Category Archives: emerging markets

Kenya remains the third most attractive financial market in Africa

The third edition of the Africa Financial Markets Index report that was released in October 2019, found that Kenya had retained its third position thanks to industry efforts to improve opportunities for investors.

The AFM index by the Absa Bank Group and the Official Monetary and Financial Institutions Forum (OMFIF) is a useful tool designed to gauge Africa’s readiness to fund itself and its growth plans. It reviews 20 African countries across six pillars of market depth, access to foreign exchange, market transparency, tax & regulatory environment, the capacity of local investors and macroeconomic opportunity and the legality & enforceability financial agreements.

Overall, South Africa remained in first place, topping four of the six pillars, while Mauritius topped the legal agreements measure and Egypt topped the macro-economic opportunity one.

Speaking on trends across Africa observed in the 2019 AFM Index, Jeff Gable, the Head Of Research at the Absa Group, said there were several exciting financial markets events across the continent this year. These included the first-ever sovereign blue bond by Seychelles to support marine projects, Nigeria selling a 30-year government bond that was four times over-subscribed, Uganda halving the withholding tax on government bonds from 20% to 10%, Zambia launching a primary dealer system and Ethiopia announcing plans to launch a stock exchange in 2020.

On the AFM Index 2019, Kenya, along with Botswana and Namibia, increased to above 50 in the first pillar of market depth. The value of bonds listed in Nairobi doubled from $8.8 billion to $17.5 billion, mostly due to sovereign issues. However there remained a need to have more active trading of bonds and equities, and Kenya has rolled out an M-Akiba infrastructure bond targeted at retail investors that they can access for just over $30.

Kenya came second behind Mauritius on the pillar of enforceability of market agreements. It also scored well for its new insolvency law which encourages rehabilitation of distressed firms, and its endorsement of standard financial master agreements (ISDA GMRA, GMSLA).

However, it lost the lead on the foreign exchange pillar to South Africa. While the country has built up high foreign exchange reserves, up from 4 months to 5.8 months of import cover, the International Monetary Fund (IMF) had reclassified Kenya’s exchange rate regime from ‘floating’ to ‘other managed arrangement.’  The AFM Index has continued to highlight the risk of rigid management of foreign exchange by some African countries and pushed for more flexible regimes.

On the third pillar of market transparency, Kenya’s tax code was found to be supportive, but the country had raised taxation on mobile cash transactions creating some uncertainty. There has also been some recent progress as, in the last few weeks, capital markets stakeholders have convinced the Government to retain the country’s capital gains tax at 5%, and set aside an amendment in the 2019 Finance Bill that had proposed to change it to 12.5%.

The country was also flagged for its capping of interest rates which had shrunk credit availability and weakened companies profitability.

Kenya’s Treasury Cabinet Secretary, Ukur Yatani, in a speech read on his behalf at a Nairobi launch of the report, spoke of the need for Kenyans to save and invest to fund economic growth. Even with the country attaining formal financial inclusion of 82%, up from 26% in 2006, more could be achieved through financial markets.

He said that the country had established a Nairobi International Financial Centre authority to attract capital to Kenya and with the movable property security rights in place, the government was now supporting the setup a Kenya Mortgage Refinance Company that would make it easier for banks to advance funding towards affordable home ownership.

He noted that President Kenyatta had declined to assent to the Finance Bill until Parliament reviewed the cap on interest rates which, evidence showed, had resulted in a negative impact on the economy. Kenya was one of the few countries on the index which saw bank non-performing loans go up, from 10 to 11.7%, last year. He hoped that Members of Parliament would now view the President’s determination as an opportunity to give a stimulus to the economy.

Jeremy Awori, CEO of Barclays Bank of Kenya said that the country had ranked favourably, rising from 5th, when the first AFM Index report was published in 2017, to 3rd in 2018, a position it retained this year. This was due to efforts by industry stakeholders and regulators who had also worked with the Capital Markets Authority to launch a 10-year master plan for the industry. He added that, after Kenya had come up with new regulations for exchange-traded funds, Barclays Kenya had launched the first ETF in the region – New Gold which had performed well since its introduction.

He said that, as Barclays transitions into the Absa brand in Kenya and across Africa, customers will not feel any change in products or services and that they were working to upgrade systems to ensure they remain accessible from anywhere in the world. He added that strong domestic financial markets were a cushion to economic headwinds and that Barclays would soon launch a new wealth and asset offering in Kenya.

Charles Muchene, Chairman of Barclays Bank of Kenya, saluted Paul Muthaura, the outgoing CEO of the Capital Markets Authority, who has led the organization to be recognized as the most innovative capital markets regulator in Africa for four years in a row.  He said that a new ATS platform,  introduced at the Nairobi Securities Exchanges, had broadened the capacity of traders, enabling them to do multiple transactions on the same day, while also supporting securities lending and derivatives trading.

Later, in speaking about the capacity of local investors, the CMA CEO spoke of the need to educate, and shift, more retail investors towards long-term gains from managed funds. This would cushion them from the tendency to speculate on quick returns from land, gambling, and pyramid schemes.

Geoffrey Odundo, CEO of Nairobi Securities Exchange, said they had held some positive engagements with the National Treasury to get more big government listings to the NSE. He also said that they now have an Ibuka program to nurture small companies to be more attractive for investments, adding that this was part of a plan to increase its equities turnover from 6% of the total market to 15% in a few years. The NSE now had 12 asset classes including equity and index futures launched earlier this year and had been voted the second most innovative exchange in Africa.

The 2019 AFM Index report can be downloaded here along with a databank summary of the different country rankings under each of the six pillars.

Barclays launches the Africa Financial Markets Index 

Barclays launched their first edition of the African Financial Markets Index (AFMI) that ranks and compares the depth of financial markets in seventeen African countries. The countries were score against six broad pillars of (1) Financial markets depth, (2) Access to foreign exchange,  (3) Market transparency & the regulatory environment, (4) Macroeconomic opportunity, (5) Enforceability of agreements and (6) Capacity of local investors.

South Africa came out on top of the AFMI with 92 out of 100. It was classified as a highly developed market but (with a) challenging macroeconomic outlook; It was followed distantly by Mauritius (66), Botswana (65) and Namibia (62).

Kenya was ranked fifth (59), just ahead of Nigeria (53) Ghana (49) and Rwanda (48), and Kenya was found to be the most sophisticated in East Africa due to innovations and reforms by the Nairobi Securities Exchange (NSE) and the Capital Markets Authority (CMA).  Kenya’s scores were quite consistent across the six pillars with recent developments including the de-mutualization and the IPO of the NSE, the launch of a first exchange-traded fund by Barclays Kenya, and the launch of the M-Akiba bond.

Kenya is the seventh largest stock exchange by market capitalization and sixth by bond listings. But George Asante, Managing Director and Head of Markets at Barclays Africa said that Kenya lacked deep-pocketed market-makers who could broker deals, and take price risks and also that Kenya needed to develop a primary dealership network. He added that the participation of local investors in long long-term investing was quite limited and local investors are critical as they buffer volatility caused by foreign investors. Assets were concentrated among buy-and-hold investors, rather than pension funds and insurers. Kenya’s domestic institutional investors have $12.6 billion of assets but this only works out to  $173 per capita and he suggested that Kenyan markets and regulators needed come up with more securities listings, instruments, and innovations.

Barclays Bank of Kenya Managing Director Jeremy Awori said that “The AFMI will be produced annually to drive conversations, track progress and address gaps in financial markets.” Already countries like Rwanda and Morocco want to use the index data to improve their financial markets.  At the tail end of the AFMI was Egypt, Mozambique, Seychelles and Ethiopia. Ethiopia was scored as “a fast-growing economy but with no financial markets depth or local investor capacity.”  

Guests at the launch included Jeffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s CMA. Muthaura said the CMA had a master plan to make Kenya a choice destination for capital flows by 2023, while Odundo said the NSE has broadened its  revenue and product base (by introducing REIT’s, ETF’s, M-Akiba and next derivatives, and a new law to govern securities lending), and was working to make Kenya more visible. They are active members of the Africa Securities Exchange Association and will host a “Building African Financial Markets” seminar in Nairobi in April 2018. They also plan to join the World Federation of Exchanges.

The AFMI report can be downloaded here from the Official Monetary and Financial Institutions Forum website; OMFIF produced the report with Barclays Africa

Kenya CMA drafts Sandbox Rules to test Bitcoin and other Fintech

Kenya’s Capital Markets Authority (CMA) has proposed rules to create a regulatory fintech sandbox for innovations which do not fit within the country’s current financial regulatory framework.

The proposed draft rules to enable the introduction and testing of financial technology (fintech) products such as peer-to-peer finance (crowd-funding), crypto-currencies, distributed ledger technology (blockchain technology), artificial (e.g. algorithmic trading), big-data, RegTech credit rating, online lenders, and online banks. 

They give safe legal status and a safe space to investors and developers to confidently test and unlock these unique financial innovations tailored for Kenyan consumers. The draft rules were drawn after consultation and in lines with rules in  Australia, Singapore, Abu Dhabi, Malaysia and UK as guides.

The fintech tools must be ready for testing in a live environment; this will allow them to be tested for defined periods of time and for them to be reviewed by peer groups who work with the CMA. Once companies apply to the CMA, they are to get decisions within 21 days, and at the conclusion, they are to give the CMA a report of their outcomes.

Also
• The CMA will have an annual fintech day that will feature all the sandbox participants.
• Participation in the sandbox can be revoked if a company does not do what it says it intended to, has a security breach, or harms the public, among other violations.

The sandbox rules aim to position Kenya as an investment destination of choice. CMA has in the past drafted rules on REIT’s, bonds and venture capital. Will these new fintech sandbox rules lead to more M-Pesa-like innovations? Will they enable the legal use of bitcoin in Kenya?  Review the rules (download)  and give the CMA feedback by July 26.

EDIT:  In December 2018, The CMA published draft rules to access the sandbox space for the public to review and give feedback on. Some clauses in the proposed rules include payment of a non-refundable fee of Kshs 10,000 (~$100), submission of company registration documents, CV’s of all founders and key management personnel and list things like the customer acquisition plan, what they propose to test in a live environment and how that will help accelerate the depth of Kenya’s capital markets. During the sandbox phase, companies are to report on fraud attempts, customer complaints and lessons learnt and these shall remain confidential. They may also be suspended from the environment for things like data breaches.

Fintech Moment in East Africa: AmEx FT Pesalink Bitcoin

Recent events in the fintech (financial technology) payment space in East Africa.

Banks

  • The Kenya Bankers Association (KBA) unveiled Pesalink, a digital payments platform that is expected to cut the cost of transactions and transform the way consumers interact with their banks. Pesalink is a fully owned subsidiary of KBA and it will enable customers to make payments between banks in real-time, around the clock, without having to go through intermediaries. It has been approved at Standard Chartered, Co-Operative, Barclays, Commercial Bank of Africa, I&M, Diamond Trust, Gulf African, Guardian, Victoria, Credit, Prime and Middle East banks…“RT @alykhansatchu: .@HabilOlaka says @KenyaBankers will be targeting payments that exceed M-Pesa’s maximum transaction of ($675)”
  • Cooperative Bank: Is a demonstration that the how banks ar moving in the technology space. Kenya’s 3rd bank has adapted to their customers embrace and they enable more customers to use alternative channels for transactions.  They had a valentines’ week promotion to highlight and encourage customers to use alternative channels such as MCo-op Cash (get a loan straight from ones’ phone  at 1.16%  per month and send money to other MCo-op users for free) or at a Co-op Kwa Jirani agent (deposit cash into someone’s Co-op Account for FREE at a Co-op Kwa Jirani agent) or Co-Op cards.
  • KCB will unveil its fintech future – a strategy based on a digital finance  in Q2 of 2017
  • Another is EcoBank which launched a new mobile app which integrates Masterpass QR, a mobile payment solution from MasterCard.  It enables customers to send and receive money instantly across 32 other African countries.

Government

  • National Bank has launched cashlite payment solutions suite for county governments, Ministries, Government Agencies, and Departments. The bank has provided a variety of options for payments including mobile money, smart cards, and e-wallet and cash options, aligned with the continuing growth of mobile technology as well as consumers’ expectations for convenient mobile and online payments.
  • Strathmore University has supplied Busia county government with a revenue collection systems called CountyPro® with which the government hopes to grow revenue by 300%. It caters for all the unstructured county revenue sources including parking, market cess and trailer parking.
  • Mastercard is the technology partner for the Huduma Card in Kenya enabling payments for government services.  It is being issued by Commercial Bank of Africa, Diamond Trust, Equity, and Kenya Commercial banks. Kenyans will be able to pay for an array of enrolled Government services such as the National Hospital Insurance Fund (NHIF), National Social Security Fund (NSSF) amongst others. 

Cards

  • mVisa will soon be in 10 countries as Visa expands its QR payment service for safe and easy mobile payments in emerging markets. It is already live in India, Kenya (started with Family Bank) and Rwanda, and will soon be available to merchants and consumers in Egypt, Ghana, Indonesia, Kazakhstan, Nigeria, Pakistan, and Vietnam.. (mVisa) allows consumers to use their mobile phones to make cashless purchases at merchant outlets, pay bills remotely and even send money to friends and family members by securely linking their Visa debit, credit or prepaid account to the mVisa application. Also any bank’s mVisa customer – regardless of where they bank – can transact on any mVisa merchant and merchants do not need to invest in POS infrastructure. Visa has partnered with Co-Operative, Family, KCB, and NIC banks.
  • Mastercard committed to financially include 100,000 Kenyan micro merchants with Masterpass QR, a simple and secure digital payment solution. It will be introduced through various financial institutions. With it, consumers will be able to pay for in-store purchases by scanning the QR (Quick Response) code displayed at the checkout on their smartphones, or by entering a merchant identifier into their feature phones. Masterpass QR is currently being rolled out in Nigeria, Ghana, Rwanda, Uganda, and Tanzania.
  • Safaricom has issued 16,000 Lipa na M-Pesa cards in the pilot phase of a project that will launch later in the year. The Lipa na M-Pesa card uses pin and chip technology…It is also equipped with Near Field Communication (NFC) (which will) increases the speed at which customers make payments.
  • Verve: A dozen Kenya banks have partnered with Verve International, Africa’s leading low-cost payment network provider, in their push towards interconnectivity, cardless transact ability, and digital payments. Verve, best known as a card issuer has more than 32 million Verve cards and virtual/digital tokens issued across Africa and Verve is used in 19 African countries.
  • Pesapal adds American Express ​Pesapal integrated American Express into its payment platform on February 27, and  AmEx card holders can now use their cards to​ ​transact on any online payment portal that uses Pesapal. This is especially useful for hotels and other companies in the East African tourism space.  Pesapal which is in Kenya, Uganda, Tanzania, Zambia and Malawi and plans to expand to Nigeria in 2018 also offers an online booking engine for Hotels called ReservePort that’s used by Serena and Heritage brands.

Remittances

  • Facebook:  Facebook added international money transfers to its chat app. The service comes via London-based startup TransferWise in the form of a Facebook Messenger chatbot and enables transfers to and from the US, Britain, Canada, Australia, and Europe.
  • Bitpesa:  The company introduced an Africa to China corridor enabling users to send payments from Africa, directly to a Chinese bank account using bitcoin.
  • European choice: How much does it cost to send money from Germany to Kenya?@WehliyeMohamed posted that the global average cost for sending $200 in Q3 2016 was 7.42%, and that It cost him 6.7% to send money to Kenya. Then @MkenyaU answered that it costs 1.5% when he sends €200 from Germany and this reduces to 0.6% when he sends €500. He cautioned that some companies charge zero fees but their exchange rates are horrible as he shared a comparison of a dozen services available to send money from Germany to Kenya.

 

Mobile

  • Safaricom Mpesa: 10-year-old M-Pesa had 6 billion transactions in 2016 and is now in 10 countries – Albania, the Democratic Republic of Congo, Egypt, Ghana, India, Kenya, Lesotho, Mozambique, Romania, and Tanzania. A new feature in M-Pesa will enable users to see the cost of transactions. In the initial phase, customers will be notified of the costs after, and in the second phase customers will receive a pop up message informing them of any charges prior to the transactions, while the third phase will see the service being made available to value-added M-PESA financial products including M-Shwari, KCB M-PESA, Okoa Stima and M-Tiba. The second and third phases of the update will be rolled out in coming months.
  • There have been some calls and reports recommending that M-Pesa be split from Safaricom. This could have happened years ago, but it is more difficult now that M-Pesa is an entrenched and central part of Safaricom today.
  • Tala raised over $30 million in Series B financing, led by IVP and joined by Ribbit Capital.   Tala uses smartphone data to build financial identity ..  mobile app for Android aggregates more than 10,000 different data points on a customer’s device, including financial transactions, savings, network diversity, and geographic patterns, and builds a customized credit score, or financial identity. Tala operates in East Africa and Southeast Asia with its main top markets being Kenya and the Philippines. Tala has delivered more than one million loans totaling over $50 million, and more than one million individuals have accessed the product in East Africa alone. See how Tala compares to other (fintech) / phone-lending apps in Kenya.  Forbes termed this the largest Series B raised by a woman founder in recent memory.
  •  Zeep is a smart and simple mobile platform that helps young people (teens) nurture good financial habits. They ‘learn by doing’ within the framework of a secure financial environment with guidance from their parents.

Companies to watch

Irish Tech News released a list of 38 Kenya fintech companies to watch in 2017; these include Abacus, BitPesa, Branch, Cellulant, Chura, FarmDrive, Kopo Kopo, M-Changa, Pesapal, Tala, and Umati.

Summit

The FT Africa Payments Innovation Summit will take place on 29 March 2017..it will bring together 250 business leaders from various mobile and financial interest groups and explore challenges and opportunities inherent in these developments: from providing greater financial access to un-banked people across the continent to providing new services and opportunities for an emerging middle class.

MSurvey: Better Data, Better Decisions

Last month, I got introduced MSurvey, a fast simple solution for companies seeking to collect research data, or other information about their products and service from users. They do this using a nifty platform, all mobile, that is free for respondents, as the cost of the SMS/USSD messages are paid for by the customers who are doing the survey.

My 5-minute MSurvey

My 5-minute MSurvey

With MSurvey, it’s also quite quick to set up a questionnaire. This one (attached) took about five minutes to set up, with random questions for farmers and responses came within a minute of it going live from farmers in different parts of the country. Responders are rewarded with airtime prizes, and the process is non-intrusive.

One of their customers is Java House and when you pay for a meal via M-Ppesa, you get to answer a few questions about the service and your experience at whichever restaurant you ate. They are also in the US and Trinidad & Tobago, and some of their other customers are Musoni, (the) Telecommunications Authority of Trinidad & Tobago, Digicell, Safaricom, and Acumen.