Cash flowing through agents of mobile money like M-Pesa and Airtel Money fell by a historic Sh344.9 billion in nine months to September, as businesses experienced mixed performance amid a drop in disposable income.
Data from the Central Bank of Kenya (CBK) shows that the mobile money agents processed Sh6.2 billion worth of transactions from Sh6.5 billion in the same period a year earlier, reflecting the biggest drop since the introduction of M-Pesa in 2007.
The dip came at a time when Kenyans were grappling with subdued consumer purchasing power on increased payslip deductions, coupled with suppressed job openings in key economic sectors.
The Stanbic Kenya Purchasing Managers Index (PMI), which tracks monthly private sector performance, remained above 50 points for six months within the nine-month period, indicating relative general improvement in business conditions.
A reading above 50 signals an improvement in business activity, while that below the mark indicates a deterioration. Firms, however, maintained unchanged wages amid a freeze in new hirings, reducing the disposable income available for consumer spending in the economy.
The consumer purchasing power also took a hit from inflationary pressures which cut down employees’ real income during the period, further clipping the flow of cash.
The drop in cash handled by agents also coincided with the continued piling of unpaid bills to State contractors and suppliers, which hit Sh524.8 billion as of June, further straining the flow of cash in the economy.
This marked the second ever contraction since the CBK started recording the data in 2007, coming after a 2.7 percent drop recorded in nine months to September 2023.
CBK data shows that the decline in value came despite higher activity at the agent level, with customers carrying out 1.91 billion transactions during the period, a 2.7 percent rise from a year earlier.
This suggests that customers are making more low-value transfers and avoiding large cash movements that attract higher fees or require more cash on hand.
The pattern has become increasingly popular in a period where households and businesses, have been under mounting fiscal pressure to keep closer the control of their day-to-day spending.
Many users have been splitting payments into multiple small transfers to manage costs, while others are relying more on direct wallet-to-bank transfers that do not require an agent.
During the review period, the number of active agents grew sharply by 24.3 percent from 367,551 in September last year to 456,742 this year, while registered accounts rose by 9.6 percent to 87.01 million during the period.
Safaricom, for example, reported that its agent network across the country expanded 14.1 percent year-on-year during the six months to September to stand at 298,890.
The drop in cash passing through agents is also taking place as banks continue to hold unusually high levels of cash on their books, due to slow demand for loans and cautious lending. The lenders have been growing deposits faster than loans, leaving them with large liquidity buffers as customers pull back on borrowing and spending.
Industry data shows that lenders have been facing high loan defaults, which has pushed them to hold back on credit issuance, limiting the flow of new loans into the economy and ultimately reducing the large-value cash cycles that often spill over into mobile money usage.
Further, agents have been facing competition from the growing use of bank apps and mobile banking tools that allow customers to move money directly from their accounts into mobile wallets. These tools reduce the need to deposit or withdraw cash at agent outlets, especially for customers who handle larger sums.
The current trend sharply contrasts with the early years of mobile money, when agents handled most of the deposit and withdrawal activity and customers relied heavily on cash for both personal and business transactions.
