Companies

Safaricom takes Sh53bn insurance for M-Pesa business

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Safaricom PLC headquarters in Westlands, Nairobi. PHOTO | DENNIS ONSONGO | NMG

Safaricom has taken up insurance worth $444 million (Sh52.9 billion) for its M-Pesa mobile money service as cover against the risk of non-payment by users and partners in its growing list of financial services.

Nairobi-based Africa Trade Insurance (ATI) revealed in its 2021 annual report that the listed telco tapped it for a comprehensive non-payment insurance cover last year.

This type of cover allows a business to mitigate against non-payments without resorting to demands for letters of credit or having to set aside a kitty a bad debt reserve on its balance sheet.

The insurance covers M-Pesa from counterparty risk from banks, which are the payment partners for the service, and individual customers who are now accessing credit and overdraft services via the platform.

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The cover underlines the importance of M-Pesa to Safaricom and to the national economy, with the platform ranking as the biggest person-to-person payment service while also growing in the business payments space, supporting 1.4 million SMEs.

M-Pesa funds are held through M-Pesa Holding Company Limited, which is controlled by directors who are independent of Safaricom and act as the trustee for M-Pesa customers to ensure that the funds are safeguarded at all times. The trustee company transacted Sh96.8 billion with Safaricom in the year ending March 2022.

M-Pesa has grown over the years to become Safaricom’s biggest revenue earner, eclipsing voice and data.

In the year ended March 2022, M-Pesa business contributed 49 percent of the telco’s profit before tax of Sh102.2 billion, while its revenue of Sh107.7 billion accounted for 36 percent of the company’s total revenue of Sh298.07 billion.

This indicates that the mobile money unit has superior profitability compared to other business lines such as voice and data.

M-Pesa users in Kenya had crossed 30 million by the end of March, accounting for more than half of the platform’s 51 million customers across the region. This growth has been driven by the introduction of new services over the years such as M-Shwari, KCB M-PESA, and Fuliza.

The company has also recently firmed its grip on the mobile money platform, having acquired the M-Pesa brand, development rights, and support services from its parent firm Vodafone through a joint venture with fellow subsidiary Vodacom.

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The two firms paid Sh1 billion each for the brand, with the joint venture now allowing them to expand the service to into new markets in Africa.

Both ATI and Safaricom also count the government of Kenya as a common shareholder. The State holds a 35 percent stake in Safaricom and is the largest of ATI’s 32 shareholders drawn from member countries and public entities.

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