Padraig Belton   19 June 2017

More and more Kenyans are looking to mobile money as so much of the population remains 'unbanked'. Picture: Padraig Belton.

Lydiah and Morris live in Vihiga in western Kenya, three miles north of the equator.

They brew and sell beer, and recently installed electricity in their rural house. 

Having spent ten months of their earnings on the installation (56,500 Kenyan shillings - $560, or £386), they were then unable to pay their daughter’s school fees. 

As a result, she was sent home, with the possibility of not sitting her exams.

Thankfully, there’s mobile money, which gives people access to banks in Africa. So the couple were able to set up a mobile money bank account and take out a small loan, through a service called M-Shwari. This allowed them to pay their daughter’s school fees.

Sub-Saharan Africa was home to 63% of the world's mobile money transactions in 2017, totalling $19.9 billion. This makes it the world leader in a global mobile money transfer industry which currently handles $1 billion a day.

Bank loans for the unbanked

More and more people in rural Africa now have access to loans and savings, largely thanks to mobile money banking. In fact, one in five Kenyan adults are now M-Shwari customers.

Mobile money customers don't need to have a bank account. Picture: Fiona Graham / WorldRemit

The service is a paperless, mobile-based way of offering financial products - savings accounts and loans. More than half of its customers have no other bank account.

It was launched in November 2012 by the Commercial Bank of Africa and Safaricom, the company behind M-Pesa.

Since then, 2.8 million different borrowers have received 20.6 million loans (average amount of $15). This is compared with 700,000 people with personal bank loans and 310,000 with a microfinance loan*.

A borrower or a lender be…

The World Bank researched how M-Shwari customers were using Mobile Money banking products.

It found more than 80% of mobile money banking deposits and withdrawals were less than 2500 Kenyan shillings, that’s £17, 22€, or $24.80.

In fact, most customers are using mobile money banking for small, short-term loans.  Small businesses and individuals use them to cover unexpected cash flow needs.

For those who are "unbanked", especially lower-income people in rural areas, mobile money gives them access for the first time to the formal financial system and all it can offer. 

Last year, M-Shwari signed up its 10 millionth customer. And in two years it had handled 153 billion Kenyan shillings in deposits ($1.5 billion, or £1.05 billion).


KCB Bank teamed up with Safaricom to offer a mobile money service to its customers. Picture: Fiona Graham / WorldRemit

In 2015, a second service was launched by Safaricom and Kenya’s largest commercial bank, KCB Bank Kenya. In its first three weeks, it signed up 40,000 people.

“Starting in east Africa then rolling out across the continent, it was telephone company-led initially,” observes Paul Clark, from Ashburton Investments in Johannesburg.

“Except in some big economies like Nigeria, where it’s been led by the banks,” he adds.

It benefits everyone.  For telephone companies, it promotes clients’ loyalty.  For the banks, it adds customers cheaply.

Build mobile subscribers, not branches

More mobile phone users than bank account holders in emerging markets enable banks to create a much larger customer base, without the expense of branches and tellers. With these new stable deposits, they can start writing more loans.

While these new clients are never going to be a particularly large part of the bank’s lending books, they do add to loan growth.

“The non-performing loan rate for these accounts is only 2%, over 90 days”, says the World Bank. “For an unsecured loan offered remotely over the mobile channel, non-performing loans of 2% are rather impressive.”

The rate used to be higher, but refinements in credit scoring and new data have brought the number sharply down.

Starting up in Ethiopia

In Ethiopia, only 22% of the population has a bank account - even though its economy has been growing at 10% a year for a decade.

Despite rapid growth of the Ethiopian economy, most people don't have a bank account. Picture: DFID CC 2.0

An Irish company called M-Birr has been setting up shop in Ethiopia in recent months. It was launched in 2009 by James Noctor, the company’s Chief Executive and his business partner, Thierry Artaud.

They noticed that Ethiopia didn’t have a Mobile Money banking service, even though at the time it was the fastest-growing economy in the world. Today, it’s still in the top five.

"It’s a low banked market, but at the same time, you have a fast growing mobile subscriber base – now over 40 million,” says Mr Noctor. 

M-Birr wanted to take advantage of this opportunity, but there was a challenge. Ethiopia is a highly regulated market, in which both the financial sector and mobile telecomms industry aren’t open to foreign operators.

M-Birr confronted the problem. They partnered with local microfinance companies, each covering a different region, and focused on offering the technical part of the service.

Like Safaricom’s programme with KCB Bank Kenya (though unlike M-Shwari) M-Birr has worked out an arrangement with local corner shops, petrol garages, and kiosks. 

“These agents - about 3,000 of them”, says Mr Noctor “promote the service, answer questions, and sign up customers on behalf of the micro-finance institutions”.

He hopes to increase this to between 4,000 and 5,000 by the end of the year, and says that the five micro-finance institutions cover more than 90% of Ethiopia’s population.

They each cover a separate geographical area, so that’s given M-Birr a real presence in Ethiopia.

The company has also been trying to build ecosystems around M-Birr, so customers could use the service to buy milk, cheese, butter, or petrol.

Ethiopia also has a Productive Safety Net Programme, launched in 2005 to assist low-income rural dwellers to overcome food insecurity and create assets. 

Government agencies have been exploring using M-Birr’s service to make those benefit payments and so bypass the bureaucracy.

Africa’s brighter banking future

Right across Africa, access to small loans and banking will be a game-changer for small businesses: “little traders, guys who need working capital for one day,” says Mr Clark.

In Sub Saharan Africa, rural communities, women, and those on lower incomes are the most likely to be ‘unbanked’. And poorer rural women, the most likely of all.

“If you can improve women’s access to finance in rural areas, you can improve agricultural productivity— that’s important in the developing world,” says Mr Clark.

Also, of the nearly 500 million mobile phone subscribers in Africa, 170 million already have smartphones. So there will be more and more financial inclusion, as better mobile phones with more capabilities become more widespread.

In the meantime, the humble Nokia, in rural Africa, is helping otherwise ‘unbanked’ people pay school fees and become entrepreneurs.


*FSD Kenya’s FinAccess study.