Archive for: Kenya

We write a lot about M-PESA. That’s because it is the most successful mobile money service launched (so far). This new CGAP video by my colleague Jeanette Thomas explains.

Greg Reeve is the Head of Mobile Payment Solutions at Vodafone.

Tell us a bit about your work and whom you’re trying to serve.
I head up Mobile Payment Solutions which includes the development and deployment of the Vodafone Money Transfer service, which is locally branded as M-PESA or M-Paisa. The service is operational in Kenya, Tanzania, Afghanistan and Fiji. It will be launching soon in other markets. When we look at selecting new markets there must be an un-met need for basic financial services within a large sub-section of the population.

The M-PESA product is aimed at the mass market within the country, as both banked and unbanked will benefit from the increase convenience M-PESA offers for transferring money, buying airtime and paying bills.  This is important as M-PESA is all about financial inclusion so providing service to both the rich and poor and often connecting the two!

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You want proof mobile money can make money? Look to M-PESA, which according to Safaricom’s annual financial statements released just a few days ago accounted for 9 percent of company revenues in the last fiscal year, for a total contribution of USD 94.4 mil (Ksh 7.56 bil). M-PESA revenues grew 158% over last year’s figure of USD 36.6 bil (Ksh 2.93 bil).

M-PESA as percentage of Safaricom's data revenue. ©CGAP analysis

It’s not just the gross revenue amount that is surprising. Two more things caught my eye.

First, Safaricom is lauding 78% growth in data revenue as the main engine behind the overall 37 percent growth in company profits (to USD 261.9 mil). And M-PESA now accounts for 48% of all data revenues, and 70% of the total growth in data revenue last year. In other words, this year M-PESA was the single biggest driver of new profits for Safaricom. Goodbye SMS as the #2 revenue source, at least for this mobile network operator.

Second, M-PESA may be delivering even more to the bottom line. A little guesswork is involved. The service is 3+ years old. Safaricom still incurs variable costs of agent commissions, marketing, HQ staff. But if they’ve paid off the original large, lumpy front-end investments in the M-PESA platform, the huge initial marketing blitz and no doubt a few high-priced lawyers to help sort out regulatory treatment… well, it would not surprise me if a substantial portion of M-PESA revenues now flows directly through to profits. Let’s say it’s half; in other words, USD 47.2 mil in profits from M-PESA. And we know Safaricom’s overall profits for 2010 were USD 261.9 mil. In this scenario M-PESA is generating 18% of all Safaricom profits.

Not bad. Not bad at all.

-Mark Pickens

What does mobile money cost for the unbanked and underbanked? CGAP releases pricing study across 16 providers in 10 countries

It is possible that establishing a successful, scaled branchless banking service could be more expensive than expected. Some branchless banking providers want to leave room to come down on prices as more competitors enter the market.

Other highlights:

• The lower the transaction value, the cheaper branchless banking is in comparison with banks. For example, at a transactional value of $23, branchless banking is on average 38% cheaper than commercial banks the study looked at.
• Branchless banking is 54% cheaper than informal options for money transfer.
• Customer usage is influenced not only by absolute prices but by the way a service is priced. For example, in order to encourage trial of money transfers, some services offer free deposits, which make branchless banking an affordable way to save.
• Average branchless banking price is $3.90 per month.
• Informal providers charge double the price for a money transfer than a branchless banking provider.

• Afghanistan: M‐Paisa
• Brazil: Bradesco and Caixa
• Cambodia: WING Money
• Cote d’Ivoire: MTN Mobile Money, Orange Money
• India: Eko
• Kenya: M‐PESA and Zap
• Pakistan: easypaisa
• Philippines: GCash and Smart Money
• Tanzania: M‐PESA, Zap
• South Africa: MTN Mobile Money, WIZZIT

1. Sending Money Transfer
2. Receiving Money Transfer
3. Short‐term safekeeping
4. Medium‐term saving for asset
5. Bill Payments
6. High Usage (as a proxy for financial inclusion)
7. Average monthly transactions per M‐PESA user in 2008
8. Average monthly transactions per Kenyan banking customer in 2008

-Jim Rosenberg

This morning in Nairobi, Safaricom and Equity Bank were joined by Kenyan President Mwai Kibaki as they announced a new product called M-Kesho, an interest-bearing savings account. Kenya’s 9.4 million M-PESA users will have access to mobile microsavings, microinsurance, and other banking services with Equity Bank,  a CGAP project partner.

If M-PESA has given millions of Kenyans a safe, cheap alternative to carrying cash, then today’s new service, M-Kesho, will give millions of Kenyans a safe, cheap alternative to keeping cash under the mattress. CGAP is supporting Equity Bank to learn more about how to deliver savings accounts to poor, unbanked people. The Technology Program at CGAP is co-funded by the Bill & Melinda Gates Foundation, CGAP, and the UK Department for International Development.

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To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar. One session on branchless banking from the consumer’s point of view (download the presentation here)  was chaired by Daryl Collins, a Senior Associate at Bankable Frontiers and co – author of the influential Portfolios of the Poor: How the World’s Poor Live on $2 a Day. The book draws on year-long surveys of financial diaries from families in Bangladesh, India and South Africa. The surprise conclusion: many of the people they tracked were not living hand-to-mouth. Rather, the poor often rely on a variety of complex tactics and tools to manage money. In preparation for the session, Daryl reviewed household survey data from Brazil and Kenya - what experiences the poor have had with branchless banking and how this might inform the choices that regulators make when it comes to branchless banking. This is the second part of a two-part interview I conducted with her.

How are consumer experiences with branchless banking driving the policy debate?
What we are trying to do is to talk about the evidence on the ground. A lot of times what drives policy is perception – through the media, what people may hear about rather than systematic evidence. So we conducted a bespoke survey on correspondence banking in Brazil and looked at an exsisting surveyon M-PESA to look at the incidence with which the poor have problems with branchless banking.

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To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar. One session on branchless banking from the consumer’s point of view (download the presentation here)  was chaired by Daryl Collins, a Senior Associate at Bankable Frontiers and co – author of the influential Portfolios of the Poor: How the World’s Poor Live on $2 a Day. The book draws on year-long surveys of financial diaries from families in Bangladesh, India and South Africa. The surprise conclusion: many of the people they tracked were not living hand-to-mouth. Rather, the poor often rely on a variety of complex tactics and tools to manage money.

How are people who live on $2 a day different from, say, the people who are reading this blog? How would you sum up the financial needs of poor consumers?
When it comes to major cash flow, like incomes, most of us have got a predictable pattern and we can plan our financial lives. Poor people have low, unpredictable incomes,  where it’s hard to have mechanisms to siphon off income to save money, service a loan, etc. We’re used to having a monthly or biweekly pattern to our financial lives as we get paid a regular salary on a regular basis. Having a predictable pattern means being able to plan your financial life. If you’re talking about people who don’t have a salaried job, their income is irregular. Many of the people who live on $2 a day don’t have that predictability and so their financial lives revolve around mitigating uncertainty.

Talk a bit more about the issue of unreliability and informal financial services.
It is crucial to be able to leave your money in a safe place. Formal services generally offer more safety than informal services, but the problem is that formal services are less convenient. This isn’t just about transaction costs - the time and money spent on a bus or taxi ride as you get to the bank. It’s not even about waiting in line for a long time at a bank branch. It’s also about the mental accounting behind making transactions. If people think they can get at their money more easily, when they want it, then they will feel comfortable about shifting away from informal devices and towards a formal service.

What can we learn from “Portfolios of the Poor” that applies to branchless/mobile banking?
You need to make a service convenient and flexible. So if someone can walk up to a banking agent in their neighborhood and make a transaction, they’ll use it. Formal financial instruments, such as a bank account, are not always flexible enough to meet the demands and challenges created by the irregular cash flows that many poor people live with day in and day out. So making services more affordable and geographically closer to the poor – something that mobile banking does – can help expand the reach of the formal financial system.

The real story here is about expanding the reach and reducing the cost of formal financial services to  better meet the needs of poor consumers.
Yes. We have seen that poor people manage their money in a variety of ways, not all of which work well. The services they have available to them are not lined up with their cash flows. Informal financial instruments, such as savings clubs, do a better job at matching cash flows to savings points and being more convenient. But informal services tend to have their own costs, which really center on unreliability. Branchless banking may help people begin to tilt their portfolios towards more formal uses.  But we need to be realistic about how quickly this might happen.  People are not about to leave informal instruments and go completely into the formal. it’s a subtle shift that will grow over time.

-Daryl Collins, as told to Jim Rosenberg

Next: The consumer experience in Brazil and Kenya, and implications for policymakers.

Recently I counted the number of mobile money launches by mobile network operators in 2009 and those confirmed for 2010. I included only those with a focus on low-income consumers. (Some, perhaps most, also target other segments, looking for the widest base to achieve the fastest uptake, which seems quite reasonable.)

For 2009 and 2010, I count 15. That’s twice as many as in the previous 8 years combined. Mobile network operators have clearly heard the news, and are responding with a bevy of mobile money launches. That’s a win for all of us who have been talking about branchless banking for several years, and believe it can change the landscape of financial services for the poor.

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This week we’re blogging from Barcelona, site of the Mobile World Congress. Today is the second full day of focus on mobile money, where the GSMA’s Mobile Money for the Unbanked working group convenes market players to compare notes. CGAP Microfinance Specialist Mark Pickens is presenting the latest work we’ve been doing on agents.

• Download the presentation comparing agents in Brazil and Kenya

Industry actors say their biggest unknown is how to build a viable network of branchless banking agents. Over the next 3 months, CGAP’s Technology Program will analyze agents in 3 reference countries (Brazil, India and Kenya). Because this area is so new, we will be out in the field ourselves talking to agents, network managers and banks.

We’ve already begun in Brazil, where CGAP is partnering with The Center for Microfinance Studies at FGV (Fundação Getulio Vargas), the leading Brazilian business school. Planet Finance Brazil is also a partner in the field research. Data was gathered on 295 agents, 49 of which were interviewed in-person. Read more about this collaboration.

-Mark Pickens

Next: A round-up of mobile banking developments from the Mobile World Congress.

Today, the CGAP Technology Blog comes to you from the Mobile World Congress in Barcelona. The MWC is the world’s biggest business show for all things mobile related. In recent years we’ve noticed how the focus on mobile banking has slowly grown on the agenda – both in the conference itself, as well as for the mobile network operators who comprise the membership of the GSMA.

Just two years ago, mobile money was relegated to a side session of a few hours. This week, there’s two full days of mobile money content – starting with Monday’s panel of the so-called “two billion club” – the handful of mobile operators who combined reach one third of humanity with their cell coverage.
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