Category Archives: Remittance

Banking is a Burden that Customers will Innovate Around

This is one of the many findings from a ground-breaking study of cross-border trading at Busia. And while banks worry about being out-innovated by telco’s, and telco’s worry about being out-innovated by apps, the truth is that it is the consumer who drives the innovation.

M-pesa was an accidental by-product of an airtime transfer product, and long before M-pesa, bank customers were doing free instant money transfers using the bank’s IT platform, thus bypassing money transfer giants that charged 10%. It is very likely that customers continue finding new ways to use banks and mobile money (such as M-pesa) in ways that the institutions are not even aware of now.

Borderless Biashara

Biashara

The report – Borderland Biashara: Mapping the cross-border, national and regional trade in the East African informal economy (download here) also found that :

  • Going to a bank was a time-consuming chore. Few benefits were perceived, and an account was considered to provide little or no ROI except when required as a prerequisite such as by the local Coca-Cola wholesaler for registering as a new distributor.
  • Many considered bank accounts a trap for cash which could be put to better use as working capital, generating returns on investments in inventory.
  • Bank charges made no sense.
  • Teresia has six years under the shade of the same tree and, since devolution, has been paying daily rent in the form of market fees to the local county council. Yet this, along with her internal migrant background hampers her efforts to obtain a loan at the local bank. She’s neither local nor has a permanent address – and in their eyes, she’s high risk.
  • Traders, brokers, currency exchange agents, and transporters, all had anecdotes on the variety of arrangements available for cross-border transactions, with and without the use of a bank account. These arrangements were within the limits of the law, for the most part, and were made to account for the barriers thrown up by lack of interoperability between telco service providers and their networks.

Mobilizing Domestic Resources for Africa’s Transformation

This is the theme of the third Africa for Results Forum (AfriK4R) forum that’s taking place in Nairobi from July 13 to 15, and organized by the African Capacity Building Foundation (ACBF) and the African Development Bank (AfDB).

The first one was held in  2013 in Harare, and the next  in 2015 in Abidjan. One of the main concerns has been that, with the diminishing official development assistance (ODA)  to Africa, estimated to be 27% in 2014, and down from 38% in 2004., the budget needs of African governments need to be matched by a growth in local resources like taxes, exports and natural resources.

Kenya’s Devolution CS Mwangi Kiunjuri cited some of the resources available to Africa including $520 billion annually from domestic taxes that Africa generates, $168 billion from minerals & fuels,  $400 billion that Africa holds in international reserves, rise in Stock market Capitalization from $200 billion in 1996 to $1.2 trillion in 2007 and $160 billion in sovereign wealth funds (10 African countries have established these)

Challenges of African government face to mobilize domestic resources include: a very narrow tax base and a huge informal sector; high levels of capital flight; tax evasion & avoidance; proliferation of tax exemptions; lack of legitimacy of tax administrations; relatively low penetration of the formal banking sector; and lack of human, technical, legal, regulatory, and financial capacity to deal with illicit financial flows – Thomas Munthali, Director, ACBF.

Munthali, also cited good examples of domestic resource mobilization including the  Central Bank of West African States (BCEAO) reform on e-money; the Uganda border-post anti-smuggling trade measures; the Zambian direct deposit of fees into one government account; Zimbabwe’s tapping on the informal sector by introduction of presumptive tax; and Malawi’s use of Electronic Fiscal Devices in VAT collection.

Coop Bank launches Diaspora Banking Centre

Coop Bank has opened to serve diaspora customers, 24-hours a day, 7-days, a week. It’s oddly located at the bank’s Co-op House headquarters, in downtown Nairobi, but its actually a centre meant to manage diaspora customers in faraway countries, using dedicated relationship managers.

They will serve people with queries on real estate, account opening and wealth management. They will also offer Coop Bank services to diaspora SACCO’s, which Kenyans abroad used to jointly save and manage challenges. And while in Nairobi, diaspora customers also get to use executive suites at Coop branches.

Since Coop launched diaspora banking in 2010, they have become one of the significant banks in remittances, handling, they estimate $45 million a month, or about 30% of the inflows. At the launch one customer,  who lived in Washington DC for many years, asked them to open a banking centre in the US capitol. While she praised Coop for their good staff  responsiveness and service to her as a customer, she also lamented the generally low-level of services that Kenyan institutions offer to diasporans who live in countries where they are used to efficient processes, and relationship people who actually return calls to customers. Many just want to open accounts in Kenyans banks to save, and all they want is to get prompt and good service.

Coop Bank Diaspora cakeCoop has partners and agents in places like UAE, Qatar, the UK, and the USA (Dallas).  One of the partners is UAE Exchange, and their manager in charge of Africa operations spoke of the changing trend of Africans sending & spending money to one of Africans sending & saving, and also sending & investing. This is the way to emulate Asian counties whose fast growth was aided by remittances by their nationals.

Coop also partners with SACCO’s (savings & credit societies) in North America and Europe such as the Kenya USA Diaspora SACCO, Kenya UK SACCO, and the Kenya Ireland SACCO.

Kenya Crackdown on Paper Bag Banking

The Central Bank of Kenya (CBK) has sent out new mandatory guidelines to banks to be on the look out for large volumes of cash being transacted over the counter. The notice targets customers who withdraw or deposit cash amounts of Kshs 1 million (~$10,000) or above.

It requires banks to get more information about why their customers are depositing or withdrawing these large sums of cash and query (among other things):

  • Why can’t the cash deposit or withdrawal be made through electronic means? 
  • What is the money going to be used for?
  • Who will be the direct and indirect beneficiaries of the money and provide the identity of the intended beneficiaries of the money.
Illustrative pic from the Star Newspaper to show what a large sum of cash will look like

Illustrative pic from the Star Newspaper to show what a large sum of bank cash may look like

The guidelines are drawn from existing crime and anti-money laundering regulations, and come after other attempts in the past to target money laundering, corruption, terrorism, or crime funds being transferred through mobile phones or remittances / hawala. But it seems, there’s been a realization, probably after investigations into the NYS saga, that cash was moved between banks in paper bags.

Brown envelope

In Kenya, large sums (over Kshs 1 million)  are meant to be transferred through electronic funds transfers (EFT) and real-time gross settlement (RTGS). Indeed cheques over Kshs 1 million are not accepted unless they are in support of amounts being transferred between accounts within the same bank.

M-Pesa across Borders

Today brought an announcement that Safaricom’s M-Pesa customers in Kenya would now be able to send and receive payments with mobile money customers of Vodacom in Tanzania – enabling true cross border payments to take place between mobile companies in the two countries.

A sample transaction today shows how it works:

Assumptions

  • The (mean) Central bank rate today was 1 Kshs = TZS 20.17
  • M-pesa transfer cost in Kenya for Kshs 100 to 500 is Kshs 11 to a registered customer versus Kshs 44 to an unregistered customer.
  • Initial theory that the charged would be for unregistered were proved to be wrong in an experiment

Sending Mpesa from Kenya to Tanzania

  • Sent Kshs 300
  • Charge Kshs 11 (about 4%)
  • Exchange rate 20.17Kenya Tanzania Mpesa
  • Recipient got Tzs 5,757

Sending Mpesa from Tanzania to Kenya

  • Sent Tzs 5,000
  • Charge (assume 4%) Tzs 200
  • Exchange rate 20.17
  • Recipient gets Kshs 236

The transactions takes a few minutes to effect, but they actually work and it seems, for now, that there’s very little margin being made on the exchange rate, while the remittance / transaction charges are in line with in-country transactions.

This comes a few weeks after Tanzania enabled cross network mobile payments, which were endorsed by their main mobile money companies – Tigo (Milicom), Airtel, Zantel and Vodacom.