One of Kenya’s big banks makes a big bet on mobile

Kenyans cut the cord and and start to build savings.
Kenyans cut the cord and and start to build savings.
Image: AP Photo / Sayyid Azim
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Earlier this week, CISCO predicted that there will be 850 mobile users in the Middle East and Africa by 2017 and one of Kenya’s biggest banks has changed its strategy to capitalize on this development.

Commercial Bank of Africa (CBA) recorded over Sh3 billion (about $35 million) in deposits by Feb. 7, just over two months after mobile money service M-Shwari was launched. The mobile money industry in Kenya, which is known as being the global leader in the industry, generated $16 billion in 2012. The product, which enables users to save and borrow money using a mobile phone, is forcing the local financial sector to evolve.

Mshwari is built on one of the country’s most important banking innovations—M-Pesa, a mobile-based money transfer service with 15 million subscribers. CBA has partnered with the owner of M-Pesa, Safaricom, and through the partnership has access to those subscribers.

M-Pesa offers banking to a previously inaccessible market, those in the low-income bracket.  “Without any paperwork, Kenyans, including those working in the most informal sectors of the economy, can now access cheap loans based on their saving,” explains Nairobi financial analyst Kariithi Murimi.

In an interview, Safaricom CEO Bob Collymore said M-Shwari encourages saving, “especially for those millions of unbanked Kenyans,” he said. In fact recent numbers show saving, at $35 million, far outweighs loans at Sh378 million (about $4 million). According to the Central Bank of Kenya, more than 12 million adult Kenyans are still unbanked through mainstream channels, which is a considerably lower number than before. By subscribing to M-Shwari, customers automatically open an account with CBA.

But M-Shwari’s strong showing has not been without challenges. Since December 2012, it’s been dealing with an ongoing court battle over its ownership with Faulu Kenya, a local microfinance institution, which has claimed that Safaricom stole its concept to develop M-Shwari. Faulu offers a similar service called Kopa Chapaa, through which users can get credit, but can’t create savings, on their mobile phone.

Progress in the mobile money industry, especially since the entry of M-Pesa, has changed the landscape and M-Shwari is expected to diminish that economic gap even further. M-Shwari’s plans to deploy in Tanzania are already underway.