Forex bureaus target M-Pesa business in search for new revenue streams

M-Pesa users are set to get access to more than 100 new service agents following a deal between Safaricom and foreign exchange bureaus that will see them act as their outlets.

The Kenya Forex Bureaus Association says it is negotiating with the mobile telecoms provider to allow the bureaus set up M-Pesa outlets, which will target high-value transactions on the money transfer service.

The association’s vice chairman Tom Muchina told Business Daily that the sector has been seeking additional revenue streams to offset what is expected to be a flat performance this year.

“We are partnering with Safaricom and are looking to finalise the agreement. We are targeting bulk transactions because forex bureaus are well capitalised and will be able to handle them,” said Mr Muchina.

In a response to Business Daily questions, Safaricom confirmed that it was in discussions with the bureaus over the M-Pesa agency business, but said it would not disclose further details as the deal is yet to be signed.

Other products that the bureaus are targeting starting January 2014 are agency banking and utility bill payments.

The association also said it will be seeking regulatory approval from the Central Bank of Kenya (CBK) to operate own money transfer business, besides acting as agents of other providers such as Western Union and MoneyGram.

Mr Muchina said they have recently come under increased competition from commercial banks and tighter regulation from CBK.

Early 2011, the Central Bank issued guidelines that were geared at reducing money laundering and weeding out weak players. The number of licenced forex bureaus has reduced to 106, from 112 in December 2012 and 118 in December 2011.

Both CBK and bureaus association attribute this decline to voluntary winding up and consolidation to ensure compliance with the requirements of the Forex Bureau Guidelines 2011.

The guidelines specifically prohibit multiple ownership of forex bureaus but allows operation of branches under one licence.

Owners of forex bureaus were required to increase their core capital to $60,000 from $30,000, which translates to Sh5.2 million from Sh2.6 million at current exchange rates.

CBK also doubled the minimum balance that forex bureaus must maintain to $4,000 from $2,000 (Sh350,000 from Sh175,000).

The capital rules were also targeted at ensuring that forex bureaus are liquid to serve bigger deals and also protect customers’ money.

Mr Muchina said that players in the sector remain uncomfortable with the size of capital requirement, and would continue to engage CBK seeking a review.

Insurable bonds

He said that some of the bureaus that have closed down had fallen foul of the increased capital regulation.

“We are talking with CBK on non-interest bearing capital deposits. We want to see if they are able to take another instrument, for example, a bank guarantee or insurable bonds, which will still offer protection for customer money,” said Mr Muchina.

A reduction in the revenues of the bureaus would be a shift from 2012, when they recorded improved performance both in profits and asset growth.

The 2013 performance numbers are yet to be released by the regulator. The CBK Banking Survey annual report (2012) showed the sector’s total assets grew by two per cent to Sh2.01 billion in the year up to December.

Cash, bank balances and fixed assets accounted for 39 per cent, 15 per cent and 20 per cent of the total assets respectively.

Last year, the bureaus saw a 44 per cent growth in pre-tax profits to Sh27.5 million, which the CBK said was linked to an improved business environment and expansion of products offered during the year.