FINANCIAL INCLUSION SERIES 1-

MOBILE MONEY SERVICES IN THE

EBRD REGION

Presented by Governor, Central Bank of Kenya,

EBRD Headquarters

14th March 2013

• Over 2.6 billion adults in developing economies do not have any

bank account; and less than 30% have access to some form of

financial services. Banking is thus not a mass market proposition

(Mas, 2011).

• What explains such a high proportion of financial exclusion?

• Barriers to entry: these could be income levels or physical

distances to the market or a combination of both.

• The risk factor: fear of losing savings with collapse of banks.

• In African economies, presence of informal markets – barriers

to formality, costly, among other factors.

• These factors make Mobile phone Financial Services (MFS) a

great opportunity to reach scale (mass markets) cost effectively.

I. INTRODUCTION

2

I. INTRODUCTION… • The Kenyan Example:

• In 1999, there were only 15,000 mobile phone subscribers in

Kenya. This grew to 28.08 million mobile phone subscribers by

end December, 2011. Mobile penetration increased to 71.3

percent (Communications Commission of Kenya (CCK) 2nd

Quarterly Sector Statistics Report, CCK, 2011/2012).

• Kenya has the highest rate of MFS adoption globally - 68% of

adults (World Bank/Gallup Poll, 2012) since commencement of

MFS with the roll out of M-Pesa.

• MFS has a transformative impact on low-income economies,

households and individuals.

• This has forced us to refocus on financial inclusion as a poverty

reduction strategy.

3

I. INTRODUCTION…

MFS is having a transformative impact on low-income economies.

In Kenya, the M-Pesa system plays a dominant role in rural areas, with

important consequences for existing financial service providers.

The success of MFS in Kenya has led to the integration of payment

platforms with banking services resulting in a cost effective platform

for facilitating money transfers and payments and for facilitating the

operating of bank accounts, especially micro accounts.

Broad characteristics of MFS models in Kenya:

Initially the service started as a cash in/cash out money transfer

payments service, with e-value backed by funds in bank accounts.

With time, mobile payment platforms have integrated with financial

institutions to provide financial services including savings and credit.

4

Legislation Oversight

Banking Act, Cap 488. Deposit vs. Payment (Money Transfer)

• Payments - No intermediation (& no interest paid);

Funding ring fenced: not available for operations

• Banking - Integration of payments into Banking

sector.

Proceeds of Crime and Anti-

Money Laundering Act, 2009

Risk management because of traceability.

National Payment Systems

Act, 2010

Oversight over national payments systems.

Kenya Communications Act,

1998; Electronic Signature

Evidence Act Cap 80

Authentication and admissibility of electronic

signatures.

5

II. REGULATORY REGIMES THAT GOVERN MFS

IN KENYA

III. OPPORTUNITIES & CHALLENGES

Opportunities

Transactions easily

tractable

The poor can save/invest

Enhance financial inclusion

Enhance financial

development

Enhanced Monetary Policy

transmission: less cash

outside the banking system

6

Challenges

Security of the systems

Fraud and safeguards

Money laundering, little

chance, but a challenge

The normal Know Your

Customer (KYC)

requirements have to

change with the terrain

IV. ATTRIBUTES OF THE REGULATORY REGIME

Financial Institutions are increasingly embracing innovations to facilitate

financial inclusion. Test and learn approach enables innovation while

ensuring sufficient safeguards are in place.

Regulation and supervision must continuously evolve to keep pace with

innovation.

Better regulation rather than more regulation is key in building strong

institutions, that define the rules of the game to encourage prudent

market behaviour and incentivise the market.

The Regulator must be a market developer and an agent of change to:

Provide space for innovators to work.

Protect the unbanked as they enter the market.

Give confidence to drive credibility.

Balance inclusion and stability.

7

• Mobile phone financial services operations commenced in March 2007. In January 2013 they provided over 53 million transactions valued at about USD1.69 Billion (Ksh.143 billion).

• In 2012, mobile phone money transactions in Kenya were valued at USD18.19 billion, which would represent 43.5 percent of the country’s GDP (USD41.84 billion).

• Total mobile phone transactions per day now average USD 4.4 million (Ksh.4.6 billion). • The average size of the transactions per customer has been increasing (from USD45.5

(Ksh.3,067) in March 2007 to USD78.6 (Ksh.6,660.4) in January 2013) since corporates have encouraged the use of the facility in new and diverse ways of making payments.

8

V. THE SIGNIFICANCE OF MOBILE PHONE FINANCIAL SERVICES: MFS TRANSACTIONS RISING

9

Customers as at January

2013

Safaricom – 16.26 Million

Airtel – 3.88 Million

Yu – 0.78 Million

Orange – 0.16 Million

Tangaza – 0.11 Million

Mobikash – 0.23 Million

Total 21.42 million

mobile phone financial

services customers.

The leveling out

experienced from

September 2011 to June

2012 has given way to

accelerated expansion.

V. THE SIGNIFICANCE OF MOBILE PHONE FINANCIAL SERVICES: INCREASING NUMBER OF CUSTOMERS...

VI. TRANSITION FROM MONEY TRANSFER TO BANKING FOR THE MICRO SAVERS...

Every month, close to 20 million Kenyans have been able to use

mobile phone platforms to make payments and send remittances.

Every day USD54.4 million (Ksh.4.6 billion) is transacted through

mobile phone transfers and payments.

In 2009 mobile phone platforms began integrating with banking

platforms where customers can use their phones to

transfer/withdraw money from their bank accounts.

This set the stage for mobile phone money transfers to start

affecting financial intermediation.

Majority of commercial banks have partnered with

telecommunication companies to offer financial services on

telecommunication platforms.

10

VI. TRANSITION FROM MONEY TRANSFER TO

BANKING FOR THE MICRO SAVERS... In 2011/12, banking products leveraging on mobile phone

technology increased significantly; examples include KCB Bank

Connect, Family Bank’s Pesa Pap, KWFT’s Mobile Banking,

NationHela, Barclays Pingit, etc.

There are now micro-accounts operated through the mobile phone

platform – MKESHO. A total of 2.14 million MKESHO

transactions valued at USD169.9 million (Ksh.14.36 billion) had

been undertaken by end of December 2012.

M-Shwari, a mobile phone based facility allowing borrowing and

interest earning savings was introduced in November 2012 and

by 7th February, 2013 had netted more than USD33.1 million

(Ksh.2.8 billion) in savings while making loans of USD4.5 million

(Ksh.378 million) and had 1.6 million customers.

11

VII. THE MONETARY POLICY REGIME HAD TO CHANGE:

DECLINING VELOCITY HAS IMPLICATIONS FOR MONETARY POLICY

12

VII. THE MONETARY POLICY REGIME HAD TO CHANGE...

13

VII. THE MONETARY POLICY REGIME HAD TO CHANGE...

14

VIII. SUCCESS FACTORS

Partnerships between financial institutions and MNOs - leveraging on core

competencies - Telcos’ core competency of voice and data transmission and financial

institutions’ competencies in the provision of financial services.

Coordination and information sharing amongst regulators – CCK and CBK.

Dialogue between private sector and regulators to enable the regulators understand

business models and value propositions for the private sector; and the private sector to

understand the rationale for regulation.

Government as a partner in MFS systems to support business model.

Consumer adaption –Master Card Survey, 2012.

Beyond payments to integrated banking systems.

Interoperability is important, however imposing interoperability may curb the private

sector incentive to invest in MFS.

Market development and consensus should be the basis for considering

interoperability.

Regulators may engage in consultative dialogue with the market players to seek

readiness for implementing interoperability.

15

THANK YOU