Micro financiers feel the heat from M-Kesho

M-Kesho, a partnership between Equity Bank and Safaricom, is set to deepen access to financial services. Photo/FREDRICK ONYANGO
M-Kesho, a partnership between Equity Bank and Safaricom, is set to deepen access to financial services. Photo/FREDRICK ONYANGO 

The M-Kesho bank account is causing jitters among micro credit institutions who fear losing current and prospective customers to the new service because of its easy accessibility through the mobile phone.

The M-account allows users to receive small loans currently limited to a maximum of Sh5,000.

Borrowers will be assessed based on their credit history of M-Pesa and later in repayment through M-Kesho.

They will apply for the loan via the phone and receive notification within minutes.

If they qualify, borrowers will receive the money on their phones which they can withdraw from the nearest M-Pesa agent.


This is a major shift from the practice of micro credit institutions that lend micro loans only to organised groups to curb the risk of default.

In the micro credit institutions model, applicants must belong to an organised group of at least four people, fill in loan application forms, list collateral they offer and wait for days before they are notified if they qualify.

Loanees are paid by cheque and have to wait for about four working days for the cheque to mature.

The commercial banks also take their cheque-handling charges from the loan amount.

Micro credit institutions include small financiers like Faulu Kenya, Kenya Women Finance Trust and savings societies known as Saccos.

Shylocks are informal micro credit players.

“We are concerned that M-Kesho may pull away some of our clients but this is a chance for other micro lenders to innovate,” said George Ototo, the acting managing director of the Kenya Union of Savings and Credit Cooperatives (Kuscco).

Key players in micro finance sector, including the Association of Microfinance Institutions of Kenya requested not to comment and gave divergent reasons for that.

Mr Moses Ochieng, a Financial Sector Specialist for East and Southern Africa working for British government international development arm, DFID said the new account “was a major win” for low income borrower because it offers them a choice from micro finance, Sacco or shyloks.

“Even under agency banking, agents cannot appraise loan applications and the process of channelling those applications through the commercial bank branch means banks are still not close to customers when it comes to giving loans.”

Successive research has showed that there is a huge opportunity to provide banking services for the poor because of limited penetration even in the face of micro finance and Sacco sector growth in the recent past.

For example, micro credit institutions excluding Saccos only reach about 1.1 per cent of the population

That opportunity was expected to be utilised prominently by the agency banking allowed by the Central Bank last month, but the entry of M-Kesho has widened the options for borrowers and has opened new frontier to increase penetration of banking and insurance services.

According to the Finaccess study conducted in 2006, about 38 per cent of adult Kenyans are unserved by financial system.

Only 19 per cent of Kenyans are served by commercial banks while eight per cent are served by semi-formal financial service providers such as microfinance institutions and Saccos

The remaining 35 per cent are served by informal financial service providers, ranging from Accumulating and Rotating Savings and Credit Associations to shopkeepers and money lenders.

But 17 per cent of the unbanked own a mobile phone, according to the FinMark Trust, creating an opportunity to use the phone to deepen access to financial services.

M-Kesho, a partnership between Equity Bank and telecom company Safaricom, means that the 17,000 agents of M-Pesa will now become banking and insurance agents for Equity Bank and there is opportunity to convert nine million M-Pesa accounts into savings accounts.

Analysts said although people who own mobile phones are most likely to have one or more bank accounts, the impact on deepening financial access will be high , especially because of new phone users driven by the declining cost of a mobile phone.

“It is only the weaker micro credit institutions that will feel the pinch,” said Mr Ochieng. “Others must innovate. They have a chance to use technology to be more efficient, reduce their operational costs and offer lower interest loans

Analysts said one of the options micro credit institutions have is to rise on the same mobile telephone infrastructure to offer services to their clients including partnering with other telecoms like Zain and YU to use their money transfer infrastructure.

Others forecast that micro credit institutions may be overtaken by commercial banks in seeking similar partnerships with telecoms.

Kenya Commercial Bank has previously expressed interest in such mobile-phone embedded accounts and the Cooperative Bank is also tipped as another most likely entrant.