Markets & Finance

Clients per bank worker up tenfold in just two decades

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Customers are served at a KCB bank in Nairobi. The number of bank accounts per branch is over 13,000 in Kenya compared to less than 8,000 for Nigeria, its closest peer in sub-Saharan Africa. PHOTO | SALATON NJAU

Kenya has surged ahead of its sub-Saharan Africa (SSA) peers in banking efficiency thanks largely to quick and widespread adoption of mobile phone technology, rating agency Moody’s said.

The efficiency in Kenya banking is such that a bank employee now serves 770 customers compared to 60 customers 20 years ago.

The number of bank accounts per branch is now over 13,000 in Kenya compared to less than 8,000 for Nigeria, its closest peer in SSA.
Cote d’Ivoire and Ghana have just over 6,000 bank accounts per branch.

“Effectively, one employee now serves an average of 770 customers, while in 1996 the same employee was serving an average of 60 customers,” said Moody’s.

Kenya has achieved formal banking sector penetration of 75 per cent helped by mobile phone banking in the past decade.

A number of banks have linked up with Safaricom’s M-Pesa system to offer bank-specific products. In 2012, Safaricom and Commercial Bank of Africa launched M-Shwari which is a range of credit and savings products that M-Pesa users could take up.

“The growth of M-Shwari has been remarkable. It currently has 10 million customers, deposits of Sh5.5 billion and loan balances of Sh2.1 billion,” said Moody’s.

The penetration of mobile banking has more significantly reduced the banking costs relative to incomes in Kenya than among its SSA peers. Local banks’ cost-to-income ratio stands around 40 per cent which is well below the 60 per cent in SSA.

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However, on a global scale, the Moody’s report noted that banking penetration remains low on average across SSA despite the success in Kenya.

The report says that there are some pre-conditions for the success of mobile banking including a flexible regulator, an agency network, existence of high volumes of business, the delivery infrastructure as well as customers.

“The regulator should allow companies to innovate and test their services outside the confines of strict regulation. Safaricom, for example, was offered a ‘no objection’ letter that allowed the company to innovate and pilot-test its services. The regulator must, nonetheless, continuously monitor their operations and also have a good understanding of related risks and how these are mitigated,” said Moody’s.

Growth

Kenya has also seen the agency network grow in the past few years. According to data from the Central Bank of Kenya (CBK), the value of agency banking has risen to Sh1 trillion as of last September compared to Sh44 billion in 2011 – more than 20 times in just five years.

According to Moody’s, Kenya’s literacy rates and availability of engineers has especially helped mobile banking penetration besides “local supply of software engineers”.

The report further noted companies such as Safaricom had made big investments in innovations, research and development that had contributed to increased penetration in mobile banking.

The rating agency however notes that there are potential risks for banks including IT failures that could interrupt customers’ access to their money as well as risks relating to outsourcing or use of third parties such as telecommunications providers.

“Banks should also address the potential for fraud or money laundering, as mobile banking makes it challenging to identify and report suspicious transactions,” said Moody’s.