The challenges from Kenya’s M-Pesa

  • By Christine St Anne

Predatory pricing, the rise of online gambling and bank pushback were some of the key challenges from the growth of M-Pesa.

M-Pesa has garnered impressive growth since it was launched in 2008. According to RFi Group, nine in 10 Kenyans are registered with a M-Pesa account.

M-Pesa is a service created by Safaricoms, the leading mobile network operator in Kenya which is 40 per cent owned by Vodafone.

A M-Pesa account allows consumers to make transactions to other individuals or businesses, pay bills, borrow, save with their mobile device. It does not require the internet or a bank account. Deposits can be made through a bank account or with cash at a M-Pesa terminal.

Speaking at the recent ASIC Annual Summit in Sydney, Capital Markets Authority CEO Paul Muthaura spoke about the role of M-Pesa in driving financial inclusion and the challenges from its growth.   

Muthaura, a member of the International Organisation of Securities Commissions board and  chair of the Africa and Middle East Regional Committee of IOSCO, said when M-Pesa was launched it was “very much at the bottom of the pyramid” in Kenya’s financial services industry.

“Initially, there was a lot of pushback from the banking system where banks were concerned about how this will impact their customer reach,” Muthaura said.

“But the real transformation we have seen is the whole economy realising the value proposition of just how easy it is to be able to move money. Our economy is now being built on financial systems infrastructure that leverages opportunities that are coming from mobile money.”

Kenya has now gone from one single mobile network operator offering mobile money to now five. As a result, financial inclusion has hit around 90 per cent.

“Moreover, the ability for people to earn interest meant savings products were evolved. Kenya now has very vibrant credit products.”

However, risks have emerged from the growth of mobile payments around predatory pricing while the technology itself has also complimented the rise of online gambling.

Some mobile lending platforms are now offering 130 per cent. While Paul said businesses may be able to pay off the interest, these high rates are a lot more challenging for consumers.

“We are seeing a proliferation of individual debt which is not being used for business. He has also seen “an almost simultaneous rise in mobile gambling”.

“A very large spectrum of the youth is heavily borrowing mobile credit to gamble on their mobiles. All the sensitivities that you would otherwise have about being seen walking into a gambling establishment have disappeared.

“It has got to the stage where you can’t find the latest sport score statistics in a Kenyan newspaper because everyone is using them. It's creating very interesting challenges in the way we look at the opportunities that have been created from inclusion and the risks that arise.”

This risk is further heightened because Kenya does not have a conduct regulator.

“We have distinct securities, pensions, insurance, banking, and co-operative society regulators. But no one with that singular conduct mandate.

“As we see these challenges arising, there is a clear recognition that not one institution has the statutory mandate to step in and address these challenges.”

For Muthaura while technology can boost financial inclusion, these challenges highlight that financial inclusion cannot be an end to itself.

“That’s why I really support the concept of financial help and literacy. How do we move from consumers just having an access point to a diverse set of tools at their disposal that allows them to save in a meaningful manner.”