Money Markets

Safaricom takes on banks with micro-loans product

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Safaricom CEO Mr Bob Collymore.

“It is simple. There are no ledger fees, no limits on the frequency of withdrawals, no minimum operating balance and no charges on deposits for M-Pesa to M-Shwari account,” said Bob Collymore (pictured), the Safaricom chief executive officer. PHOTO/ FILE  Nation Media Group

By Mark Okuttah and Victor Juma

Posted  Monday, November 26   2012 at  22:28

In Summary

  • Daily M-Pesa transactions stand at two million and are valued at Sh2 billion. M-Pesa users now stand at 15.2 million, having grown from 52,452 at its launch in April 2007.
  • Revenues from the service rose 32 per cent to Sh10.4 billion in the first half of the year ended September 30, making it a critical growth area compared to the voice business, which has been hit by a vicious price war.
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Safaricom is relying on the spending patterns of its customers, traceable from their airtime top-ups and M-Pesa transactions to determine the creditworthiness of subscribers.

Credit evaluation experts see this as giving the telecoms firm an edge over banks, especially with regard to target market that is mainly made up of informal sector operators who have been unable to secure loans for lack of cashflow statements, payslips and collateral.

To qualify for an M-Shwari loan, one needs to be an M-Pesa subscriber for at least six months, deposit some savings in their M-Shwari account and be a regular user of other Safaricom services such as voice, data and M-Pesa.

And to open an M-Shwari account, consumers will go to the Safaricom menu in their phones, select “M-Pesa”, go to “My Account”, “Update Menu”, enter “M-Pesa PIN” and wait to receive the updated M-Pesa menu.

Commercial Bank of Africa is hoping to hook a large segment of Safaricom’s 19 million subscriber base to M-Shwari as well as the telecom firm’s network of 47,000 distribution agents to deliver the service.

It is estimated that more than Sh300 billion of money in circulation in Kenya is outside the formal banking system and M-Shwari is designed to bring some of that money into the formal banking channels by targeting the 12 million Kenyans identified by the Central Bank of Kenya and the Kenya Bureau of Statistics as unbanked.

Safaricom launched a similar service with Equity Bank in May 2010 but the initiative collapsed a few months later amid reports of disagreements over fees and revenue sharing.
It also comes just six months after Airtel launched its credit-over-the-mobile service offer, targeting commercial banks’ core lending business at the lower end of the market. Airtel’s loans are capped at Sh10,000 and are issued in partnership with Faulu Kenya, a micro-financier.

The partnership between Safaricom and CBA comes after last week’s release of Central Bank of Kenya data showing that Kenyans transferred Sh1.117 trillion through their mobile phones, helped by the interface between banks and cash transfer services of telephone firms.

The value of all economic activities in Kenya — or the Gross Domestic Product — was Sh3.7 trillion last year.

CBK said the increase in mobile money transfers was being fuelled by the high number of consumers moving money into and from their bank accounts using mobile phones.
Kenya’s six biggest banks have established mobile banking platforms that allow consumers to access their accounts through their phones.

Kenya’s mobile phone operators first rattled the banks with money transfer services five years ago, forcing the lenders to form partnerships with the telecom operators for a share of the fees charged on the multi-billion-shilling domestic transfers.

The direct entry of Safaricom into the lending market is expected to lift its earnings from M-Pesa, which was introduced as a money transfer tool but has evolved into a utility bills payment and credit service.

Daily M-Pesa transactions stand at two million and are valued at Sh2 billion. M-Pesa users now stand at 15.2 million, having grown from 52,452 at its launch in April 2007.

Revenues from the service rose 32 per cent to Sh10.4 billion in the first half of the year ended September 30, making it a critical growth area compared to the voice business, which has been hit by a vicious price war.

M-Pesa’s contribution to Safaricom’s total revenue rose to 18.6 per cent from 17.1 per cent, with Safaricom’s parent company, Vodafone, set to take the service global by signing more partnerships in multiple markets.

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