By Jeremy Gordon, KF11, Kenya
Yesterday marked big news for branchless banking in Kenya. Safaricom, the company behind the highly successful mobile-money platform M-Pesa, announced its launch of a new service called M-Kesho (kesho meaning tomorrow in Swahili) allowing anyone with a cell phone to begin earning interest on their savings and even to receive a loan.
One of the things that first drew me to opt for a placement here in Kenya was the exciting innovation happening through mobile applications, where Kenya is both a pilot and a hub—pushing limits, and proving viability in this part of the world. This new foray into mobile micro-savings and micro-credit is particularly exciting news to me, so I couldn’t help but head into the local Safaricom agent in hopes of setting up my own account. Unfortunately, once in town, the following became clear: 1) non-Kenyans cannot use M-Kesho, 2) no one (even Safaricom agent employees) knows all that much about it yet. Instead, I’ll share what I do know, and the role this technology may play in the road ahead for microfinance.
M-Pesa was initially conceived to allow organizations like Kiva’s partners to disburse loans and collect repayments with lower transaction cost and reduced risk than working with cash. The success of microfinance institutions (MFIs) who have implemented M-Pesa has been mixed, but the suite of services offered through M-Pesa has become wildly popular for broader purposes: allowing users to purchase airtime, remit funds to friends and family, pay bills, and even perform point-of-sale transactions (read: buying a bitter lemon from the local watering hole), all without touching a physical shilling. Yesterday’s addition of M-Kesho is exciting for the obvious reasons—9.8 million M-Pesa users, many without traditional bank accounts or any access to interest-bearing savings, can now have just that. If there’s anything that can quickly foster a culture of savings, it’s ubiquitous access and real returns on investment.
But with M-Kesho, Safaricom has taken another step of particular interest to those of us interested in microfinance. With a 6-month history of M-Pesa transactions, the company is able to construct a basic credit profile and capture a financial picture of each user—something that microfinance organizations continually struggle in the absence of. Based on this data, M-Kesho will allow users to receive small loans (limited at launch to KSH 100 – 5,000 / US $1.30 – $65). No application form, no interview, and no crowded matatu ride from the bank: this service will be accessible as a menu option on even the cheapest handsets available.
Could it catalyze a shift in the greater institution of microfinance? Will MFIs, which currently rely on a more qualitative due diligence (usually conducted by credit officers in person), find partnerships with telecoms like Safaricom to leverage this valuable credit data? Or, as current MFI clients may now consider applying for their next loan via M-Kesho, will this move be seen as direct competition?
There are volumes to debate here: the ancillary services offered by many MFIs, the limitations and privacy concerns around transaction data, and the importance of group guarantees and the client-MFI relationship, to mention a few. In the meantime, I’ll be keenly observing the reaction to, and early adoption of, M-Kesho. Successful or not, I hope we’ll be offered some insight into the future of microfinance in Kenya, as well as other well-connected but under-banked parts of the globe.
Jeremy is a Kiva Fellow working with Juhudi Kilimo in Nairobi, and Yehu Microfinance in Mombasa. Though he was instructed explicitly not to, he can’t help but greet the local kids with a goofy but well-intentioned “Jambo!”