfall quantities occurring near individual farms. When data from a particular station, which is transmitted over Safaricom’s 3G data network, indicates that drought or other extreme conditions (including excessive rains) are destined to reduce yields, all farmers registered with that station automatically receive payouts.
The payments are sent directly to a farmer’s mobile phone via Safaricom’s popular M-PESA mobile money transfer service. Using M-PESA combined with the automated weather stations allows farmers to quickly collect payouts with virtually no claims process and no need for an agent to visit the farm to confirm losses.
“M-PESA is already a well-established and trusted system for conducting money transfers in rural Kenya and our network has more than enough capacity to provide greater access to the Kilimo Salama Plus program,” said Safaricom CEO Bob Collymore. “It is exciting to see how the rapid uptake of mobile phone technology in Kenya, bolstered by Safaricom’s pioneering investment in M-PESA and a robust data network running on Kenya’s only 3G platform, is being used to deal with the weather uncertainties that are a major cause of food insecurity among some Kenyan families.”
Included in the program is a helpline funded by the Syngenta Foundation that is staffed by agriculture experts from Safaricom offering farmers free advice on how to improve production and protect their investments. Sixteen thousand Kenyan farmers already have used the helpline.
Crop insurance has long been used in developed countries to deal with such weather uncertainties, but its availability in Africa, particularly to smallholder farmers, has been extremely limited. Many areas of Kenya received far less rain during the “short-rain” season that runs from October to December and there are concerns that weather patterns now developing—particularly a cooling of Pacific Ocean waters known as “La Niña”—could curtail precipitation throughout 2011. Kilimo Salama partners expect for some registered farmers in parts of Embu, Nyanza, and Nanyuki to receive payouts for drought-related losses.
Kilimo Salama (“Safe Agriculture”) is a pay-as-you-plant insurance program for Kenyan farmers to insure their farm inputs against drought and excess rain. The program, which is a partnership between Syngenta Foundation for Sustainable Agriculture, UAP Insurance, and Safaricom, uses a low-cost mobile phone payment and data system that is linked to solar powered weather stations to issue insurance policies and rapidly compensate farmers for investments in seeds, fertilizer, and other inputs that are lost due to either insufficient or excessive rains. Kilimo Salama is supported by the International Finance Corporation (IFC) and Syngenta Foundation for Sustainable Agriculture.
Mobile money transfer services, like Safaricom’s M-Pesa, offer diversity in the financial sector. This has diluted the dominance of banks and changed the sector’s landscape .
By Mbui Wagacha, Business Daily Africa -
Since they crept into our moribund financial chess game, mobile money transfers have lowered the costs of distributing microfinance.
Embedded in the ICT revolution, the service has become a game-changer to a financial system dominated for decades by banks living comfortably on poor rewards to savers, rich pickings from government debt and hefty interest to private borrowers. This left a yawning spread, creating billions in annual profits for banks. The transfers have made virtually irreversible changes to the banks’ feast.
Writing in the Business Daily on January 29, 2010, I raised the red flag on high mobile tariffs. My argument was that they delayed, but could not scuttle an unstoppable game — that Internet Service Providers would embrace competition and that government revenues in the industry needed re-thinking in the public interest.
Subscribers applauded in ensuing e-mails. Mobile network operators (MNOs) penned unhappy and bad economics, grimacing at tariff cuts.
But the cuts came and, as predicted, favoured subscribers. They show government faces an uphill task if it does not re-think taxation and regulation in the industry. Cradled in an ICT-led economic revolution, we seem ill-prepared for change.
While the transfers champion adjustment, you won’t learn it from fretting banks and MNOs, whose mystical analyses conceal sharp knives out in a scramble for a market they neglected for years. As in the “Yes” or “No” vote in the recent constitutional referendum, Kenyans will win — nothing beats a person voting with their money.
Surprises await sceptics. A complex interplay of banks, consumers and MNOs will occur, again leaving subscribers smiling while the banks, operators and government may have to go back to the drawing board. Pointedly, ICT and the transfers will squeeze the role of banks in the financial market of Kenya’s “new” economy.
A gift to wananchi on the demand side, the giver of the transfers is Kenya’s world-beating MNOs that triggered the innovation on the supply side. The sector offered grassroots solutions to an age-old snub. Banks served the rich and gave a wide berth to potential customers in low-income groups and remote rural areas.
The poor put their money under the mattresses or buried it in their gardens. Their merry-go-rounds or chamas then dealt a mighty snub to banks. They swung an even bigger whack with mobile money transfers. This may end the mutual back-stabbing.
Welcome to poor people’s money and its effects on the future of Kenya’s financial sector. It poses interesting puzzles on strategy, economic theory and policy. Applauded the world over, the flows already are powerful drivers of Kenya’s economic growth and efficiency.
ICT applications and the cellphone, including the mobile money segment, grew on average by 23 per cent per year since 2000, accounting for 13 per cent of the decade’s GDP growth. It is creating Kenya’s “new” economy from the “old” one through enhanced efficiencies and new techniques of doing things. By this Christmas, the World Bank projects mobile money transfers will reach Sh560 billion ($7 billion) annually, equivalent to 20 per cent of GDP.
In developed economies, bond markets are the dominant segment in the financial sector, competing with banks by offering alternative sources of finance for investors and saving channels for savers through issuance, holdings and brisk secondary market trading of bonds. In contrast, banks are in charge in Kenya’s lucrative financial market as deposit takers and providers of lending.
In recent years, attempts to forge the alternative segment, a bond market, succeeded in diluting banks’ supremacy. But only slightly. The bond market is marginal and exhibits fiscal dominance, that is, the main purposes are public finances and the main issuer is government, despite recent forays by Safaricom and KenGen, among others.
Enter the mobile transfers, a third pillar of the evolving financial sector. Take the demand side. From 114,000 subscribers in 2000 the estimate for 2010 is more than 21 million subscribers, equivalent to the entire adult population.
Some 15 million holders of mobile sets — equivalent to 75 per cent of the adult population — apply them to money transfers. Mobile penetration (the percentage of the population using mobile phones) leapfrogged from 0.38 per cent in 2000. More than 90 per cent of all Kenyans above the age of 15 years had access to phone services in 2010. Falling call costs and wider coverage rake in poor peoples’ money to the mobile phone money market, and into the financial sector.
Unhappy, banks grumbled. After surprising debates in the Central Bank of Kenya (CBK) and the Treasury, with some clutching to “old economy” worries on money supply and inflation, in 2008 the Finance minister ordered assessment of the risks of mobile network operators providing money transfer services.
Early last year again, in response to qualms by banks, the ministry of Finance audited M-Pesa, Safaricom’s mobile money service. With banks gnashing their teeth at the competition, the transfers earned recognition as non-bank activities under the CBK Act, offering no interest and no loans to participants.
MNOs then forged in Kenya the floating electronic money called the e-float. For subscribers, this is perfect for remittances to rural households, payment of school fees and other household payments. The e-float is operated by an oligopoly of competing MNOs such as Safaricom, Airtel and YU.
While mobile money helps diversify the financial sector by further diluting the dominance of banks, the competition has induced banks to attempt to claw back lost ground in the deposit and revenue stakes from the lucrative poor man’s e-float held by MNOs.
With a possible squeeze on bank deposits by 2010, the financial institutions raised real interest rates to savers (actual rates minus expected inflation). Rates have edged towards positive territory for the first time since 1998.
As an example, note the collaboration of Equity Bank, targeting “middle of the pyramid” income earners to open savings accounts and M-Kesho accounts — a joint venture with Safaricom that allows phone users to earn interest on their mobile phone-based savings accounts.
In early November, Equity moved shrewdly again to access Telkom Kenya’s national service network for use in the Orange mobile money transfers via agents it described in the media as “mini-Equity Banks”.
Price competition for the poor man’s e-float has thus taken two forms: the interest-free part that analysts call the transformational model, and the interest earning collaboration with banks, called the additive model, yielding interest to subscribers.
Expect banks to offer savers better rates to carve out a share of the e-float. On their part, MNOs compete not just with the banks for e-float, but are also in the trenches of a price war of their own to keep subscribers and their share of e-float. This comprises both the interest free accounts and the collaborative interest bearing accounts held for subscribers.
Every transfer from a subscriber in e-float earns them a handsome return from charges. Lose subscribers and you lose their e-float and, subsequently, the income from transfers. This part of the MNOs battle forms the competition for e-float shares aimed at locking in subscribers. Something must give.
Sure enough, a proxy battle has begun to woo subscribers with cuts in call tariffs in order to fend off migration to rival MNOs. Kenya’s call tariffs are now some of the lowest in the world, averaging Sh3 per minute in 2010, down from Sh16.8 per minute in 2002.
But battles like these leave casualties, even up the pecking order. A good example is the government. As ICT and mobile telephony graduate from exchanging e-float to exchanging goods and services (we could even see the Nairobi Stock Exchange trading on mobile phones soon), taxes will take a knock, both from falling call costs (remember the 26 per cent tax on mobile calls) and sales of goods and services. Taxes will inevitably be paid “in the air”, not to the Kenya Revenue Authority.
There will be poor data capture on economic activity, employment, prices and security. Sellers of fake, contraband and substandard goods and services may have a field day. Inflation figures may look funny: cutting calling costs lowers inflation, which CBK may applaud. However, government loses revenues.
Moreover, despite growth, there are trade-offs in monetary policy: velocity of money, loss of control of money aggregates to tame inflation.
The above developments point to a tricky policy quagmire spawned by ICT and mobile money transfers. Government must grin and bear revenue loss, yet facilitate growth and regulation for the greater public good of economic activity, employment and a more inclusive and competitive financial system. With growth, it will certainly recoup larger revenues in the end.
Yet, there is much regulatory ground to cover. Let a sampling suffice: interest earned on deposited e-float owned by subscribers, who do not earn interest but whose accruals are used by MNOs for charities and foundations and threats from hackers who could break mobile security codes. But then, what change ever occurred without challenges?
Dr Wagacha is a macroeconomics consultant; firstname.lastname@example.org
By Mwangi Muiruri, Daily Nation Kenya -
No one took them seriously but it appears small-scale farmers are now digging in for a big stake in the insurance industry. The introduction of insurance cover for crop failure promises to give farmers not only control of their farming, but could also turn them into a niche market for insurance companies groping for clients is a near-stagnant market.
The micro-insurance cover was pioneered in Kenya through a collaboration between Syngenta Foundation for Sustainable Agriculture, UAP Insurance, Safaricom and 54 local agro-vets.
Under the programme, too, are 30 weather stations, each covering a micro-climate of a maximum of 15-20km radius.
Suppliers sponsor half of the premium’s price, leaving farmers to pay 5 per cent on top of the cost of the inputs. The product debuted in Kenya in 2009 with a pilot project in Laikipia district. Ms Rose Goslinga, the project’s coordinator, says it involved 700 maize farmers who were insured against drought.
“Following the drought that hit them, all farmers were compensated depending on the extent of the drought,” she says.
The programme has partnered with agro-vets across the country and serves 11,000 farmers spread across Western Kenya, Southern Nyanza, Uashin Gishu, Embu, and Laikipia East.
Analysts say the Insurance Regulatory Authority should amendment law to accommodate this new scheme. Through micro-insurance, most farmers who find mainstream cover unaffordable will have one reason to farm more and improve food security in the country.
In 2007, Kenya FinAccess found that 69 per cent of Kenyans find insurance unaffordable. Ms Jayne Gathii, who is in charge of agri-business for marginalised women groups at the Kenya Agricultural Research Institute (KARI), says micro-insurance will cultivate confidence in farming.
“Unpredictable rains that occasion crop failure define the lives of smallholder farmers. Good years are remembered for their adequate rains, while bad years are defined by droughts or other adverse weather conditions,” she says.
Ms Gathii says agricultural micro-insurance will reduce the impact of severe weather and support increased investment in productivity.
“Insured farmers are able to buy certified seeds and invest in fertilisers. In the years following droughts, insured farmers are able to continue farming,” she says.
Agriculture Secretary Wilson Songa says legislation has to be fast-tracked to widen the scope of farmers’ access to insurance.
“Traditional agricultural insurance relies on on-farm monitoring of losses, evaluated through farm inspections. And since the transaction costs to insure one acre are similar to insuring a 200-acre farm, the premiums from the one acre farm would never cover the related transaction costs,” he says.
He roots for weather index based insurance generated through strategically placed weather stations that give a clear picture of draught risks.
“The weather stations measure the rainfall and these measurements are compared to an agronomic model specifying crops’ rainfall needs. If the needs are not met, farmers insured under that station receive a payout. If the needs are met,” he says.
He says this approach is working in Mexico, Morocco, India, Malawi, Rwanda and Tanzania, among other countries. But Mr Songa says farmers will be trained on micro-insurance schemes.
Syngenta Foundation chief executive Fritz Brugger says the programme has its risks, mostly related to poor takeoff.
From Medical Daily -
Jane Gathoni, a Kenyan farmer was pleasantly surprised when she received a text message from the African micro-insurance provider UAP saying she had been compensated with $29 for loss of her harvest due to drought.
Gathoni, a mother of two and caretaker of two orphans is one of the more than 9, 500 Kenyan famers who have been micro-insured. She has been farming for the past 11 years on 2 acres (0.8 hectare) of land in Kenya and joined a program that assess crop loss and subsequently pays compensations based on climatic data from solar powered weather stations. She used her insurance money to buy new seeds.
The scheme Kilimo Salama—a Swahili phrase that means “safe farming” was launched in 2009 and gives small-scale farmers in Kenya “pay as you plant” insurance. This saves thousands of farmers who lose their harvest often and can’t afford to buy seeds next season.
African farmers depend largely on rain. Harvests have been adversely affected in the past few decades because of sharp depletion of nutrients in the soil. According to Keith Shepherd, a soil scientist with the Nairobi-based World Agroforestry Centre, this is due to rampant mining activities. Experts say the situation deteriorates due to unreliable weather patterns.
UAP managing director James Wambugu believes that this revolutionary scheme would make micro-insurance accessible to farmers by using the weather stations to verify local weather conditions. It also can help micro-insurance to become affordable and attractive for small farmers.
Insured farmers pay an extra 5 percent of the value of high-yielding seeds, chemicals, and fertilizers sold by agricultural companies who are partners with UAP. These companies match the farmers’ investment to cover the full 10 percent premium it takes to cover the program’s cost.
Switzerland-based Syngenta Foundation for Sustainable Agriculture and Kenyan mobile phone service provider Safaricom are also partners in the scheme. When a farmer buys supplies from one of the two companies, an employee uses a camera-enabled mobile phone to scan a special bar code which immediately registers the policy with UAP Insurance through Safaricom’s network.
A customized mobile phone application developed by the Syngenta foundation then sends a text message to the farmer’s mobile phone confirming the insurance policy. The scheme is expected to reach a potential 50,000 Kenyan farmers in near future.
By Steve Mbogo, Business Daily Africa –
The M-Kesho bank account is causing jitters among micro credit institutions who fear losing current and prospective customers to the new service because of its easy accessibility through the mobile phone.
The M-account allows users to receive small loans currently limited to a maximum of Sh5,000.
Borrowers will be assessed based on their credit history of M-Pesa and later in repayment through M-Kesho.
They will apply for the loan via the phone and receive notification within minutes.
If they qualify, borrowers will receive the money on their phones which they can withdraw from the nearest M-Pesa agent.
This is a major shift from the practice of micro credit institutions that lend micro loans only to organised groups to curb the risk of default.
In the micro credit institutions model, applicants must belong to an organised group of at least four people, fill in loan application forms, list collateral they offer and wait for days before they are notified if they qualify.
Loanees are paid by cheque and have to wait for about four working days for the cheque to mature.
The commercial banks also take their cheque-handling charges from the loan amount.
Micro credit institutions include small financiers like Faulu Kenya, Kenya Women Finance Trust and savings societies known as Saccos.
Shylocks are informal micro credit players.
“We are concerned that M-Kesho may pull away some of our clients but this is a chance for other micro lenders to innovate,” said George Ototo, the acting managing director of the Kenya Union of Savings and Credit Cooperatives (Kuscco).
Key players in micro finance sector, including the Association of Microfinance Institutions of Kenya requested not to comment and gave divergent reasons for that.
Mr Moses Ochieng, a Financial Sector Specialist for East and Southern Africa working for British government international development arm, DFID said the new account “was a major win” for low income borrower because it offers them a choice from micro finance, Sacco or shyloks.
“Even under agency banking, agents cannot appraise loan applications and the process of channelling those applications through the commercial bank branch means banks are still not close to customers when it comes to giving loans.”
Successive research has showed that there is a huge opportunity to provide banking services for the poor because of limited penetration even in the face of micro finance and Sacco sector growth in the recent past.
For example, micro credit institutions excluding Saccos only reach about 1.1 per cent of the population
That opportunity was expected to be utilised prominently by the agency banking allowed by the Central Bank last month, but the entry of M-Kesho has widened the options for borrowers and has opened new frontier to increase penetration of banking and insurance services.
According to the Finaccess study conducted in 2006, about 38 per cent of adult Kenyans are unserved by financial system.
Only 19 per cent of Kenyans are served by commercial banks while eight per cent are served by semi-formal financial service providers such as microfinance institutions and Saccos
The remaining 35 per cent are served by informal financial service providers, ranging from Accumulating and Rotating Savings and Credit Associations to shopkeepers and money lenders.
But 17 per cent of the unbanked own a mobile phone, according to the FinMark Trust, creating an opportunity to use the phone to deepen access to financial services.
M-Kesho, a partnership between Equity Bank and telecom company Safaricom, means that the 17,000 agents of M-Pesa will now become banking and insurance agents for Equity Bank and there is opportunity to convert nine million M-Pesa accounts into savings accounts.
Analysts said although people who own mobile phones are most likely to have one or more bank accounts, the impact on deepening financial access will be high , especially because of new phone users driven by the declining cost of a mobile phone.
“It is only the weaker micro credit institutions that will feel the pinch,” said Mr Ochieng. “Others must innovate. They have a chance to use technology to be more efficient, reduce their operational costs and offer lower interest loans
Analysts said one of the options micro credit institutions have is to rise on the same mobile telephone infrastructure to offer services to their clients including partnering with other telecoms like Zain and YU to use their money transfer infrastructure.
Others forecast that micro credit institutions may be overtaken by commercial banks in seeking similar partnerships with telecoms.
Kenya Commercial Bank has previously expressed interest in such mobile-phone embedded accounts and the Cooperative Bank is also tipped as another most likely entrant.