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 provides 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.