Jamii Bora is a rapidly growing Kenyan MFI which is using 200 handheld terminals with their 185,000 members, via 72 branches and 142 outlets in 13 locations across the country. JB staff are adamant that going electronic has allowed their back office to keep up with the rapidly growing numbers of clients coming through the front door. The Sagem-branded POS terminals are equipped with a magnetic stripe reader for debit cards, an alphanumeric keypad, display screen, and thumbprint reader. They connect to the MFI’s core banking system via GPRS over the local mobile networks. Jamii Bora has re-engineered its processes so that nearly all transactions are completed via the POS, the client’s debit card, and their thumbprint as identification.
Clients have more confidence in printed rather than handwritten receipts. This is particularly important for Jamii Bora’s clients, who organize in 5-person groups and usually send 1 member with all of their repayments and deposits. The POS application has been customized to print out itemized receipts which group members can use to verify transactions were correctly completed. The migration to electronic has also radically sped up data processing. Clients can see their money in the account the next day, which is valuable as Jamii Bora ties loan size to the amount of savings on deposit. And the MFI can also see the end of day cash position for its 72 branches, a simple but critical piece of data for management.

But if the POS is so good, why not go mobile? Especially in Kenya, home to M-PESA, an early pioneer in mobile payments and now topping 2 million registered users and 2500 agents across the country.

Jamii Bora seems ready. They have decent core banking software (Banker’s Realm), which should be able to handle a real time connection to Safaricom’s M-PESA platform for transaction processing and accounting. CGAP has said group lending may not always work with branchless banking. This seemed to be the case with Faulu, another MFI that worked with M-PESA when it first launched. But Jamii Bora has already gone to a system of groups nominating one member to carry in transactions. So there doesn’t seem to be a case that M-PESA will undercut the desire to attend group meetings, and through it the joint liability mechanism which deters delinquency.

In the end, M-PESA’s charges are too high to be economical for microfinance clients. So far, Safaricom has geared M-PESA’s fees to the remittance business. The KSh 30 (USD 0.48) it charges for a remittance up to KSh 2500 (USD 40.35) is quite reasonable compared to the post office’s PostaPay product, or even bus drivers who carry remittances. But microloan repayments are a different business, more similar to bill payments (set schedule, relatively small value of $5-10) than a money transfer (less frequent, larger amounts of $50 or more).

The average JB client makes a KSh 394 (USD 6.36) payment each week. If they used M-PESA to send in loan payments, it would cost KSh 600 (USD 9.69) over the life of an average 20 week loan. That’s equal to 69% of the interest paid on that loan! Another way to express the added cost is an increase to the interest rate paid: using M-PESA would be like raising the interest rate from 12.5% to 21% on the average Jamii Bora microbusiness loan. That’s costly.

But Safaricom might easily see a business case for slashing the fees it charges for bill payments, in order to bring in clients like microcredit borrowers, who will use M-PESA on a frequent basis. From the outside, it seems the average M-PESA client does 1-2 transactions per month. A Jamii Bora client would make at least 4 loan repayments per month. And once familiar with M-PESA, they may very well use it for other purposes.

Figuring out how to make M-PESA economical for MFI clients might deliver the kind of intensive user of whom Safaricom is in hot pursuit.