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> Posted by Jeffrey Riecke, Communications Associate, CFI
M-Pesa, the mobile money service success story that began in Kenya in 2007 is continuing its march, this time into the surprising location of Romania, raising the questions, what will the product look like in this new European market and how will it fare. At the end of last month Vodafone, the operator behind the new service and one of Romania’s largest telcos, began operations using the country’s 300 Vodafone Romania stores, participating retail outlets, and authorized agents.
M-Pesa operates via SMS phone messaging and offers the ability to make deposits and send and receive payments to people and businesses – potentially an attractive prospect to the third of Romanians who don’t have access to formal banking services. Across the country there are about 7 million people who transact mainly in cash. The just-launched mobile service is estimated to be accessible to about 6 million people, and Vodafone plans to increase its in-country distribution points to a total of 2,000 by the end of the year. Vodafone has 8.3 million clients out of Romania’s 21.3 million population, the vast majority being active mobile phone users. The mobile money market in Romania is currently underdeveloped.
Of course, just because M-Pesa has achieved significant uptake elsewhere doesn’t mean that will happen here, too. Since the service first launched in Kenya, new M-Pesa outfits have been established in a number of other countries including Tanzania, Afghanistan, and South Africa. Within the past twelve months, the service also launched in Egypt, India, Lesotho, and Mozambique. Across these markets results have been mixed, with operators struggling to emulate the immense success achieved in Kenya.
> Posted by Allison Ehrich Bernstein, Executive Communications Specialist, Accion
Since the runaway success of Kenya’s M-Pesa system, banks and mobile service companies have been looking for the next big opportunity to bring cell phone-based financial services to a whole new client base. While we haven’t yet seen anything on the scale of M-Pesa, numerous companies (e.g. Easypasia in Pakistan, bKash in Bangladesh) have been chipping away at its number-one position.
So, what’s your pick?
You might say a fairly stable country that already has a reasonably strong banking sector, like Ghana. Or a high-population nation like Nigeria, or perhaps a place like Zimbabwe, where the financial system could use a jolt. And those wouldn’t be bad ideas.
Established African mobile-service providers Zain Group and MTN are taking a very different approach, however: they’re setting up mobile money networks in the world’s newest country, South Sudan.
Even if it weren’t a nation less than three years old, South Sudan might not strike the average observer as the next “it” spot for mobile money. Banking penetration in-country is negligible; there’s currently neither the central infrastructure nor leadership for it. And mobile penetration was somewhere around 13-15 percent in 2012, according to an International Finance Corporation study and other sources.
> Posted by Nate Gonzalez, Investment Officer, Accion Venture Lab
Last week this blog shared the news that Equity Bank applied for a mobile teleco operating license in Kenya, a development suggesting the bank’s interest in entering the country’s M-Pesa dominated mobile money market. In rapid succession, this weekend Kenya’s two largest telcos, Safaricom (who operates M-Pesa) and Airtel, announced that they are jointly buying-out yuMobile, the third-biggest telco in Kenya, and the most likely player to have partnered with Equity to enable it to enter the country’s telco-led mobile finance space.
> Posted by Richard Koven, Consultant, MicroInsurance Centre
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”
Both client value and a business case are needed for microinsurance to be sustainable. In an ideal world, the two ultimately reinforce one another. Value is recognized by clients, leading to greater satisfaction with and demand for insurance, while demand leads to reasonable profits for insurers, enhancing their ability to provide value to clients in the medium and long-term.
In an effort to better understand how profitability and client value complement one another and how they conflict, the MicroInsurance Centre’s Microinsurance Learning and Knowledge (MILK) project conducted extensive research on health microinsurance in Kenya.
Understanding client value and the business case
To understand client value, MILK conducted two “Client Math” studies. These quantitative assessments seek to understand the value of insurance compared to other risk management tools by exploring the differences in how insured and uninsured households cope with financial shocks. We looked at hospitalization insurance products offered by two private insurers: the Afya Yetu Initiative, an NGO that oversees and implements 30 Community-Based Health Insurance schemes, and the commercial insurer British-American Insurance Company Kenya (Britam). We surveyed low-income people (insured and uninsured), asking them about the direct, indirect, and opportunity costs they incurred in connection with a high-cost hospitalization as well as the strategies they used to finance those costs.
We found that while both products provided value for clients, the Afya Yetu product offered more generous coverage. Post-claim, Afya Yetu policyholders paid only a quarter of the total costs of hospitalization of their uninsured counterparts. By contrast, Britam’s clients paid 80 percent as much as their uninsured counterparts. In both cases, insured respondents were able to finance their costs more independently than uninsured respondents by reducing spending in the short-term rather than taking out loans. The Afya Yetu product is simpler and was thus better understood by respondents than Britam’s more complex product, which offers eight different levels of coverage. Afya Yetu uses a relatively “high touch” enrollment process that leverages existing relationships with agents from within the communities of the target populations, thereby educating clients and building trust. Britam’s clients, by contrast, struggled to understand their coverage; of the insured respondents in our study, 60 percent reported paying more than they expected to pay for their hospitalization.
> Posted by Center Staff
Equity Bank, Kenya’s largest bank by customer base, has applied for a license to operate a mobile telco business, a move that strongly suggests intent to enter the mobile money space. If realized, the bank and its 8 million customers could significantly disrupt M-Pesa’s current domination of the country’s market and help drive competition and innovation.
Given the type of license being sought, Equity Bank would not build a new telecommunications network, but would instead partner with one of the country’s prominent telcos and deploy services using this partner’s infrastructure.
Safaricom’s M-Pesa currently has a commanding hold on mobile money in Kenya with 21 million subscribers, covering roughly 75 percent of the country’s adult population. If Equity Bank’s customers were to subscribe to the in-house mobile money service in question, it would be positioned as the second largest in the country.
We look forward to the decision on Equity’s license and the action to follow.
Image credit: GSMA
> Posted by Adam Brown, International Development Discourse Group (IDDG) Member
The following post was originally published on the IDDG Blog.
Since 2008, the Afghan mobile phone provider, Roshan, has worked to bring mobile money services to Afghanistan. With the support of USAID, all four of Afghanistan’s major mobile phone providers are currently developing mobile money capabilities. The highly successful rollout of Kenya’s mobile money and banking service, M-Pesa, has spurred a flurry of similar startup efforts – over 72 in 42 countries. Many countries, however, have failed to experience the kind of success that M-Pesa achieved, and Afghanistan is no exception.
While the mobile money program in Afghanistan is in its nascent stages, the factors that helped M-Pesa to succeed are generally lacking. The most important of these are, 1) a dominant mobile carrier; 2) an economy that depends on long distance money transfers; and 3) customer trust in the system. The Afghan mobile phone market is too divided to create the kind of widespread network required to attain the critical mass necessary for a sustainable customer base. Further complicating the issue is the fact that Afghans generally do not rely on remittances, limiting the utility that could draw future users. To fix that, mobile money providers should include banking mechanisms early in their programs instead of tacked on only once a money transfer system is in place. However, trust in banks, especially since the Kabul Bank scandal, may be too low for Afghans to put their money into another bank-like mechanism. While mobile money is not destined to fail in Afghanistan, proponents of mobile banking and USAID should adjust their expectations for success, or at least be ready to address the above issues.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
If you regularly follow financial inclusion news, you probably come across articles on the financial inclusion progress of particular countries all the time. Just today I read headlines on the extent of inclusion in Bangladesh as compared to other South Asian countries, on the growing mass of mobile money subscribers in Kenya, and on life insurance penetration in India. Last week we added to the conversation with a post on Nigeria’s financial inclusion strategy. Keeping track of all these national developments is a challenge, even for those of us who have the opportunity to focus much of our attention on financial inclusion.
Earlier this month AFI released the National Financial Inclusion Strategy Timeline, a document that chronicles the steps AFI member institutions have taken in recent years to develop and implement national financial inclusion strategies in their countries – a resource any of us financial inclusion media junkies can embrace. Created by AFI’s Financial Inclusion Strategy Peer Learning Group (FISPLG), the timeline is organized by region and lists national-level developments for 28 countries from 2007 to the present. Here’s the Sub-Saharan Africa region section.
In looking at the timeline, a few trends quickly come to the surface. Not surprisingly, there’s been an increase in inclusion activity among central banks and financial regulatory institutions in the past few years. Specifically in 2013, a number of countries have drafted or implemented national strategies, including the Philippines, Thailand, Belarus, Turkey, Nepal, and Tanzania. Another trend expressed in the timeline is the rise of branchless banking, with many countries developing guidelines for agent and mobile banking.
> Posted by Center Staff
It’s hard to replicate the learning value that comes from a good infographic. One such gem we were glad to recently come across is The Kenyan Journey to Digital Financial Inclusion from GSMA. Released shortly after GSMA’s 2013 Mobile Asia Expo, the infographic chronicles the development of mobile money in its flagship country of Kenya. Through the infographic you can trace how policy decisions and product innovations worked together to connect three quarters of the Kenyan people to electronic payments and other products. It shows clearly how one innovation paves the way for more, leading to a burst of innovations in the past two years.
> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign
On June 18 and 19, I attended the “African Microfinance Pricing Transparency Leadership Forum“ in Nairobi, Kenya on behalf of the Smart Campaign. The conference convened key African microfinance market actors, including regulators, policymakers, and technical assistance providers, to discuss policies in support of pricing disclosure and client protection. It was hosted by MFTransparency (MFT), Planet Rating, and the Agence Française de Développement. Participants came from all over the continent, ranging from Ghana to Mozambique. As a new member of the Smart Campaign team, I took away a few thoughts for our own work.
The concept of transparency from MFIs is gaining ground. No longer can an MFI withhold pricing data without censure from peers. Participants voiced the need for greater intervention from their governments in the form of reporting standardization, regulatory oversight, and financial education programs so that clients can better interpret pricing information.
We should capitalize on this momentum and seek out partners who are truly committed to transparency and to improving the market environment. We should also encourage discussions among on-the-ground actors regarding difficult subjects such as pricing caps, improving small MFIs’ operating efficiency, and proper fee disclosure. And as MFIs commit to sharing more information, the industry should work to ensure that clients can understand and use pricing information to make good choices.
But many actors are reluctant to take on the responsibility and costs of bringing transparency to the market. Participants voiced concern about taking on greater costs and duties regarding regulation and providing recourse. Further, in some countries, confusion remains over how regulatory and oversight responsibility is allocated among government agencies.
Those working in microfinance can help lay the groundwork for sector transparency in Africa. We in the Smart Campaign should focus on forcefully communicating the incentives for transparency and the mid-to-long-term benefits to MFIs and their associations. We should support collaboration and knowledge-sharing among market actors and support the development of strong truth-in-lending legislation that protects borrowers. Actions must reflect the national regulatory context and engage local partners who understand specific local issues. Even with stronger legislation and increased regulation, there are many non-regulated actors slipping between cracks (e.g. very small, non-deposit taking organizations) and the Smart Campaign and others need to find ways to protect the clients of these institutions as well.
Populist policies are not always the most effective policies for client protection. MFT presented empirical evidence that, despite their recent popularity, pricing caps are not more effective than a client protection agency or strong client protection legislation. MFT’s evidence shows that if price caps are introduced, they must be comprehensive (i.e., address all fees and additional charges) and will result in the smallest borrowers and lenders being forced out of market. It is key to encourage legislative steps and the creation of a regulatory body rather than laws directly focused on interest rates and caps. At the same time, the lengthy timelines for legislation processes to introduce such protections can discourage people from taking action. Meanwhile, the thorough collection and effective communication of data being done by organizations such as MFT and MIX is an important part of improving the microfinance environment.
> Posted by Isobel Coleman, Senior Fellow for U.S. Foreign Policy, Director of the Civil Society, Markets, and Democracy Initiative, the Council on Foreign Relations
The following post was originally published on Democracy in Development, Coleman’s CFR blog.
Imagine life without a bank account. Completing a simple financial transaction can require traveling a distance, incurring expenses, and losing precious income. Savings are more difficult to track and certainly don’t earn interest. Theft or loss of the proverbial “cookie jar” is a constant worry. Indeed, studies show that informal savers lose as much as 25 percent of their hard-earned cash each year due to theft and loss. Yet for over 2.5 billion people globally, this inconvenient, inefficient, and expensive reality is the case.
There are many reasons to believe that the number of unbanked people will shrink significantly in years to come, with important positive implications for economic growth and poverty reduction. First, grassroots and country-level efforts, both nonprofit and for-profit, are already showing how “unbanked” doesn’t have to be the status quo—and these efforts are greatly facilitated by mobile phones. Kenya is well-known for the widespread use of its mobile money system M-Pesa, which allows people to pay for goods and services through cell phones instead of with cash. Started in 2007, M-Pesa has already been used by the vast majority of Kenya’s adults.
Second, major financial institutions are supporting efforts to give more of the world’s population access to bank accounts and standard financial tools. Last summer, I wrote about Visa’s purchase of the mobile payments system Fundamo and the collaboration between USAID and Citi to expand financial inclusion, a promising instance of big financial institutions bringing their resources to bear on closing the financial inclusion gap.