Imagine Johannesburg, with its highways, traffic signals, shopping malls, chain restaurants and supermarkets. Now picture Nakuru, a small Kenyan town, filled with old, narrow roads clogged with tuk-tuks and street vendors, pushing themselves shoe-less into the traffic and hauling heavy hand-drawn carts stacked with goods that will fill the small, owner-operated shops and kiosks, 10 on every block. If you were getting by on $5 per day, where would you rather live?
Reproduced from CGAP
The past five years or so have seen a number of exuberant studies and predictions that Africa’s rapid growth was creating a new middle class. This new group of consumers, it was argued, would become an engine of domestic demand, reducing reliance on exports and sustaining economic growth in the same way as they have in China. There were even predictions that this new middle class would transform governance and politics. This was the hopeful and optimistic story of “Africa Rising.”
Yesterday, Zambia’s central bank announced it had taken over a commercial bank, Intermarket, after the latter failed to come up with the capital it needed to satisfy new minimum capital requirements. Three weeks ago, a Mozambican bank – Nosso Banco – had its licence cancelled, less than two months after another Mozambican bank, Moza Banco, was placed under emergency administration.
At the end of October, the Bank of Tanzania stepped in to replace the management at Twiga Bancorp, a government-owned financial institution which was reported to have negative capital of TSh21 billion. A week before that, just over the border in Uganda, Crane Bank, with its estimated 500,000 customers, was taken over by the central bank, having become “seriously undercapitalised”. In DR Congo, the long-running saga of BIAC, the country’s third largest bank, continued in 2016, forced to limit cash withdrawals after the termination of a credit line from the central bank. And in Kenya, Chase Bank collapsed in April, bars after the failure of Imperial.
How are we to interpret this? It seems that 2016 is the year in which latent fragility in Africa’s banking sectors is being laid bare. After years in which observers have favourably contrasted the relative stability of African banking with the financial sector chaos in Europe and the US, it seems that three critical perils – mismanagement, political interference and economic woes – are conspiring to transform the landscape of African banking into a decidedly treacherous place for depositors and investors.
We have had remarkably few bank failures in Africa in recent years and yet this sudden uptick in stories like Crane and Chase, against a backdrop of economic challenges in many places, raises the question as to whether there is worse to come.
Mismanagement and/or political interference have been at the root of most bank collapses over the past few decades. Martin Brownbridge’s grimly fascinating analysi”https://fsdafrica.org/knowledge-hub/blog/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/#_ftn1″ name=”_ftnref1″>[1] on this subject from 1998 concluded that “moral hazard, with the adoption of high-risk lending strategies, in some cases involving insider lending” was behind most of the bank collapses in the 1990s. This certainly resonates today. Catastrophic lapses in governance rather than economic malaise are alleged to be behind the recent Kenyan bank failures (although their shareholders and directors vigorously refute this) – but how else can you explain why a small number of banks fail when the sector as a whole has been returning well over 20% on its equity for the past several years?
There are some excellent programmes like “http://www.centerforfinancialinclusion.org/programs-a-projects/abf” target=”_blank” rel=”noopener”>Accions’s Africa Board Fellowship Program, which aims to strengthen capacity at financial institutions because their promoters understand that weak governance undermines trust in the financial system and is therefore very bad for financial inclusion. But it is one thing to know what you’re supposed to do as a bank board director – quite another to actually do it.
Each bank failure seems to have its own special story – and we derive comfort from this. It is somehow reassuring to think that that might be the case because the prospect of a system-wide failure is so awful.
And each country context has particular features that impinge on the stability of the financial system. There are deep concerns in Kenya, for example, that the recent imposition of interest rate caps is going to result in a very messy period of bank failures and/or consolidation.
But are there common patterns that we should be taking note of? Is there a system-wide issue that we should be facing up to?
Well, one pattern might be positive – that central banks are intervening more, and more quickly, to weed out the miscreants, less cowed by the politicians than they might have been in the past and more concerned to protect their well-earned professional reputations. Another is that central banks are finally implementing the increases in minimum capital requirements which many have been talking about for years with the inevitable intended consequence that some banks will be forced to get out of the market.
These might be two good reasons why we are seeing more collapses. You could say that’s excellent news for the future of African banking. But perhaps only to a point. There is still the risk that the cumulative effect of bank failures as a result of zealous supervisory action causes a loss of faith in the entire system resulting in mass panic and the withdrawal of deposits and credit lines.
Also, the inevitable result of this would be fewer, bigger banks which may have negative consequences for competition and access – altht worth pointing out that Tanzania, which has 55 commercial banks, still only manages to bank around 12% of its adult population (FinScope).
The more concerning issue is the impact of underlying economic weakness. Leaving aside the paradox that some of these bank failures are taking place in economies that are growing quite fast (Kenya and Tanzania forecasting 6-7% GDP growth), lower commodity prices and their pervasive impact across African economies are going to make life much tougher for banks – especially if they are poorly managed and have political skeletons in their cupboards.
One problem we have, especially when economic conditions are changing fast and for the worse (as in Mozambique), is that data is often out of date and is not sufficiently disaggregated. So, when we look at Africa as a whole, or even the banking system of one country as a whole, the averages we tend to look at create a blithely benign picture which masks dramatic variations.
So, non-performing loans (NPLs) across Africa up to014 were a little over 5% but NPLs in Ghana were more like 11-12%. NPLs in Tanzania are currently a little over 8%, yet Twiga Bancorp’s NPL’s were – unbelievably – at 34% in early 2015, according to media reports.
We think the African banking sector is in for a rocky ride in 2017 and 2018 and, in the short term, this is not good news for the real economy. However, one industry that is set to grow, surely, is central banking supervision.
“https://fsdafrica.org/knowledge-hub/blog/harbingers-of-doom-bank-failures-in-africa-how-to-interpret-these/#_ftnref1” name=”_ftn1″>[1] Brownbridge, M (1998): “Financial distress in local banks in Kenya, Nigeria, Uganda and Zambia: Causes and implications for regulatory policy” Development Policy Review, vol. 16, no.
In March 2016, the Zambian government approved proposals to redesign the royalty regime for mining companies. This involved introducing a new methodology for calculating Mineral Royalty Tax (MRT), linked to the prevailing copper price. Because mines can take several years to become profitable and start paying tax on those profits, MRT is an effective way for the government to get some tax revenue up front, rather than having to wait for mining operations to turn a profit. The lack of clarity around MRT had been another major problem for an industry which had been battling to adjust to a collapse in global commodity prices and which had had to lay thousands of workers off.
For the 900,000 Zambians in formal employment, many of whom are mine workers, having a job also means having access to credit. Banks like lending to salaried workers especially when they can do a bulk deal with the employer to make loans available to an entire workforce and collect the repayments through the payroll. It’s efficien for the banks, more secure.
In fact, as FSD Africa research now shows, payroll lending now accounts for a third of all loans in the Zambian banking system and has emerged as the largest contributor to commercial bank loan portfolio growth every year since 2011. For several banks, payroll loans account for well over half of their total loan book. Government employees are responsible for nearly three quarters of outstanding loan schemes in mid-2014 and had the highest incidence of multiple borrowing.
Always controversial, payroll lending undoubtedly fuels consumer spending but, for those who have a payslip, it also provides financial access and a measure of economic empowerment. For example, spending on housing in Zambia rose by 117% from 2006 to 2010, and much of this can be attributed to the availability of payroll loans. But the reality is that lenders pay little attention to the reasons for borrowing. They make credit decisions based on the creditworthiness of the employer rather than of the borrow And so an environment develops in which in which the credit assessment process is relatively simple and there are strong incentives to over-lend.
Getting the right regulatory balance is therefore a big challenge. Easy credit in an unfettered environment sees consumers “dance with the devil”, and with little protection. Stifle access to credit and consumers are denied the opportunity to, quite literally, put a roof on their house.
Take, for example, the case of Mopani Copper Mines. Mopani is the biggest mining employer in Zambia according to Bloomberg, Africa’s second-largest copper producer, with 20,000 workers. At the end of 2015, the Lusaka Times reported that 3,051 workers were being laid off in response to the fall in the price of copper as part a debt reduction strategy by Glencore, Mopani’s owner. Many of those laid off had loans outstanding to commercial banks. These banks, it was alleged, had prior access to the retrenchment compensation that the workers were entitled to, with the rorkers received far less cash compensation than they were expecting.
The devil is the detail but it is the detail that can create disastrous outcomes for people in living in vulnerable circumstances. Events like Mopani shine a spotlight on the relationship between labour markets and financial markets (is Mopani a story about workers’ rights or consumers’ rights?) and on the effectiveness of the contractual arrangements behind these loans. What did the loan agreements actually say? When the mine worker signed the loan agreement confirming that he understood all the terms and conditions (T&Cs), did he really understand them? Did anyone test that? Who actually explained the T&Cs to him – the bank? The employer? – and how much time did anyone actually take to explain the T&Cs?
The Zambian authorities have moved to deal with the threats posed by payroll lending. The Banking and Financial Services Act limits the total amount of debt repayments and other deductions to 60% of gross i a minimum of 40% of gross pay as take-home or disposable pay. Interest rate caps were imposed on micro-lenders in January 2013 in a well-meant attempt to keep the lid on the cost of borrowing for consumers: the caps have, rightly, been removed now because they seemed to be having no dampening effect on the payroll lending industry and were even encouraging lenders to pursue lending strategies that were introducing systemic risk into the market.
Now, the Bank of Zambia, with support from FSD Africa, has launched a Market Monitoring System that will regularly gather much more granular data on credit market developments and trends so that problems can be picked up at an early stage.
It goes without saying that consumer protection is vital but so too is access to finance and we must strive to put in place a framework which allows credit markets to develop responsibly but which also safeguards borrowers’ legitimate interests and rights.
What is critical is that there should be proactive and well-informedulation of credit markets with appropriate weight given to market conduct regulation, alongside the traditional approach of supervising the soundness of financial institutions. Today, too few financial market regulators in Africa have the right institutional structure or capacity to manage the development of credit markets effectively. Central banks should not think they can do this in their spare time. This is a significant problem at a time when there is a need for more responsible credit in Africa and when digital finance is introducing all sorts of opportunities but also threats
Less than a month ago, on 15 June 2016, the crowdfunding industry in East Africa came together for the first time in Nairobi. This East African Crowdfunding Indaba & Marketplace was co-hosted by FSD Africa and the Kenya Capital Markets Authority, and attended by 65 representative from across the crowdfunding industry in Kenya, Rwanda, Tanzania and Uganda.
But, what did we learn? We boil it down to seven key points:
So, what’s next?
First of all, for more facts and figures, please find all the presentations delivered during the crowdfunding indaba and marketplace here.
Second, we’re keen to move beyond discussion towards new partnerships and deal-making. With this in mind, please find a full list of participants here. If you’d like specific contact details then email Fundi Ngundi (fundi@fsdafrica.org), who will ask permission from the counterpart before connecting you.
Third, through partnership, FSD Africa will continue to support the development of crowdfunding markets in East Africa. The Allied Crowds platform landscaping research is scheduled for publication in July 2016. A regulator support exercise has been launched and will conclude in September 2016. It will be led by Anjarwalla & Khanna and the Cambridge Centre for Alternative Finance. Where beneficial to the poor and the wider crowdfunding market, FSD Africa will also provide light touch support to platforms themselves. If there’s demand, there could be scope for a follow-up Indaba and Marketplace in early 2017. If you’d like to collaborate then please be in touch.
Lastly, thank you to all the speakers, panelists, facilitators and participants for your lively contributions last week. Albeit steadily, crowdfunding markets are on the move in East Africa!
Access to insurance across sub-Saharan Africa (SSA) is still very low and estimated to cover only around 5.4% of the population (approx. 61.9m people)[1]. Most of this coverage is represented by life insurance products, the penetration of which still pales in comparison to most developed markets. In these markets, insurance products are part of the financial landscape and are more of an expectation rather than the exception. However, attitudes of insurers in SSA are changing. Financial Sector Deepening Africa’s (FSDA) work with the International Labour Organisation (ILO) has shown that insurers across the continent are looking to serve the market on a larger scale and through new channels.
Financial Inclusion has come a long way. Not long ago, the widespread definition of what it means to be “included” would only focus on access to a bank account. Thankfully, that notion has changed. A broader definition of the term has led to the development of many more services and ways to help lift the poor out of poverty – mobile money being the most prominent example.
Over the years, donor organisations (and market players) have understood that bank accounts are not enough to replace the abundance of products currently being used by people at the bottom of the pyramid. An in-depth look at the financial choices made by Kenyans in 2014 showed that the average household uses 14 different financial products.[2] Basically, the majority of people who have informal jobs are constantly juggling financial products, just to get by. About half of the respondents surveyed had an insurance product (directly or through welfare groups). However, effective use of formal insurance was low.
Improving and expanding insurance products for the poor
FSDA is in partnership with the ILO to expand microinsurance penetration in SSA thus helping poor people protect themselves against economic shocks. The FSDA funded project is looking to develop and grow new and existing microinsurance products across SSA[3], focused on the needs of the customer at or near the bottom of the pyramid. Together with the ILO’s Impact Insurance Facility, FSDA will work with five insurers and/or distributors in four countries – Kenya, Nigeria, Cote d’Ivoire and Ethiopia. The project will provide an inclusive financial service to more than one million low income people and micro, small and medium-sized enterprises (MSMEs) who will gain access to insurance products that protect them from life’s surprises.
Creating relevant microinsurance products
Most of the continent’s large insurers are bureaucratic and focus on standard general and life insurance products. Not only are these products unaffordable to the bottom of the pyramid, but most people do not qualify for the products as they usually require formal employment. In a context where informal employment is estimated to be between 60% and 80% across Sub-Saharan Africa, this excludes a large part of the population.
Change Management
Insurance organisations need to change people, systems and processes of how they approach the SSA market. Ultimately, there is work to be done to help move these insurance companies & distributors from providing an exclusive product to becoming an inclusive provider. FSDA’s project will involve supporting consultants to work within the selected insurance institutions for three years to help them manage the change from within. These consultants will work to deliver and develop services that are designed to help insurers expand their reach and become both profitable and highly scalable.
Partner Selection
Insurance is an important part of financial inclusion as it helps people to prosper and mitigate risk necessary to grow productive businesses. To ensure that capable and willing partners were found to drive this market-wide change of the insurance market, FSDA opened applications to insurance companies across the continent who are looking to change their target market to include the financially underserved. The application process was open from December 2015 to mid-January 2016 and attracted over 32 proposals from East, West, and Southern Africa. The number and quality of these applications show that the Sub-Saharan insurance industry is ready for a paradigm shift in their approach to microinsurance.
Mobile channels are boosting product access
Majority of applicants for the funding wanted to build on the rapidly growing mobile channel in all of their respective markets. The increasing presence and growth of the mobile channel has helped to boost inclusion of access to financial services.
Insurers are recognising the different needs of their markets. However, regional differences remain and reflect the level of development of the existing insurance market. For example, many proposals from West Africa, a much more nascent insurance market, focused on providing the simpler products, such as health or life insurance. By contrast, in East Africa, insurance was focused on complex products, such as weather-based index insurance or insurance for small and medium enterprises.
The insurance space in Africa is rapidly evolving and FSDA’s role will be to guide motivated and committed insurers to make the changes necessary to grow their footprint in the underserved market.
[1] The Landscape of Microinsurance Africa 2015 Preliminary Briefing Note by Microinsurance Network.
[2] Kenya Financial Diaries; August 2014
[3] Kenya Financial Diaries; August 2014
In March 2016, the Zambian government approved proposals to redesign the royalty regime for mining companies. This involved introducing a new methodology for calculating Mineral Royalty Tax (MRT), linked to the prevailing copper price. Because mines can take several years to become profitable and start paying tax on those profits, MRT is an effective way for the government to get some tax revenue up front, rather than having to wait for mining operations to turn a profit. The lack of clarity around MRT had been another major problem for an industry which had been battling to adjust to a collapse in global commodity prices and which had had to lay thousands of workers off.
For the 900,000 Zambians in formal employment, many of whom are mineworkers, having a job also means having access to credit. Banks like lending to salaried workers especially when they can do a bulk deal with the employer to make loans available to an entire workforce and collect the repayments through the payroll. It’s efficientfor the banks, more secure.
In fact, as FSD Africa research now shows, payroll lending now accounts for a third of all loans in the Zambian banking system and has emerged as the largest contributor to commercial bank loan portfolio growth every year since 2011. For several banks, payroll loans account for well over half of their total loan book. Government employees are responsible for nearly three quarters of outstanding loan schemes in mid-2014 and had the highest incidence of multiple borrowing.
Always controversial, payroll lending undoubtedly fuels consumer spending but, for those who have a payslip, it also provides financial access and a measure of economic empowerment. For example, spending on housing in Zambia rose by 117% from 2006 to 2010, and much of this can be attributed to the availability of payroll loans. But the reality is that lenders pay little attention to the reasons for borrowing. They make credit decisions based on the creditworthiness of the employer rather than of the borrower. And so an environment develops iich in which the credit assessment process is relatively simple and there are strong incentives to over-lend.
Getting the right regulatory balance is therefore a big challenge. Easy credit in an unfettered environment sees consumers “dance with the devil”, and with little protection. Stifle access to credit and consumers are denied the opportunity to, quite literally, put a roof on their house.
Take, for example, the case of Mopani Copper Mines. Mopani is the biggest mining employer in Zambia according to Bloomberg, Africa’s second-largest copper producer, with 20,000 workers. At the end of 2015, the Lusaka Times reported that 3,051 workers were being laid off in response to the fall in the price of copper as part a debt reduction strategy by Glencore, Mopani’s owner. Many of those laid off had loans outstanding to commercial banks. These banks, it was alleged, had prior access to the retrenchment compensation that the workers were entitled to, with the result that workers received far less ation than they were expecting.
The devil is the detail but it is the detail that can create disastrous outcomes for people in living in vulnerable circumstances. Events like Mopani shine a spotlight on the relationship between labour markets and financial markets (is Mopani a story about workers’ rights or consumers’ rights?) and on the effectiveness of the contractual arrangements behind these loans. What did the loan agreements actually say? When the mineworker signed the loan agreement confirming that he understood all the terms and conditions (T&Cs), did he really understand them? Did anyone test that? Who actually explained the T&Cs to him – the bank? The employer? – and how much time did anyone actually take to explain the T&Cs?
The Zambian authorities have moved to deal with the threats posed by payroll lending. The Banking and Financial Services Act limits the total amount of debt repayments and other deductions to 60% of gross income, leaving a minimum of 40% of gro-home or disposable pay. Interest rate caps were imposed on micro-lenders in January 2013 in a well-meant attempt to keep the lid on the cost of borrowing for consumers: the caps have, rightly, been removed now because they seemed to be having no dampening effect on the payroll lending industry and were even encouraging lenders to pursue lending strategies that were introducing systemic risk into the market.
Now, the Bank of Zambia, with support from FSD Africa, has launched a Market Monitoring System that will regularly gather much more granular data on credit market developments and trends so that problems can be picked up at an early stage.
It goes without saying that consumer protection is vital but so too is access to finance and we must strive to put in place a framework which allows credit markets to develop responsibly but which also safeguards borrowers’ legitimate interests and rights.
What is critical is that there should be proactive and well-informed regulation of credit markets with appiate weight given to market conduct regulation, alongside the traditional approach of supervising the soundness of financial institutions. Today, too few financial market regulators in Africa have the right institutional structure or capacity to manage the development of credit markets effectively. Central banks should not think they can do this in their spare time. This is a significant problem at a time when there is a need for more responsible credit in Africa and when digital finance is introducing all sorts of opportunities but also threats
For years, donors and regulators have been trying to cook up more mature consumer credit markets in Africa. We used to think we knew the essential ingredients for baking the perfect credit market cake. But when we look around the world at how credit markets are functioning—especially for low income groups—we find that the credit cake is burnt in some places and raw in others. Something is wrong with the recipe itself.
My research team and I collected in-depth stories from consumers in Kenya, Ghana, and South Africa, to understand the experiences of what we call “cuspers.” People on the ‘cusp’ of poverty and the middle class, already represent almost a quarter (23%) of Africans and as a group, they are growing. They are getting by on $2-5 per day and straddling the informal and formal economy. Their stories tell us that if we want credit markets that support upward mobility—and not just churn—we need to think again about our old recipe.
So here are five things we used to think:
1: l and should displace informal credit. We used to think, that banks and microfinance intuitions are implicitly more “fair” because they have to abide by consumer protection regulations. By extending formal options to previously excluded borrowers, we thought we were liberating them from predatory informal lenders who overcharge, lock people in debt cycles, and use unethical collections practices. We used to think that if banks cut back lending to low-income groups, evil loan sharks will fill the void.
But the reality is much more complicated. Firstly, informal lenders are not all evil. In fact, people told us that informal lenders—both those who charge interest and those who do not—were often more understanding and flexible than formal lenders. Some accept broader forms of collateral and proof of credit worthiness, simplify application and disbursement processes, and explain terms in ways that were understandable, even for the semi-literate. Many informal lenders even halt the accumulation ost when a borrower falls behind, which is very rare for a bank.
Secondly, informal lenders rarely offer products that actually compete with formal lenders. We found that most informal loans were significantly smaller. Informal lenders often cornered the market for $10 loans, while banks were going after those that were many times larger, rarely under $200. Only in Kenya (because of M-Shwari) do we see a bank offering a service that actually competes with informal lenders.
Finally, formal lenders are not all pillars of ethics and as an alternative, people don’t run to loan sharks. We were told stories of predatory lending, opaque terms and conditions, unclear—even intentionally obscured—loan pricing, and condescending and insulting bank staff. And our evidence shows that the main substitutes for formal borrowing are saving and delaying or forgoing consumption.
2: Credit for investment is “good”; credit for consumption is “bad.” We used to think that because consumption credit does not produce a return, repayment of consumption loans is difficult and just increases the cost of consumption. But, we found many entrepreneurs borrowing for consumption as a means of keeping capital in their businesses. As long as this is a temporary fix and not a habit, consumption borrowing can be hugely helpful. We also see that borrowing for important, time-saving assg machines—can make a huge difference in the productivity of people’s lives.
3: Digital is inevitable. Digital is better. Of course digital lending can reduce cost but, digital is not moving as quickly as one might expect. In South Africa, despite widespread adoption of mobile phones we still see most lending taking place over the counter. In Kenya, mobile lending is taking off, but we see evidence that the lack of a personal relationship with the lender proves a disincentive for on time payments. Many borrowers delay and default on very tiny loan payments, not because they don’t have the money, but because a distant, digital lender feels so far away.
4: Don’t dampen provider incentives. Yes, we need providers willing to invest in going after new markets, but what happens when those incentives work too well? Credit to cuspers has been shown to be ‘price inelastic’. The more that’s offered, the more people borrow. Regulation matters.
5: The more cr sharing, the better. We used to think that the better lenders can know their borrowers and assess risk, the more competition and the lower interest rates will fall for good borrowers. Instead, we see that—without effective regulatory enforcement—near perfect information sharing can lead to aggressive lending practices, with lenders pushing credit on viable borrowers. In South Africa, where so much is known about borrowers, risk models can become more and more precise, encouraging lenders to simply price for more risk, increasing interest rates for all and of course the sheer volume of credit extended. In other markets, where lenders know less about borrowers, they are forced to be more cautious.
Credit on the Cusp is an FSD Africa project, implemented by Bankable Frontier Associates.<
I pay taxes in Kenya. I am happy to pay my fair share. It’s a shame more of us in Kenya who should be paying taxes are not. But that’s another challenge and there are other battles to fight.
Interesting, by the way, to read about the Addis Tax Initiative, launched earlier this month, in which over 30 countries (including Kenya) and international organisations have now teamed up to strengthen international cooperation around tax systems reform. Development can’t really happen sustainably without a proper tax collection system.
So, back to Kenya. The least the Kenya Revenue Authority can do is to make it easy for people to pay their taxes. And the reason I am happy tax payer is that the KRA has made is super easy to pay with its new i-Tax payment system. Here’s how it worked for me.
With great foreboding, expecting hours of electronic misery, I registered with the KRA’s i-Tax Online Service because KRA no longer accepts manual tax returns. I registered, like thousands of other people, at the last minute and, sure, the system on that day lurched and creaked but soon spat out my return. I filled this in and I managed to get the system to accept it without too much trouble.
Within a day I was told what I owed, which was a tiny amount so I decided to ignore it. Then, I got a fiercer message a couple of weeks later to say that I owed a slightly larger amount. The increase seemed pretty random to me (and was unexplained) but still within tolerance limits and so I decide that KRA would keep pestering me with annoying emails unless I paid up.
The payment option of choice, for anyone wanting to avoid the inconvenience of going to a bank or queueing up in person with a cheque, is of course M-Pesa, Safaricom’s mobile payment engine, which the UK government helped get going back in the mid 2000s with a grant to Vodafone.
Again, more foreboding. Would it work? I call KRA’s call centre for advice. A completely charming person took my call pretty after perhaps two minutes on hold. She rightly assumed I was tech-phobic, and possibly just stupid, and gently took me through every step I needed to make to register to pay my tax bill through M-Pesa.
It sounded complicated. But actually it turned out to be totally straightforward and very quick. Registering online meant that I was sent (immediately) a Payment Slip. This had a unique identifier on it (a 16-digit number) which I would then proceed to use, along with the KRA’s M-Pesa Business Number (which, by the way, is 572572) to pay using my phone. So, just two numbers needed.
So I did. And not only did I get the usual M-Pesa confirmation say the payment had gone through, giving that certainty which is partly what makes M-Pesa such an attractive service to use, but, within seconds, KRA also sent a message to say they had received my payment. So I now know they are off my back.
E-government, when it works, is fantastic. Hats off to KRA for making my (admittedly simple) problem go away. And kudos to organisations like Better than Cash Alliance for getting governments around the world to sign up to “cash lite” strategies in the interests of less waste, more accountability and more inclusive and efficient financial systems.
BTCA have also been doing interesting research on the cost benefits to businesses of digitising payments – how many businesses realise how much it costs them to keep paying wages in cash?
We, at FSD Africa are going to be providing training and support to policymakers and others on the ground here in Africa to help them think through their digital strategies and improve services for their citizens. We are hoping to work with at least two countries on intensive programmes in this area. It’s undeniably complicated, and will take time, but we are happy to walk the journey with some countries that are serious about wanting to make progress in this area.
By the way, I was also very happy my tax bill was so low. But I’d still like to know why it mysteriously went up…
Tomorrow, President Obama will come home to Kenya. He is likely to get calls from relatives asking for him to ‘chip in’. He will be expecting them. These types of calls are not uncommon in Kenya.
Only the other day, I got a text message while I was a work: “Uncle Matata is very sick and is seeing a doctor. The money we had budgeted is not enough. Can you help?” In Kenya, social obligations dictate that you ‘chip in’.
For me, it was just an ordinary day in the office and so I had left my debit card at home. My car had enough fuel to last three days so I took just a little cash for lunch. When I got the message, I checked”https://en.wikipedia.org/wiki/M-Pesa”>M-Pesa e-wallet and found it had half of the amount being asked for. So I sent a text back asking them to hold on as I waited for my meeting to end. After the meeting I stepped out and asked a colleague if he had some money in his M-Pesa e-wallet which I could borrow and refund that evening. I was able to send the money via M-Pesa.
According to the Central Bank of Kenya there are about 124,000 mobile money agents, serving 25 million customers, who made over 900 million transactions worth over KES 2.4 trillion (around USD $24 billion). This compared to about 12 million debit cards with 18 million transactions worth only KES 108 billion (approx. USD $1.1 billion) during the same period.
A growing number of banks and other financial institutions are looking to leverage the existing digital financial service infrastructure. But many are struggling to understand the key elements of these: from strategy to product delivery as well as how to drive uptake and usage, while managing risk and fraud. They need help.
FSD Africa recognises the important role that mobile money plays in facilitating payments. We have provided financial support to MicroSave Helix Institute for Digital Finance to research, design and train digital finance professionals across Sub-Saharan Africa.
When Obama visits Kenya he is likely to get calls from relatives. Some of those might be appeals for him to play his part in building social capital of Kogelo (the village where he comes from). Others might be from African leaders urging him to cement his legacy before he leaves office. For that, he may use a USAID grant from the State Department or a communique at the end of a global summit. But for family and friends in need of a just few shillings to tide them over, he will need his M-Pesa mobile money account. Because even he is expected to chip in
