Category Archives: MFI

M-Shwari, Equitel, and Mobile Lending Apps in Kenya

Just 24 hours apart, Equity Bank and Safaricom, which arguably have the most financial connections with Kenyan citizens, through m-banking, both made financial results announcements. Equity released their Q3 2016 results while Safaricom, whose year ends in March, was announcing their 2017 half-year results.

Safaricom has M-Pesa and also powers M-shwari at CBA and KCB M-pesa while Equity has Equitel a bank in a SIM card that gets around the barrier of the M-pesa. At the beginning of the year Equity had 8.8 million customers and the country’s largest bank – KCB had 3.8 million . They are surprisingly topped by CBA with 12.9 million customers, largely due to their partnership with Safaricom called M-shwari which allows savings and lending directly from a phone SIM card.

In the results this week, Safaricom reported pre-tax half-year profit of Kshs 34 billion derived from their 26 million customers solar-2Bphone-2Bchargerand their CEO said that they process about 21,000 M-pesa transactions per minute and that 2 loans are processed every second. M-pesa revenue increased by 33.7% to Kshs 26 billion, and message revenue grew by 8.1% to Kshs 8.6 billion (with the increase in premium rate SMS revenue probably attributable to sports betting /mobile gaming)

They now have 50,000 merchants using their cashless platform called Lipa na M-Pesa, and announced a waiver on person-to-person and Lipa Na M-Pesa transactions under Kshs 100 (~$1)  “We have done this to empower the people who support this company the most – the mama mbogas, the small businessmen, and the micro-agents who form our network.”

As at September 2016, Equity had a Kshs 15.1 billion pre-tax profit, an 18% increase over last year.  The Q3 results also showed a second straight quarter of reduction in loans at the bank from Kshs 222 to 221 billion. Whether this is due to the recent interest rate-capping bill or an absence of lending opportunities, or an economic pullback is not clear, but the deposits raised by the bank went to government treasuries which grew by Kshs 21 billion in the quarter.

Equity reaffirmed an ongoing commitment to shift in customer service channels from physical branches to phone and agents. In the first year of Equitel (their telco), it did 151 million transactions in the quarter 142% more than the year before. Equitel is now the second largest move of mobile money in Kenya – at 14%, being M-Pesa (84%)  but ahead of Airtel Money, Orange Money and Mobikash.

Equity Bank has also released a series of Eazzy banking solutions and tools including (an)  Eazzy App, Eazzy Chama (investment group/SACCO management tool) and (an) EazzyAPI (for developers to build on).

Away from the two, the World Bank’s CGAP blog recently highlighted and compared several phone-based borrowing / m-banking solutions and apps available to Kenyans. They are easily accessible but unregulated, and they vary their terms, credit scoring methods, limits (which range from ~S1 to $10,000) interest rates, duration,  and the ultimate cost to the borrower. They include;  Branch, Equitel (Eazzy Loan and  Eazzy Plus Loan), Jumo/ Kopa Cash, KCB-M-Pesa, Kopa Chapaa, Micromobile, Mjiajiri, M-pawa-Sacco, M-Shwari, Okoa Stima, Pesa na Pesa, Pesa Pata, Pesa Zetu, Saida, Tala, and Zindisha.

$1 = Kshs 101

How Interswitch enhances Banking

Interswitch have a variety of products that are incredibly useful for financial institutions and for financial management at other institutions. They are easily deployed, and can be used internationally, easing the process of taking company financial systems across Africa’s borders which remains a challenge for many growing and large institutions.

For banks, micro-finance institutions (MFI’s), fund managers, pensions, savings &credit societies (SACCO’s), and pension administrators, Interswitch enables them to analyze incoming payments, see which of the many bank accounts the money was paid into, what it was for, see account balance, and set us SMS notification. The managers can then initiate or have the system automatically pay them out such for funds transfers to top up other accounts, or to make statutory payments.

The Interswitch business reporting tools integrate with whatever accounting system a financial institution has and have an in-built loyalty system to enable the business development and sales staff at these small institutions to know who their main customers are, filter and see the trends of what the customers like, and see how their financial products are performing. The institution managers can get such key business reports, via their mobile phones or tablets, in real-time even if they are not in the office.

The Interswitch systems help to assess staff performance with a view to enhancing perks through an easy way to track commission-based transactions and also help with security as there is an audit trail for all transactions, to see who did what or approved others, on the system. Interswitch systems are also able to flag suspicious electronic and mobile transactions and these all help to stem the fraud that plagues many smaller institutions that have not invested in technology solutions.

Interswitch enables institutions to process ATM transaction for customers of over one hundred financial institutions, enhancing the value of their invested ATM infrastructure. The systems will even work when there’s no internet connection, and for the customers of these institutions, Interswitch  enables phones to act as ATM cards so that their customers can transact at ATM’s without having to carry a plastic bank card in their wallets.

Microfinance Moment

A peek at the microfinance institutions sector (MFI) the cousin to the banking sector. During the Africa -Middle East Regional micro-credit summit held in Nairobi in April 2010, several participants also exhibited their MFI products and services

Services to MFI
– AMFI the association of microfinance institutions – Kenya offers capacity building, industry lobbying, performance monitoring and linkages to members. On a larger international scale, you have the UN! Doing this through the UN Advisors Group
– Bridging the branchless banking gap by CGAP
– Branchless banking equipment includes devices from ingenico and craft silicon and a micro-payment (mobile and online) from Impala to deliver low cost financial and transactional services

– MFI product advisory services from MicroSave as well as research and capacity building in micro saving and product delivery techniques – they have advised Equity Bank, Family bank and consulted on MPesa formulation.
– Hedging for MFI’s to eliminate currency risk from MFX Solutions
– MFI support from the Grameen Foundation has funded $16 million to MFI’s in Ethiopia, Kenya, Ghana and Nigeria and supported Applab partnership with Google) for information to rural Uganda farmers and Ghana to help new expectant and new-born mothers access medical care via mobile phone.
– Management services, and technical advisory to MFI’s from ACCION
– Private finance to MFI’s from Oiko Credit examples of which was Kshs. 71 million to Githunguri Dairy Farmers Society as well as to Uganda Women Finance Trusts, Nyeri Tea Growers, Daystar University (partially supported by Grameen). Also, another from Unitus which raises funds & grants, advises & arranges capital to grow innovative MFI’s 23 in 9 countries worldwide including Jamii Bora Kenya and SKS India.
– Loans in local currency in Africa from BlueOrchard to established MFI’s (minimum $1 million total assets, and at least 2 years old)
– MFI lending cost comparison (APR based) by the MFTransparency (report covering 90% of Kenyan MFI’s will be on their site in a few weeks)
– Software to administer MFI loans from Loan Performer a highly rated package.
– Recycle your cell phone into MFI loans with Chiapas

Unique products
– Matatu loan insurance accessible to members of the Jitegemea credit scheme
– Micro health (Bima Ya Jamii), home beautification and other loans from SMEP and their loans are repayable by MPesa
– Medical health (Faulu Afya) plans from Faulu Kenya which can provide inpatient cover up to 1 million (~$13,000) as well as from AAR Credit to pay for AAR Health packages in low installments
– Micro-insurance from Microensure. A similar product on livestock insurance was featured in the Economist recently
– Goat meat and poultry boiler accessible to Yehu MFI (operates at Kenya Coast
Livestock trading, micro health, business acquisition and other loans from KADET – The Kenya Agency for the Development of Enterprise & Technology, which is an affiliate of World Vision.
– The world famous Money-maker water pumps from Kickstart helping small-scale farmers out of poverty
– Venture capital (equity partnership loans up to 150 million or ~$2 million) as well as contract financing and industrial finance from Fusion Capital targeted at SME’s (not MFI’s)
– Various loans for women entrepreneurs from the PAWDEP – the Pamoja Women Development Program
Start-up loans from Elmseed ($2,000 first year, 10% simple interest) small loans, big futures, and Kenya government Women Enterprise Fund and Youth Enterprise Development Fund borrowing is secured by group collateral)

– Village savings & loan associations (VSLA) from CARE introduces more people in Africa to financial services than any other international organization

Local Banks
– Citi whose Citi Foundation has lent $80 million to MFI’s over the last 11 years in 88 countries in areas like colleges and neighborhood revitalization.
– Equity bank with Vijana business loans targeted at members of youth groups as well as fish loans uvuvi biashara to finance nets, cooling equipment, boats etc.
– KCB with bankika a business package targeted at young entrepreneurs

New Banks
– Jamii Bora Bank which bought a small bank in a reverse merger claims that with its over 200,000 members is the largest MFI in Kenya.
– KWFT – the Kenya Women Finance Trust Deposit that was licensed this week deposit-taking MFI by the Central Bank of Kenya offers startup funding and LPG (gas) among many other loans. KWFT which claims over 334,000 members slots in as a mid-tier bank

M-Pesa IPO?

Mobile transfer solution M-Pesa from Safaricom was on Monday inaugurated as loan repayment tool for microfinance.

SMEP using M-Pesa for loan repayment is now the latest M-Pesa partner joining satellite TV, medical cover, investment funds, spare part utility providers and insurance companies that now enable their customers to remit monthly or periodic solutions via M-Pesa.

This phenomenon is not unseen, it addresses gaps in the banking sector; and now M-Pesa solutions are coming from the customers, not Safaricom – which is the way it should be.

M-Pesa Flaws: M-Pesa with its 5 million customers is not perfect and it may have reached the zenith for now; it is pricey, it requires business owners to put up substantial credit (float) to access the system, its statements are crude etc. Electricity bills can now be paid by M-Pesa, but accounts take 48 hours to be credited, while with rival transfer product Zap (from Zain) they take 24 hours. The fault probably lies with Kenya Power, which has forged closer links with the less established Zap and Standard Chartered Bank.

Loan potential: M-Pesa, a Vodafone solution, now goes into the area, that no one can contain – credit growth. The SMEP (micro-finance loan) repayments are just a start. Banks and savings & credit societies (SACCO’s) can easily utilize M-Pesa for loan repayments under the current 35,000 shilling ($440) daily transfer limit. e.g. a 400,000 shilling ($5,000) SACCO loan at 12%, repaid over one year will have installments of 35,932 per month, or a car loan of 800,000 shillings ($10,000) repaid over 3 years at 21% interest would have repayments of 30,140 per month.

New markets: M-Pesa has been built on the back of Safaricom, operating informal relationships with subscribers who submit a bare minimum of information. That relationship requirement with customers requires a lot less than with a bank and international know your customer guidelines (KYC). Already, all the mobile companies have aspirations of moving on to international transfers and merchant banking which will also bring them more into collision with banks, western union and debit/credit card giants.

New regulations: M-Pesa’s already fractious relationships with banks is likely to get worse; and with (soon) three mobile companies offering money transfers, and all eating into bank ledger and interest income, there will be calls to rein them in. Soon it is likely that the government of Kenya will create an e-commerce regulatory body (another parastatal) since neither the Communications Commission or the Central Bank has absolute authority.

Second Safaricom IPO: Vodafone should spin-off M-Pesa into a separate company. M-Pesa is now able to stand on its own, and handle its own competition, regulatory, and licensing issues. Safaricom should let it go, focus on other voice and data services, while continuing to enjoy the revenue M-Pesa spin, by subscribing for shares in it. By freeing it from Safaricom, M-Pesa will move from being an ‘unregulated’ but licensed solution, owned and managed by Vodafone (UK), to a local-listed company, owned and operated in Kenya.

Microfinance warning

The Association of Microfinance Institutions of Kenya released a statement refuting allegations that microfinance institutions are defrauding Kenyans.

They point out that a lot of loan sharks/shylock operators are pretending to be microfinance institutions and causing the confusion – and that that micro-finance loans average about 30,000 shillings, which is not enough to finance the car/matatu purchases that many Kenyans are signing on with these shady operators.