Category Archives: microfinance

Safaricom & CBA Launch M-Shwari

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 its 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.

M-Shwari logo

M-Shwari 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 its 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 M-Shwari, they can apply for loans on their phones, repay by phone, get a 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 M-Shwari 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 its 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 (the) mobile phone whose convenience is unprecedented.
Other M-Shwari Notes
  • The 7.5% charge per loan looks simple but can be astronomical for a repeat M-Shwari 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’s savings in the phone are frozen until the loan is repaid. Also, with five years of M-Pesa data, it’s unlikely that people will default on an easy product.
  • The M-Shwari brochure states that borrowing will be based on this savings and past usage.The M-Shwari T&C go quite a way to exclude CBA from dealing with the customers whose savings and loans they are handling by stating that no M-Shwari 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.

Kenya Bank Rankings 2010: Final Word

From the earlier estimates now there’s a complete list of the published accounts for all commercial banks as at December 31 2010.

1 (1) KCB: Assets of Kshs 223024 ($2.69 billion) [pre-tax profit of Kshs. 11.53 billion ($139 million)]
2 (2) Barclays
3 (4) Cooperative
4 (3) Standard Chartered
5 (6) Equity
6 (5) CFC Stanbic
7 (7) Commercial Bank of Africa needs to raise capital?
8 (14) Investment & Mortgages overhauls Citibank, National Bank, Diamond Trust and NIC
9 (9) Citibank
10 (8) National Bank of Kenya
11 (10) Diamond Trust
12 (11) NIC
13 (13) Prime Bank
14 (14) Baroda
15 (15) Housing Finance
16 (19) Ecobank
17 (16) Bank of Africa
18 (21) Chase
19 (20) Family Bank
20 (17) India
21 (18) Imperial
22 (–) Kenya Women Finance Trust (DTM) new deposit taking micro-financed [assets of Kshs 18.9 billion and pre tax profit of Kshs 464 million ]
23 (22) Fina Bank
24(24) Development Bank of Kenya
25 (29) Consolidated
26 (34) Equatorial (acquired Southern Credit)
27 (23) ABC
28 (28) Giro
29 (25) Gulf African (Kenya’s first Sharia bank breaks even in third year)
30 (31) Fidelity
31 (26) Habib AG Zurich
32 (30) Guardian
33 (27) K-Rep
34 (34) First Community Bank
35 (32) Victoria
36 (33) Habib Bank
37 (38) Transnational
38 (41) Oriental (boosted by other income)
39 (37) Credit
40 (40) Paramount
41 (36) Faulu Kenya: (new deposit taking micro-finance institution) [assets of 4.3.9 billion and pre tax loss of Kshs 164 million ]
42 (39) Middle East
43(43) UBA: slow start in Kenya, but finally started lending
44 (42) Dubai Bank
45 (44) Jamii Bora: formerly city finance bank, and was acquired by microfinance company Jamii)

Kenya’s Top Banks

as at June 2010

Bank Assets Pre-Tax-Profit
1. Barclays Kshs 173 billion ($2.16 billion), profit of Kshs 4.75 billion ($59.3 million)
2. KCB assets of Kshs 207 billion ($2.59 billion), profits of Kshs 4.34 billion ($54 million)
3. Equity 117,578 4,282
4. Standard Chartered 131,348 4,037
5. Cooperative 133,322 2,848
6. Diamond Trust 54,109 1,508
7. Citibank Kenya 63,812 1,499
8. Commercial Bank of Africa 60,229 1,465
9 Investment & Mortgages 56,630 1,239
10. National Bank of Kenya assets of 59,390 million ($742 million) and profits of Kshs 1,200 ($15 million) – then CFCStanbic (falling out of the top 10), NIC, Baroda, Imperial, and Bank of India.

Notes– KCB is the largest bank (and group) but is less profitable than Barclays which is the most profitable bank
– Equity may be the most profitable bank by next year: Five years ago (2006) they had 1/6 (Kshs 500m) of Barclays profits (Kshs 3 billion), now mid-way into 2010, they are the country’s 5th largest in assets, and 3rd in profits – and are about 7X large by both measures compared to five years ago, while KCB is 1.5X larger and Barclays is 0.5X larger than it was in 2006.
– Equity is perceived better in market terms than KCB though its half its size and has the same profits this year.

Changes since last year
– Credit sharing between banks is now being enforced
– Anti-money laundering law now in effect
– The Government of Kenya has set out to raise Kshs 31 billion ($388 million for infrastructure projects; Kenyan banks currently have almost half as much money invested in government securities as they do with loans to customers
– The new constitution passed this month means we will have currency without the face of a president (virtually all existing currency bear the portraits of Kenya’s past presidents)

– Equity and several other Kenyan banks have decided to embrace and work with M-Pesa and other mobile money channels instead of fighting them
– Micro-finance institutions (MFI’s) are stepping up into the commercial banking sphere

Incoming banks (all of which have micro-finance origins)
– Faulu Kenya
– Jamii Bora (formerly City Finance)

Gone banks
– Southern Credit (bought by Equatorial)
– S&L (absorbed into KCB)

Agency Banking and Micro-Savings

Banking Hall Woes: Last week I spent about 6 hours in 6 different banking halls, trying to deposit or withdraw cash, make cross-bank transfers, utility payments and complete other bank transactions. Some observations:
– Banks with several empty ‘teller’ windows even as customers queues get very long
– Employees who sit at the front desk but don’t serve customers as they do back office transactions, reports & reconciliations
– Disinterested employees who’d rather gossip in vernacular than serve customers
– @kainvestor tweeted: it takes 1 hour, 2 branches and 4 tellers to get one foreign bankers cheque done at #StanChart. Still waiting #fail
– Customers who ‘book’ places in the queue. As the queue shortens near the front, they walk up from where they have been sitting and edge back in front of the person, who they had queued with thirty minutes earlier
– Older banks like Barclays as you to bring a passport photo and get a referee signature to open an account, while new banks like equity bank and family staff will snap your picture with a digital camera.
– There are no more developments in e-banking being rolled out in Kenya; new bank – customer interface deployments are in the areas of phone/mobile/m-banking
– Despite the millions of masses on mobile banking, the bulk of business in Kenya is cheques-based. Cheques remain awkward, prone to errors, and are resented as a form of payment as recipients have to wait for up to four working days to get money from the date they present their cheques. Assuming there are no errors, clear over four working days.
– From a Central Bank of Kenya 2009 supervision report you can get an idea which banks halls are likely to be crowded going by their number of deposit customers: Equity Bank is No. 1 with 4.0 million followed by Co-op bank with 970,000, KCB 751K, Barclays 748K, and Family 574K. Least crowded may be banks like City Finance 654, UBA 832, Development bank 1,022, Middle East 1,462, and Equatorial 1,981.
(images from Afromusing’s post on how to get Safaricom 3G on your ipad)

Mobile money banking solutions Banks have tried to minimize the prevalence of queues, usually longest at month ends rather than mid-month, by offering alternative channels such as mobile banking and ATM facilities. A few years ago, the push was to develop Internet-based banking, but that seems to have been set aside by the industry to focus on (mobile) phone-based avenues.
Last month also brought M-kesho, a partnership between mobile giant Safaricom and a leading bank Equity Bank. This one was very notable as it was marketed as one in which Equity Bank account holders could earn interest on money saved through their mobile phone – and this has been widely written about widely:

From the blogsIdd Salim. Nothing new, Zain Zap has done this since 2007, but Safaricom is like Man U. They have ‘refs‘ who favor them game after game and win battles that are not even their own.
Kainvestor: Too complex and not particularly new
Rombo , Safaricom’s 17,500 M-Pesa agents will now operate as part of Equity Bank (account opening, withdrawal/deposit) which has 80 branches countrywide
Majibu: (after M-kesho) Safaricom can do better – by working with local developers and allowing them to develop on their platform. Safaricom needs to learn from the likes of Apple, the success of the iStore is because each developer is given an equal chance.
White African: As others have pointed out, this isn’t exactly groundbreaking and new. Why is it big then? It’s big because of who is doing it: the giants of the banking (equity) and mobile sector (Safaricom).
– @wanjiku suggested that her bank, Family bank should partner with Zain

Others – A comment at the CGAP who advised on the creation of M-pesa noted that hopes that system failures that plague m-pesa will be a thing of the past
– Equity Bank’s CEO made one comment on TV, about how this made sense as they (Equity) had launched a mobile banking application (EAZZy), but they found over time that could not compete with M-pesa so were folding it to join M-pesa.

More mobile variants: What does that mean for other banks? Despite @wanjiku’s earlier suggestion Family Bank went ahead and signed with Safaricom, not Zain, upgrading their existing mobile application into one called existing mobile banking application into new called Pesapapwhich also allows transfer from account to/from m-pesa and mobile service providers Cellulant rolled out at the same time with one called lipuka

Other thoughts on agency banking Vis a Vis m-kesho – Safaricom has very subdued brochures about M-kesho – with which one can transfer funds to from their bank account at Equity and all the benefits (micro savings) and product hype is by the Equity side. Odds are that most of Equity’s 4 million customers are M-pesa account holders already
– M-pesa cash has been held in trust by CBA Bank since its inception. Will Equity angle for a piece of that?

Enter Agency Banking: The sub-text of M-kesho and other variants is the emergence of agency banking in Kenya, a process endorsed by the Government of Kenya to bring more banking services to more of the (unbanked) population. Agency banking is supposed to take customers out of the bank halls and out to kiosks and villages; as @Rombokins noted, Equity Bank scales up from having 80 branches, and can now (potentially) sell its products through 17,000 agents of M-pesa.
CBK recently published their Agency Banking Guidelines which include provisions on what agents can and can do

Can Do: – Agents can be limited liability companies, cooperative societies, parastatals, trusts, partnerships or individuals. Agent applicants are judged based on their network (number of agents per province), services to be provided, anti-money laundering procedure, strategy and financial projections envisioned from agency business. Other factors considered will be company registration documents, audited accounts, availability of funds, bad credit reference, reputation, unclear source of funding, or criminal prosecution – which are some of the reasons for an application to be struck out. Also a license can be withdrawn if an agent is loss making, or a sole proprietor passes on
– The agent may provide services to multiple institutions (no contract between institution and agent shall be exclusive and an )
– All agent settlements must be in real-time
– Agents must receipt all transactions
– Some of the services agents can perform include cash deposit/withdrawals, loan repayments, bill payments,
Salary payments, debit cards, collection of mail

Can’t do: Faith-based, non-profit, non-governmental organizations are not eligible to engage in agency banking
– Agents may not use such names as ‘bank’, ‘finance’ in their brands
agents may not charge customers for services directly
– Agents may not transact when the system is not operating (e.g. m-pesa downtime?)
Agents may not open accounts, offer guarantees, or appraise loans
– agents may not undertake cheques deposit or encashment (cash only) and may not transact in any foreign currency

Summary: Banks still require that customers come to the halls, for most services, but with agencies can they get served better (and perhaps cheaper) elsewhere? The use of dealers and agents helped transform the telecommunications sector in the span of a decade – from having a monolithic giant (Kenya post & telecommunications) where Kenyans had to queue and buy lines, pay for equipment and other bills (and which served ~100,000 customers) to now where customers able to do the same at kiosks all around the country (serving 20 million customers) Can banks mirror the phone model of growth through agents? It’s a tough call as the safekeeping of money or the incurring of a debt (by taking a loan) is one that calls for caution on the part of the customer.

But taking a loan is a sophisticated process – as most customers need to ask the loan officer what rate am I getting? what is the payback and installment? Even if someone is desperate and signs for a loan without reading an agreement, or swipe a credit card readily, they will over time come to learn the cost of transacting as they will read and review documents, especially if they feel they are being shortchanged. It seems that lending is beyond the training and capacity of agents – and the CBK has recognized this by limiting them to being a medium for repayments. So if you want to get a loan with m-kesho, you get that information from a (trained) Equity loan officer, not an M-pesa agent.

Finally, micro-savings or savings by poor people is more about the principal, not interest. i.e there has to be a mandatory obligation to save, which is difficult for someone trying to build up savings to revoke. E.g. group schemes, chamas, investment clubs, SACCO’s have an obligation to save that binds its members through a social bond of their mutual upliftment. An obligatory commitment is also a factor in larger savings programs like mortgages or pensions.

Bank to acquire micro-financier

Trying to fathom how or why Kenya’s smallest commercial bank City Finance would be interested in acquiring micro-financier Jamii Bora which has over 170,000 members.

let’s merge

Nevertheless the Kenya Finance Minister has cleared the way for the deal to go through with Jamii Bora who are in the money, having recently repaid Acumen Fund their $250,000 loan (~Kshs 19 million) and completed a substantial portion of their housing project in Kitengela.