Kenya leads the world in mobile money transfer

Financial services growth in Kenya has been phenomenal over the past seven years. According to the FinAccess survey released in Nairobi on October 31, the proportion of Kenyan adults using formal financial services has more than doubled from about 30% in 2006 to 63% at present and over 75% in urban areas.

This growth has been powered by the adoption of mobile money transfer. Kenya is now the world leader, with two-thirds of adults using such a service. The M-Pesa service transfers nearly a third of GDP each year in transactions whose average value is just R290.

Though this growth has been strongest in mobile money, usage of bank accounts has also more than doubled, from about 15% of Kenyans in 2006 to over 30% today.

Nonetheless, twice as many Kenyans use mobile money as others use bank accounts. There are differences between the two services: mobile money allows you to send and receive money on a mobile phone, and store it temporarily on the phone wallet, but it isn’t banking: you can’t borrow and you don’t earn interest on savings.

Seeing an opportunity to meet additional financial needs for the large number of Kenyans who are using mobile money but not bank accounts, a mobile banking product called M-Shwari was launched in November 2012.

A product of the mobile network operator that offers MPesa, Safaricom, and its bank, Commercial Bank of Africa, this service offers customers banking services — borrowing and saving — via the mobile phone.

Transfers between mobile money and bank accounts have been available from the early days of the seven-year-old M-Pesa service, but the innovation in the M-Shwari service is in the credit offering.

Credit decisions are immediate and the loan application requires no additional information beyond the customer’s existing mobile money registration, which has already collected the customer’s ID number and a simple address. Sign-up is entirely on the phone, using a Sim toolkit application that works on the most basic of phones.

Though M-Shwari hasn’t revealed its credit scoring algorithm, FAQs indicate the credit decision is based on mobile money and phone usage (voice and data). Up to R2400 can be borrowed for 30 days, which can be rolled over once. The money must be repaid with a 7,5% “facilitation fee”. This compares favourably with SA small loan services such as and, whose total charges are north of 25% for salary lending of similar amounts and periods.

After the instant credit decision, SMS messages inform the customer how to improve their credit score — customers receive reminders to save or to repay their loans on time.

Based on their behaviour, their credit limit is adjusted upward (and presumably downward).

The service seems to be filling a need for small short-term loans (the amount borrowed must be between R12 and R2400).

In the first 11 months to October 2013, about 5m customers are supposed to have registered for M-Shwari, according to Internet sources, depositing the equivalent of R149m and borrowing a cumulative total of R400m.

According to newspaper sources, the rapid rise of M-Shwari has catapulted CBA, formerly a corporate bank, into the second-largest bank in Kenya by number of accounts.

Since mobile money and banking are eliciting such a strong customer response in East Africa, why haven’t they taken off in SA? The target market wouldn’t seem that different: 47% of SA adults still don’t have bank accounts, according to the World Bank Findex.

It’s not for lack of trying: Vodacom’s M-Pesa has collected 1m users in three years, and Standard Bank’s Access Account (which can be operated entirely by phone) has about 1m since its launch in March 2013.

Many reasons have been advanced, including tighter regulations and the dominance of the big four banks.

Questions of cost (SA mobile money transaction charges are 5-10 times the cost of similar services in Kenya), availability of cash in/out outlets (there are nearly 100000 outlets in Kenya and 86% of urban adults say there’s an outlet within walking distance) and the extent of investment in marketing are also put forward.

Is Kenya going to remain an anomaly, or will the markets converge, with Kenyans taking up card services while the rest of the world goes for mobile money?

Financial Mail