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 – M-Pesa, and a local bank, the Commercial Bank of Africa (CBA) who have been custodians of M-Pesa funds for years.

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.

• 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 are 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 these 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.