Kenya Reaches Mobile Phone Banking Landmark

 

Financial transactions and banking with mobile phones have been a Kenyan success story.

Now, one service, M-Shwari, has reached a significant milestone in the history of m-banking (mobile phone banking): it was able to record a billion Kenyan shillings (US $11,926,100) in savings deposits in a month after its launch in November 2012 and reached deposits of Kenyan shillings 2.8 billion (US $33 million) by February of 2013. This outstripped the Kenyan shillings 378 million (US $4 million) in loans lent by the service, reports Daily Nation.

M-Shwari is a mobile phone banking product that allows people to save and borrow money by phone and earn some interest too. The service offers small emergency loans to customers, offering a financial lifeline to people who would have been frozen out of financial services in the past.

There is no need to have any contact with a bank or bother with paperwork. And loans are instant because they are small.

Safaricom Chief Executive Officer Bob Collymore told the Daily Nation “Trends show that it has become more of a savings service than a lending service. This is what we intended since the beginning.”

As of February 1.6 million customers had used the service.

On top of this success, the pioneering M-PESA (http://www.safaricom.co.ke/personal/m-pesa/m-pesa-services-tariffs/relax-you-have-got-m-pesa) mobile phone banking platform developed in Kenya by Safaricom is set to roll out across India and help bring banking services to the country’s 700 million “unbanked.”

Both these developments are solid proof that innovation aimed at drawing in the poor into the mainstream economy not only works, it is profitable and exportable.

M-Shwari (http://www.safaricom.co.ke/personal/m-pesa/m-shwari/m-shwari-faqs) works like this: a customer can save as little as one Kenyan shilling to receive an interest rate of up to 5 per cent. If they want a loan, then they can borrow from 100 Kenyan shillings (US $1.19) to a maximum of 20,000 Kenyan shillings (US $238) for a processing fee of 7.5 per cent which will need to be paid back after 30 days.

By offering greater access to loans, M-Shwari s increasing competition in the banking sector and giving customers a choice.

It joins an ongoing revolution in access to credit for the poor. Powerful mobile phones enable individual depositors and businesspeople to organize their financial affairs and business needs on the phone. This is a revolutionary development in many places where people previously had to contend with poor access to financial services – or no access at all.

M-Shwari and products like it allow people to borrow, save and conduct transactions with family, friends, business partners and customers over their mobile phones.

M-Shwari is a collaboration between Kenyan telecoms company Safaricom and the Commercial Bank of Africa. It is being hailed as an example of how banks and telecommunications companies can cooperate to offer innovative financial products to the country.

For the unbanked in India, the initiative between Vodafone India (https://www.vodafone.in/pages/index.aspx) and ICICI Bank, India’s largest private bank, has started to roll out the Kenyan M-PESA mobile phone banking platform in India as of April 2013. They are hoping to open up access to banking to 700 million Indians who currently do not have bank accounts or access to banking facilities. The rollout starts in the country’s eastern regions of Kolkata and West Bengal (CNN).

It looks like access to banking services for the poor in the global South will soon undergo radical change with these large-scale initiatives.

By David South, Development Challenges, South-South Solutions

Published: May 2013

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Kenyan Bank Helps the Poor and Gets Rich

Good quality banking services are a basic building block to rising incomes. Yet the poor across the South are often overlooked and denied access to savings accounts and loans.Many low-income people are openly discriminated against as ‘bad risks’ by banks, and denied the sort of banking services middle and higher income people take for granted. Yet it is a myth that the poor do not have money or do not wish to save and invest for their future or for business.

The so-called Bottom of the Pyramid (BOP) – the 4 billion people around the world who live on less than US $2 a day – are being targeted by a wide range of businesses. Indian business consultant and professor CK Prahalad (http://en.wikipedia.org/wiki/C.K._Prahalad) , the man who coined the term BOP, has gone so far as to claim this is a market potentially worth US $13 trillion, while the World Resources Institute puts it at US $5 trillion in its report, “The Next 4 Billion” (http://www.nextbillion.net/thenext4billion).

A Kenyan commercial bank has proven it is possible to target the BOP and become successful doing it; so successful that they have seen off foreign rivals and were voted Kenya’s third most respected company.

By offering Kenya’s poor people savings accounts and microloans, Equity Bank (http://www.equitybank.co.ke/) has captured 50 percent of the Kenyan bank market. It now has more than 3 million customers and 2.8 million account holders and opens 4,000 new accounts a day.

Its chief executive officer, James Mwangi, said Equity Bank built its success by doing the opposite of what other banks have done – it doesn’t target the middle and upper classes, but the “the watchmen, tomato sellers and small-scale farmers”.

The Kenyan banking sector in the past was dominated by foreign banks. But by investing in the 46 percent of the population who still live below the food poverty line, Equity has become the third most profitable bank in the country. Its approach was once considered odd. Most of the bank’s borrowers work in the informal sector and have few assets to use as collateral for the loans. So Equity uses what it calls ‘social collateral’. This includes a mix of measures: in some cases, account holders join together to guarantee a person’s debt. Even more unusually, women offer their matrimonial beds as security – it would be shameful for a woman to admit her bed has been taken to pay for the debt.

“For us it’s psychological security. Nobody wants to be excommunicated and lose their inheritance,” said Mwangi.

“By focusing on the previously excluded, Equity has revolutionized the banking sector,” James Shikwati, a director of Kenyan think tank the Inter Region Economic Network (http://www.irenkenya.com/), told The Guardian newspaper. “It has forced the multinational banks to change their business strategies.”

Started in 1984, the bank was still insolvent by 1994, when Mwangi joined as an accountant. Things were looking grim as Kenya’s economy was in a slump and foreign banks like Barclays were closing branches outside big centres.

Mwangi and other Equity Bank managers realized there were millions of low-paid poor in Kenya – all BOP – but who wanted to save and borrow but had nowhere to go.

“Banking was the only industry in Kenya led by supply rather than demand,” said Mwangi. “There was no ‘bottom of the pyramid bank’.”

While absolute poverty in Kenya has declined in recent years, inequality remains high. The population of 37 million people make on average a per capita income of US $580.

By 2003, as the economy picked up, Equity Bank gained 256,000 account holders. It now has 100 branches across the country and 500 automatic teller machines (ATMs). It uses armoured trucks to go into rural areas so that the people can receive banking services. While traditional banks require pay slips and utility bills as proof of a person’s address before letting them open an account, and charge high monthly fees, Equity only requires an identity card.

Within just one year, the bank saw the number of account holders jump to 600,000. Mwangi likes to say that the bank’s competition is the bed mattress, since most people have never had a bank account before. Most savers have around US $148 in their savings account.

The bank’s micro credit operation makes loans of less than US $7 and gives borrowers a few months to repay them.

The bank claims loan defaults are less than 3 percent on 600,000 outstanding loans – the banking industry average is 15 percent.

It keeps its transaction costs down by using the latest in information technology. These efficiencies enabled the bank to earn pre-tax profits of more than US $40 million in 2007.

Equity does face competition, as its success attracts mainstream banks into the BOP market.

In Africa these days, banking is hot: a South African research and analysis company BMI-TechKnowledge (http://www.bmi-t.co.za/) in a report identifies a boom in banking services across Africa. In particular, South Africa, Botswana, Namibia, Angola, Mauritius, Tanzania, Kenya, Ghana, Nigeria, Egypt and Morocco – all have seen surges in profit and services as a result of improving banking regulations and political conditions.

Mwangi isn’t worried, however, since the number of people still without bank accounts is huge. Equity Bank is expanding its operations into Uganda, Rwanda and Sudan.

Elsewhere, mobile phone banking in Kenya is proving highly successful. Equity has a service, but so does Safaricom with M-PESA (http://www.safaricom.co.ke/index.php?id=745). Customers can deposit, transfer and withdraw money using their phones. Over 4 million are now using the service.

By David South, Development Challenges, South-South Solutions

Published: January 2009

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Mobile Phones: Engineering South’s Next Generation of Entrepreneurs

 

Technology is fuelling unprecedented growth in productivity in Asia, with sub-Saharan Africa languishing behind (International Labour Organization). But the growth in mobile phones could help close this gap, as home-grown entrepreneurs are stepping up to exploit this new opportunity.

Mobile phone applications are proving a boon to small businesses and entrepreneurs. They are now putting power in the hands of individuals, making it easier to invent new ways of doing things, transfer money, organise business accounts, provide services, sell things, and keep in touch and up-to-date.

Technology has been the common factor in increases in productivity around the world, and with the rapid rise in mobile phone use, especially in Africa, it looks as if this handy device augers in the next wave of innovation.

And technology and mobile phones in particular, are creating a whole new route to wealth: “The switch.. frees people from geography,” Gregory Clark, an economic historian at the University of California, Davis told The Christian Science Monitor. “Singapore can be as rich as Canada, even though Singapore has no land.”

Technology is seen to be opening a new phase in economic competition in services, embracing a wide range of fields, from banking to tourism to healthcare. And it is entrepreneurs who will be at the forefront of making this happen. The majority (59 per cent) of the world’s 2.4 billion mobile phone users live in developing countries (MIT) – making it the first telecommunications technology in history to have more users there than in the developed world. The number of African mobile phone users passed 200 million at the beginning of this year (www.ovum.com), making it the fastest growing mobile phone market. It has increased at an annual rate of 65 per cent – twice the global average (MIT Media Laboratory).

In Kenya in 2005, the government’s Economic Survey found the small business sector, which employs the majority of workers in the nation of 32 million people, created 437,900 jobs – mostly down to the boom in mobile phones. According to the Massachusetts Institute of Technology (MIT), adding an additional 10 mobile phones per 100 people boosts a typical developing country’s GDP growth by 0.6 per cent. The boost comes from the innovative use of mobile phone technology by local entrepreneurs.

At the University of Nairobi, the SMS Boot Camp (SMS is the text messaging system on mobile phones) is breeding the next generation of African technology entrepreneurs. Working in partnership with MIT, the student entrepreneurs are working on an impressive list of projects, which can be found online at eprom.mit.edu. The projects are varied, and include perfecting prototype ways to collect medical data on mobiles, accurately tracking phone user’s profiles (habits, friend networks etc.), improving communication between Kenyan hospitals and the centralised blood banks in the country, and quick ways to install applications on all of Kenya’s mobile phone SIM cards.

One graduate, Mohammed Temam Ali in Addis Ababa, is now working on a project for the Ethiopian Telecommunications Company. Another is working for Kenyan mobile phone download service, Cellulant.

Nathan Eagle, a visiting lecturer at the University of Nairobi, has been working with the students on the projects: “Phones are starting to be used as a surrogate for all sorts of technology we take for granted in the West. Credit cards, TVs, radios, computers, etc… In the small Kenyan village where I’m writing this email, I can pay for the taxi ride home with my mobile — we’re even scheduled to be getting a Wimax network (wireless internet) here next year. Talk about leapfrog…”

“I’m also advising a small group of newly graduated Rwandan hackers who are building an SMS-based payment system for electricity.”

But Eagle says the obstacles can still be huge: “Government corruption and red-tape. SMS is illegal in Ethiopia… it is pretty frustrating when you go over to teach an ‘sms bootcamp’ class.”

In India, where there are 185 million mobile phone subscribers, computer science doctoral student and founder of Ekgaon Technologies, Tapan Parikh, has founded a business specifically targeting developing mobile phone-based information systems for small businesses in the developing world. Working in rural India, the applications are designed to make it easier for business owners to manage their own operations in an efficient and transparent way, and also to build strong connections both with established financial institutions and their customers. By making it easier to access finance, and also to get a better price, these businesses will stand a better chance of flourishing, it is believed.

One of his applications is called Cam (named after the phone’s camera). It is a toolkit that makes it simple to use phones to capture images and scan documents, enter and process data, and run interactive audio and video.

Parikh is also using these applications to improve micro-finance. Targeting Indian self-help groups (15 to 20 people who pool their capital together, usually women), the application (called SHG MIS – self-help group management and information system) uses the phone’s camera to enter data, uploading it to online databases, and a package of Web-based software for managing data and reporting to the institution that lent the money.

“In these groups, things are often done in a somewhat ad hoc manner, using informal documentation,” Parikh says, “which can lead to instability and impermanence and contribute to the kinds of tensions that lead small groups to fall apart.” The software gives groups a more systematic method of documenting decisions, tracking financial performance over time, and collecting information on loan effectiveness. Parikh has developed his applications around the needs and behaviour of the users.

This next wave of entrepreneurs will be joining a growing list of made-in-the-South mobile phone innovators like ARYTY, G-Cash and Smart Money in the Philippines; WIZZIT and MTN Mobile Money in South Africa; M-Pesa in Kenya; Celpay in Zambia and the Democratic Republic of Congo.

By David South, Development Challenges, South-South Solutions

Published: September 2007

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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