Why M-Pesa is a small cog in Kenya’s big financial machine

I have a little farm on the sweeping eastern Laikipia plains that has me visiting at least once a month. The singular cause of blinding migraines for the many telephone farmers is fraud by farm workers. Those fellows will find a way to skim money, farm inputs or farm outputs at any given opportunity and trust me, as soon as you plug one leak they’re 10 steps ahead of you preparing for the next scam. So one has to, as a telephone farmer, accept a certain level of pilferage as part of the business-as-usual operations, or opting to move and reside permanently in the farm.

Irritated and exhausted by one certain input request, I set up a system that didn’t require the farm worker’s intervention. I got a trustworthy boda boda (motor bike) operator in Nanyuki (where trustworthy is a fairly fluid virtue) to be purchasing the input on my behalf. But I don’t send him the cash. He goes to the outlet, sends me the “Lipa Na M-Pesa” till number where I pay and he takes the goods together with an electronic receipt to the farm.

I specifically chose the outlet for those two reasons: they have an M-Pesa till number and they issue electronic receipts. I then pay him, using M-Pesa, for delivery of the goods and have peace of mind, knowing full well that another scheme is likely being hatched at the farm since I blocked what had been a lucrative cash cow for the workers before.

Two things that are critical to the urban telephone farmer: a local bodaboda “guy” and M-Pesa.

While I don’t have any data on the impact that bodabodas have had on the transport economy – which must be undeniably high - more data on M-Pesa is readily available. In the latest published Safaricom financials for the half year ended September 30, 2016, the company had 26.6 million registered customers out of which 24.8 million or 93 per cent were M-Pesa customers.

However, a more accurate number is yielded by looking at the 30-day active customers which registered as 23 million, with 17.6 million active M-Pesa customers or 76.5 per cent of total active customers. Safaricom made more money from M-Pesa at Sh25.9 billion than it did from mobile data, which generated Sh13.4 billion. M-Pesa revenue was equivalent to 43.3 per cent of the voice revenue data of Sh45.7 billion. In simple words, mobile money is no bread and butter; it’s the cream with a cherry on top!

Who were these M-Pesa customers doing, you ask? Well telephone farmers like me were a piddly fraction of the transaction volumes. Three quarters of the Sh25.9 billion M-Pesa revenue was from what they call “bread and butter” business, which are the person-to-person transfers and withdrawals: John sends Mary Sh1,000, who promptly goes to an agent to withdraw the same in cash and purchase food items for the house. Telephone farmers like me are to be found in what Safaricom calls “new business”, which accounts for 24 per cent of their M-Pesa revenue or about Sh6.2 billion.

New business includes customer to business (individuals paying for services using M-Pesa), business to customer (businesses sending money to individuals, for example the Kenya Tea Development Agency paying farmers their tea bonuses), Business to Business (Distributors paying a manufacturer for goods delivered) and the rapidly expanding Lipa Na M-Pesa that has saved many urban dwellers the pain of having to send cash to purchase items via fundis (craftsmen), rogue relatives and even more rogue workers.

But M-Pesa revenue aside, it is the sheer transaction volumes that are simply eye watering. By September 2016, it had transacted Sh3.2 trillion. Kenya’s 2015 Gross Domestic Product or GDP, according to World Bank figures is $63.4 billion or Sh6.34 trillion. The M-Pesa volumes are virtually 50 per cent of Kenya’s GDP. However, hang on to your hat please as there is some double counting in the M-Pesa transaction volumes since they include deposits, withdrawals, person-to-person transfers and the business volumes. The bigger question is whether M-Pesa then poses a systemic risk in the event it is out of commission for whatever reason.

Firstly, M-Pesa is a methodology of transferring cash virtually. The actual cash sits in various M-Pesa trust accounts in Kenyan commercial banks. The bigger concern is not whether one’s funds are safe if M-Pesa goes down, it’s how to access a system that will release those funds, which are sitting safely in a bank. Central Bank data from 2014 demonstrates that while mobile money volumes are extremely high at 66.5 per cent or two thirds of the national payment system, they only account for 6.6 per cent of the throughput value. It’s definitely a case of more bark than bite where systemic risk proponents are concerned.

But having said that, the attraction to track the M-Pesa movements from a tax collection perspective goes without saying. Even though the values may be low, M-Pesa provides an excellent opportunity for the taxman to bring in smaller businesses into the taxpayer net as each transaction has an electronic signature and trail. Designing and applying resources to create that tracking framework may perhaps be where the challenge lies.

That M-Pesa has changed lives goes without saying. We live in a country where one can literally take a trip from Mombasa to Malaba carrying zero cash, zero plastic card and with just her phone be able to eat, drink and seek lodging for that entire trip. The growth of the Lipa Na M-Pesa payment was 73 per cent year- on- year in the half-year 2016 Safaricom financials.

This means that there is rapid uptake by commercial establishments of the payment option, which quite honestly presents a better cash flow option than credit cards as there is no lag time between customer transactions and when the funds are deposited into the business account (typically 2-3 days in the case of credit cards).

M-Pesa’s metamorphosis is not inclined to stop here and a banking licence may end up being required at the rate M-Pesa is transforming.