Innovation puts Kenya on the threshold of banking revolution

Through M-Kesho, the instant access to an Equity Bank account will definitely further the bankability of ordinary Kenyans. Photo/FREDRICK ONYANGO

Following the recent flurry in branch expansion, banking the unbanked, SME targeted banking products, mobile money transfer, not to mention ATM proliferation and of course the advent of credit referencing bureaus in Kenya one would have thought that apart from agency banking, the space for innovation in the commercial and retail banking space was nearing exhaustion.

Frankly, as much as being able to withdraw money from my M-Pesa account felt really nice, I always felt that having to withdraw money, then trooping to the nearest M-Pesa agent to deposit it, and then send it to my folks in the village was still a cumbersome process.

In my view, it would be easier if I could just deposit the money directly from my account to M-Pesa at the ATM point, and then send it wherever.

Well, Safaricom and Equity Bank have gone a step further and removed the ATM and the all too familiar queue in the banking hall from the picture and virtually transformed our mobile phones into banking facilities all in one swoop. Fancy that, huh!

The product M-Kesho has also opened up the agency banking space at no expense to Equity and provided access to a banking licence to Safaricom, without the latter having to go through the regulatory red tape that has been responsible for confining the growth of mobile money in the Kenyan economy.

Let’s start by looking at the sheer volumes this partnership could entail for the banking sector in Kenya.

Assuming that M-Pesa subscription stands at 10 million, and also assuming that a majority of these subscribers are in the unbanked population, the instant access to an Equity Bank account will definitely further the bankability of the common mwananchi.

Then, there is the fact that since the account is electronically based, all transactions will be easy to track, and therefore the credit referencing database will soon have a great platform for tracking and rating the creditworthiness of a huge chunk of the Kenyan population.

This data will in turn hand the consumer i.e. M-Kesho account holder, immediate access to a credit facility based on their transaction history, without the unpopular rigours of having to fill numerous forms, find guarantors for their loans and open their financial cobwebs to some nondescript bank-loan officer who does not even have the ability to grant them a loan in the first place.

Then there is the issue of agency banking.

Statistically, the local shopkeeper is essentially the most reliable credit reference that any financial system can have and this is exactly where you will find the numerous M-Pesa agents situated (20,000) to be precise.

If 20,000 agents register 500 clients then we have 10 million new bank accounts which will transfer or hold an average of Sh2,500 each or roughly Sh25 billion in electronic cash, circulating in the economy at any one time.

From an investment analyst’s point of view, the system will give us on a silver platter a platform for tracking the spending patterns within the economy, and thus the ability to predict and create models for formulating monetary policy which reaches to the very grassroots level that has been so elusive in the past.

The new Agents also stand to gain from the incentive based system since, all financial transactions from purchase of plane tickets to consumer credit will be performed by them, thus creating much needed employment, while at the same time reducing the hustle of travelling to a bank every time one needs to transfer or withdraw some cash, not to mention a myriad of advantages that will accrue to both the investor and the banking fraternity as a whole.

The agent will effectively be transformed into your retail banker and cash will not have to be moved from localities since the same cash will instantly be used to service other financial needs in the locality.

Don’t forget here that a new channel will be open for swiftly disbursing development stimulus funds and probably the financial assistance to poor families without them having to spend on getting to financial centres to access funds that are more useful elsewhere.

I will not even try to quantify what it will do for disaster management and even from the corporate frontline, the disbursement of dividends to investors.

Incidentally, there are other externalities like mobile phone number registration since the ID number is a primary requirement for access to the service.

Basically the implications are endless so let’s focus on the obvious for now.

Risk is always an issue when all these factors come into play but it is worth noting that Safaricom has been in the money transfer business for long enough to have got the gist of it and Equity bank does not need any lessons regarding security and dealing with microfinance in Kenya.

The weak link obviously lies in the agency system, and hopefully the two institutions will expend extra resources to ensure that the agents do not mess up one of the most innovative partnerships of our time.

The entry of other commercial banks and telecom firms will eventually provide the competitive mix that will probably elevate the Kenyan populace into the most efficiently and effectively banked society globally, and further prove the unending advantages that crossing the digital divide can offer developing countries and emerging markets as a whole.

It will also highlight the advantages of open mindedness and innovation as drivers of economic breakthroughs in the 21st century.

The mobile phone will definitely be a one stop shop for all financial transactions from banking, accessing credit, formulating monetary policy, investing in the capital markets to probably buying a loaf of bread at the local retail shop.

Then retail banking will become a phone based issue leaving banks to deal with SME’s and corporate customers and probably investment advisory services.

Imagine walking into a banking hall or a stock brokerage and finding it empty.