Bank­ing in Kenya

Banking Frontiers - - Highlights - Mo­han@bank­ingfron­

Kenya is syn­ony­mous with M-Pesa. It is here that the Voda­fone-ini­ti­ated ex­per­i­ment was con­ducted and it be­came a run­ning suc­cess

Kenya is one coun­try in the African con­ti­nent where the fi­nan­cial sec­tor is a dy­namic sec­tor of the econ­omy. This is marked by in­creased adop­tion of the dig­i­tal - dig­i­tal branches, mo­bile wal­lets, et al - and the ex­is­tence of in­ter­net bank­ing. There is this suc­cess­ful ex­per­i­ment of Di­gibank, which is a unit of Stan­bic Bank in the coun­try, where you can do a trans­ac­tion with a mo­bile and all you need is an ac­count num­ber in the bank. With no hu­man in­ter­ac­tion, cus­tomers can de­posit cash us­ing the bulk note ac­cep­tors and with­draw the same amount de­posited the next minute at an ATM. Then, there is EazzyPay from Eq­uity Bank, where an app, ‘Eazzy App’, is the bank any­where, any­time. You can do what­ever you do at a bank on Eazzy App - from send­ing money to pay­ing for goods and ser­vices, ac­cess­ing Eazzy loans, pay­ing bills, check­ing the sta­tus of ac­count or sav­ing money - all us­ing the app. The third in­no­va­tive prod­uct is M-Sh­wari, a prod­uct from Com­mer­cial Bank of Africa. This al­lows cus­tomers to save and bor­row funds from their mo­bile phones. The app saw the bank record the fastest growth in de­posit ac­counts in the re­tail bank­ing in­dus­try.


Kenya that way is the fin­tech hub in the whole of the African con­ti­nent. It all started with M-Pesa, which be­gan a as a con­cept by Voda­fone as part of its cor­po­rate so­cial re­spon­si­bil­ity ini­tia­tive in part­ner­ship with lo­cal telco Sa­fari­com. It was aimed at fa­cil­i­tat­ing fi­nan­cial ac­cess for mi­crolen­ders and their clients. Pi­lot stud­ies re­vealed that the ap­pli­ca­tion was in fact be­ing used for gen­eral money trans­fers and the ap­pli­ca­tion was then redesigned. Sa­fari­com sub­scribers who also reg­is­ter with M-Pesa can trans­fer money be­tween cell phone users, even if nei­ther of them has a bank ac­count. M-Pesa sub­se­quently rev­o­lu­tion­ized fi­nan­cial ser­vices land­scape in the whole of the de­vel­op­ing world.

When M-Pesa came to Kenya in 2006, just 25% of Kenyans had ac­cess to bank­ing prod­ucts. By 2014, 68% of the peo­ple had the ac­cess and half of th­ese users did not have a for­mal bank ac­count. The M-Pesa plat­form per­forms the es­sen­tial fi­nan­cial trans­ac­tions - de­posits and with­drawals, trans­fers to other M-Pesa users and nonusers, bill pay­ments and pur­chase of air­time.


To­day, the whole of Sub-Sa­ha­ran Africa is a pioneer in the use of mo­bile money tech­nol­ogy. On an av­er­age, 16% of the adult pop­u­la­tion ac­tively use a mo­bile money prod­uct in the re­gion; the global av­er­age is 2%.

In Kenya, 43% of the pop­u­la­tion have mo­bile phones and the coun­try ac­counts for some 26.7 mil­lion M-Pesa ac­counts (and 33 mil­lion mo­bile phones), and has more ac­tive mo­bile money ac­counts than adults in its pop­u­la­tion. A re­cent study showed that M-Pesa’s ac­ces­si­bil­ity as a means of stor­ing money greatly en­abled women to save, as they would for­merly have had to spend time and money to travel con­sid­er­able dis­tances to de­posit money or ac­cess their sav­ings.

Mo­bile money has be­come a dig­i­tal plat­form from which other fi­nan­cial prod­ucts can reach pre­vi­ously ig­nored seg­ments of the pop­u­la­tion. Sa­fari­com could not earn or pay in­ter­est on the money it holds on be­half of its M-Pesa cus­tomers, be­cause it does not have a bank­ing li­cense. It then part­nered with Com­mer­cial Bank of Africa to cre­ate M-Sh­wari, the app that vir­tu­ally func­tions as a bank. The in­no­va­tion is that mo­bile net­work op­er­a­tors, which can track the trans­ac­tion his­tory linked to mo­bile money ac­counts, have the in­for­ma­tion to en­able the creation of a credit pro­file - one of the bar­ri­ers to credit for low-in­come in­di­vid­u­als - and al­low­ing M-Sh­wari to of­fer short-term loans.


M-Pesa aside, Kenya’s bank­ing sec­tor has shown a 15% core earn­ings growth for the nine months end­ing Septem­ber 2016, de­spite the chal­leng­ing eco­nomic en­vi­ron­ment.

Yet, there have been in­stances of struc­tural weak­nesses in the coun­try’s bank­ing sec­tor, as ev­i­denced by sev­eral bank col­lapses in the re­cent past, the Chase Bank be­ing the lat­est to be put un­der re­ceiver­ship af­ter a run on de­posits of $80 mil­lion. Ear­lier, Dubai Bank and Im­pe­rial Bank were placed un­der re­ceiver­ship in sim­i­lar cir­cum­stances. The coun­try had seen 50 plus bank fail­ures early in 1988, 1993 and 1998 caused by sys­tem weak­nesses.

The bank­ing sys­tem is the coun­try is con­trolled by the reg­u­la­tor, Cen­tral Bank of Kenya. There are 28 do­mes­tic and 14 for­eign com­mer­cial banks with branches, agen­cies and other out­lets through­out the coun­try. There are also a mort­gage fi­nance com­pany, 8 rep­re­sen­ta­tive of­fices of for­eign banks, 11 li­censed de­posit tak­ing mi­cro­fi­nance in­sti­tu­tions, 49 in­sur­ance com­pa­nies, the Post Of­fice Sav­ings Bank with a large net­work of branches and forex agents, re­mit­tance providers and de­posit-tak­ing li­censed sav­ings and credit co­op­er­a­tive or­ga­ni­za­tions. The bank­ing sec­tor is dom­i­nated by four ma­jor com­mer­cial banks - Eq­uity Bank, Kenya Com­mer­cial Bank, Bar­clays Bank of Kenya and Stan­dard Char­tered.

Kenya is one coun­try where agency bank­ing model, in­tro­duced in May 2010, is pop­u­lar. The sys­tem al­lows com­mer­cial banks to of­fer bank­ing ser­vices through third par­ties. This has in­creased ac­cess to fi­nance for the un­der­priv­i­leged sec­tions of the so­ci­ety and of­fer spec­i­fied fi­nan­cial ser­vices.

M-Pesa stalls in a Kenyan town

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