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PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. Part one can be found here; the following is part two.
While the jury may be out on M-Shwari (see here), the verdict is in on M-Pesa. M-Pesa offers real value to an estimated 14 million disenfranchised and financially excluded Kenyans. Indeed, for many lower-income Kenyans, M-Pesa is not only a payments service, but also a form of insurance. Think of it like an online strategy game. You donate units to members of your group in the belief that they will reciprocate when you request. This same norm operates in Kenya with M-Pesa users, who send spare shillings to friends and family every opportunity they get with the operating belief that if there is ever a need (say their tire pops and they need to pay for a repair) they can send out a request for funds to members of their group and have confidence that their needs will be met. This is a great contribution for a product that former Safaricom CEO Michael Joseph called “a gadget” to make phone service stickier.
Another unintended contribution stemming from M-Pesa is the gradual building of a non-financial payment transactions database at Safaricom. Practice and research from around the world proves that this data is highly predictive of consumer and small business credit risk. The collection and use of this data could be an extremely useful tool to drive meaningful financial inclusion in Kenya. Safaricom Financial Services fully realizes this, and like so many other mobile network operators around the world, moved to limit access to this data to themselves and their bank partners.
PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. The following is part one.
Recently, a number of players have flaunted an impressive array of promising digital technologies to expand credit access, advertising nothing less than a full on revolution in financial inclusion. While the promise of many of these solutions is inarguable, in most cases they are limited to lower-value, higher-interest consumption loans at best, or, at worst, are at risk of being useless as they suffer from the classic error of putting the cart before the horse. The principle limitation on these solutions is a lack of access to sufficient quantities of regularly reported, high-quality, predictive data upon which to base credit decisions and develop credit products.
Consider the case of Safaricom, which revolutionized the payment systems market in Kenya with its M-Pesa offering. The rapid uptake of M-Pesa by lower-income Kenyans was proof positive of the value of digital financial services and spawned a wave of investment into hundreds of copycat service providers around the world.
> Posted by Bruce MacDonald, Senior Vice President, Communications, Accion
My first love was Susan Morasky, but my second – and far more enduring – has been Africa. For that I credit Mrs. Walden, my third-grade teacher, who encouraged us to think big.
Sadly, even the loves of your life can let you down. In Nairobi last week to promote the Africa Board Fellowship, our new program on governance for sub-Saharan MFIs, all went well. Until, that is, I tried to go home. A 20-minute taxi ride to the airport became an hour, then two, then four.
I missed the KLM flight to Amsterdam, and of course the connecting flight home. As I sat in the cab, fuming in First-World frustration, I peppered the driver with questions. “What’s the cause of this?” Rain. “Can’t you go another way?” This is the only way. “Where are all the policemen directing traffic?” Incoherent response. And, finally, snippily, “How on earth do you people put up with this?” Obviously embarrassed, he finally stopped answering my questions.
Everything’s relative, especially in Africa – something I should have remembered, given the banking and finance conference I’d just come from, and the presentation by Amish Gupta, head of investment banking at Standard Investment Bank in Nairobi.
> Posted by Ignacio Mas, Independent Consultant
I guess it happens in all human endeavors; we sometimes get carried away wishing things were the way we think they ought to be. Let me provide three cautionary observations relating to financial inclusion: about how we measure it, how we talk about it, and how we assess it. The point is not to dampen enthusiasm about the possibilities, but to reflect on our progress in a more realistic way.
Industry Showcases and the Numbers Game
Through numerous industry conferences and blogs, certain players get put up as shining examples for the industry to follow. M-Shwari is perhaps the latest one, I guess because it delivers large customer numbers to an industry that is still largely focused on coverage rather than usage, and it represents the kind of telco-bank partnership that many have been fantasizing about.
> Posted by Anne Gachoka, Research Supervisor, Digital Divide Data
Thanks to mobile and agent channels, formal financial services in Kenya now reach millions of previously unbanked customers with new and innovative products. Just look at M-Shwari, the new banking product offered to M-Pesa customers enabling them to move beyond money transfer and epay to small, short-term loans with eligibility based on data about their savings, mobile usage, and debt repayment history. Globally, this is all very exciting and represents an important breakthrough in providing financial services to the poor.
But, after studying the interactions between the poor and the financial sector through the Kenya Financial Diaries, a joint-research initiative between Digital Divide Data and Bankable Frontier Associates, I have come to the conclusion that banking will fail to deliver on the promise of improving the lives of the poor unless providers do more to improve pricing transparency and communication on terms and conditions. The Diaries study tracked the cash flows of 300 Kenyan households over the period of one year.
> Posted by Center Staff
This edition of top picks features posts on how to effectively deploy new technologies to the base of the pyramid, the increasing prominence of mobile savings and credit services, and the growing potential for impact investing in microinsurance.
How can innovative technologies be distributed and adopted at scale in the last mile? Tomohiro Hamakawa of Kopernik addresses this question in a new post on Next Billion. Drawing from a recent Kopernik report, Hamakawa expounds on five key factors to serve as guiding principles in the roll-out of empowering technologies to the BoP: activating a local network of trust; lowering financial barriers; riding the technology adoption wave; focusing on tangible benefits; and staying engaged, showing commitment.
> Posted by John Gitau, CEO, Kenya Financial Education Centre
The other day, I received a text message from an engineer keen on financial inclusion matters. He wrote:
“Morning Sir! I was just thinking. At what cost is financial inclusion? I have just read a big sign in Donholm: Redeem your airtime for cash. Does this add to financial inclusion? If I am stuck, someone can sambaza (share) airtime and then I can redeem it as cash and get fare to go home. In financial inclusion, since you are in this field, is it all about such access and convenience to financial services?”
I didn’t immediately have an answer to his question. It sent me thinking broadly and deeply. Through M-Pesa, Safaricom has a “financial inclusion” base of over 16 million Kenyans. Then I remembered that in the G20 Los Cabos Summit of June 2012,* mobile money use was left out as one of the measures of financial inclusion. Having a formal bank account was in. But this realization left me more confused. Safaricom mobile connectivity through its M-Pesa product is excluded as an inclusion parameter just because Safaricom isn’t a bank? Wait a minute, now we have M-Shwari, a bank account at Commercial Bank of Africa available to M-Pesa customers through Safaricom. How shall that be treated? Inclusion within a largely excluded service? Of all Safaricom M-Pesa customers, are only those with M-Shwari accounts counted as included?
This reminded me of a story in Chinua Achebe’s Things Fall Apart about a character called Dimaragana who could not give his knife to cut dog meat because dog meat was taboo, but he was ready to cut the dog meat with his teeth. So, Safaricom customers using M-Pesa are not included but perhaps if they go deeper into its system and buy a product called M-Shwari, they’ll get included? Unsatisfied, I thought about a few other financial services scenarios. If an M-Pesa customer were to close off her M-Shwari account while still using M-Pesa, would that be exclusion? Suppose instead of M-Shwari, she sends money to her retirement benefit scheme through her Mbao Pension scheme. Would she then be considered included? She could also buy an insurance policy from CIC Insurance using their Ksh 20 insurance-per-day scheme and make her payments through M-Pesa… Still excluded?
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