Banking in Kenya
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.
WHOLE OF SUB-SAHARA
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