This week saw the launch of what is likely to be a revolutionary mobile phone product called M-Shwari. It comes from two long term partners – Kenyan mobile company Safaricom, well known for it’s world famous mobile money product – MPesa, and a local bank, the Commercial Bank of Africa (CBA) who have been custodians of M-Pesa funds for years
MShwari is a savings and loan product that is immediately accessible to the 15 million users of Safaricom’s MPesa. It gives them access to banking services – savings and loans without having to walk into a bank hall or fill out a single form. It allows them to save as little as 1 shilling (earning interest of between 2-5% a year) or borrow as little as 100 shillings (Kshs 100 is equivalent to about $1.17) and attracts no account maintenance fees or transfer fees. It will be a great product for people who run informal businesses and take money home at night in pockets or blouses, or envelopes to stuff into mattresses, as they now have a simple tool which they can use to instantly and simply save by clicking into their phone SIM menu.
In it’s current evolution, with a maximum loan limit of Kshs 20,000 (~$235) this is not a banking product that will threaten the banking fraternity – for now. What it will impact are the savings and credit societies (SACCO’s) and shylocks who people turn to for payday (month-end in Kenya) and emergency loans. With MShwari, they can apply for loans on their phones, repay by phone, get statement by phone and won’t have to get 2 or 3 guarantors (SACCO) or exchange an electronic item or vital document like a logbook (Shylock) to get it. But like with SACCO emergency loans, the terms are strict and not cheap. You can only take one MShwari loan at a time, and one has to be paid before another one can be taken up.
In the five years since M-Pesa was introduced in Kenya, banks have gone from fighting mobile phones intruding on their financial turf to fully embracing the convenience. About a dozen banks, now integrate their bank platforms with M-Pesa, a partnership between Equity bank and Safaricom got over 700,000 accounts in it’s first year, and two months ago, Nation Hela was launched by the Nation Media Group and Diamond Trust Bank to bridge remittances in the Diaspora to debit cards and mobile phones.
But, when (then) Safaricom CEO, Michael Joseph spoke at a Fireside Chat at the iHub in 2010, he had a warning to banks, saying that retail banking will disappear in 10 years time. Customers will not go there (to brick & mortar branches) except for loans, as ordinary banking will be on mobile phone whose convenience is unprecedented.
Other MShwari Notes
- The 7.5% charge per loan looks simple but can be astronomical for a repeat MShwari borrower. However, such a person is probably already serial borrower elsewhere without accumulating any savings.
- In terms of default protection, the loans is self securing in that for each loan, an equivalent amount of a person savings in the phone are frozen until the loan is repaid. Also, with five years of M-Pesa data, its unlikely that people will default on an easy product. The MShwari brochure states that borrowing will be based on this savings and past usage
- The MShwari T&C go quite a way to exclude CBA from dealing with the customers who’s savings and loans they are handling by stating that no MShwari services will be performed at any CBA branches
- - A side story to this is the amazing ability of the two institutions and the several government regulators to keep a secret going for several years.