NOTE 6: ON FINANCIAL INCLUSION
(Continued):
In the last
Note I boarded the Financial Inclusion issue, with some comments on the very
interesting and innovative experience of the Commercial Bank of Africa (CBA) with
Safaricom’s M-PESA®. At that time I only made some general observations, I
wanted to learn more on the experience and to gather information on it. Now my
comments:
1. M-PESA® has revolutionized the “Mobile
Money” but it is not a bank, it is only a mobile money transfer service.
2. The M-PESA® (Mobile Money) banking agreements
are not new, in 2010 it reached an one with the Equity Bank, this experience launched
the M-Kesho® savings account. However, it seems that it was
not satisfactory because it only reached 600.000 accounts. It is said that the
fees charged to the account were the main drawback. The Equity Bank in 2010
also partnered with Orange
to launch “Orange Money” under the brand “Iko Pesa®” (There is money), but
there seem to be no statistics or information on this experience at the moment.
3.
On May 2012 M-PESA® had in Kenya: According
to Miss Betty Mwangi-Thuo, who is Safaricom’s Financial Services General
Manager: “The new service adds another twelve
financial institutions to M-PESA’s
existing network with 25 banks and
over 95 SACCOS (savings and credit co-operatives) and micro-finance
institutions”.(http://www.techsavvy.or.ke/magazine/2012/05/23/safaricom-signs-m-pesa-bank-transfer-deal-with-pesapoint/).
To me this was a surprise to learn that so many financial institutions were
using M-PESA® in Kenya,
My perception is that it is growing too fast and is too big, before some observation
should happen to see the possible consequences that could have the system over
a reasonable span of time. Although I was surprised by M-PESA’s® outreach, it
is not clear on how many of all partnered with M-PESA® are developping new
account based on mobile money (As M-Shwari®) or it
is just a way give access to its customers
to the service for deposits and withdrawals from their existing traditional bank
accounts. Of course, in the last case this would have nothing to do with the
Financial Inclusion as all the users would be already banked. Nor there is no information
on how many new users have become clients of those institutions after the
agreement, neither on how many of the new customers were unbanked before
opening an account and why they opened.
4. M-PESA® is being promoted globally and massively
by the Information, Communication and
Technology World as “Banking for the unbanked” (http://www.itweb.co.za/?id=70826:M-Pesa-boosted-by-global-agreement)
and is going global, this concept that is sold as a fact, being a fallacy,
because M-PESA® is not a financial institution and therefore cannot, legally, bank
anyone. M-PESA® has reached an agreement with Money Graam in 2014 (http://ir.moneygram.com/releasedetail.cfm?ReleaseID=824644)
and already had agreement with Western Union® targeting Mobile Remittances, none
of these are regulated by any Banking Authority, so they should not use the
name “Mobile Banking”, only the term “Mobile Money” should be applied. M-PESA®
clones are growing everywhere (In other African countries, Asia and not with
the same speed in Latin America), so the consequences of the of the rights or
wrongs in the M-PESA® model will be global as was the case of the Microcrédit
Grameen Bank model. But the word “banking” is giving M-PESA® a great push
towards solidness, recognition and trust which it should not be the case.
5.
The Commercial Bank of Africa’s M-Shwari® experience has been very
interesting and it is really “Mobile Banking” effort. But I still find that the
automatic loan attached to the savings account is more negative than positive
for the M-Shwari® customers, albeit making the savings product much more
attractive. However, the consequences of default can be very damaging to the
saver as it blocks the possibility of obtaining in the future a better loan that
could generate assets. The short term M-Shwari® loan, due to the small amount
and short 30 days term, can only solve very small needs; but defaulting in this
loan seriously affects the paying reputation of the debtors and with a flat monthly
rate of 7,5% that takes the Shwari® loan to an exaggerated cost with a final
rate equivalent to an annual interest rate of 90%. It would
be a very bad business to take it. On the other hand, the offer of the loan
seems to be the main attraction of the savings account because 25% of the
M-Shwari® accounts have became inoperative in 2014, probably due for being
rejected on the loan approval. The problem is that loans are selective and
savings massive, mixing the two is not convenient. The risk of mass lending
took the World directly to the credit crunch of the 2008 that finally ended in
the World’s recession. The big question is: Would the designers attached the
loan to the M-Shwari® account to generate enough income to compensate the fees
not charged and the reduced requirements offered with the account?, this is an
important question because it arises the big question: Are the Financial Inclusion efforts sustainable? Another question could
be: Does the “automatic” loan attached to the M-Shwari® account attracts loan
applicants, that have no interest in making savings?. I hope that time will
answer this questions.
6. Another worry that came to my mind when
I read the comment that the Shwari® account associated loan was the
designed to include Islamic customers. The difference in the
cost paid by the Islamic customers and the other customers, due to the conditions
required by the Islamic Finances is based on the fact that no interest can be charged,
so a flat fee is applied and this does matter. In 2007, according to the Kenya
Central Bank (KCB) survey the lending rates on average were around 18% annual
(Oscillating between 15% and 20%) (http://www.fsdkenya.org/pdf_documents/08-03-20_Survey_on_bank_charges.pdf).
In a study of the Kenya’s Banking Association in 2012 the lending rates seem to
be similar to those of 2007, so it would be a reasonable calculated guess to
assume this rate will be similar today. That means that a 12 month loan of US$
1.000, would have a monthly payment of US$ 91,68, so the non Islamic customers
would be paying US$ 100,16 of interests. If this same customer was Islamic, the
flat equivalent service fee should be 10,01% not 18%, in order to charge this
customer in same conditions as the rest of the customers. Therefore I reach the
conclusion that two different systems are needed and that both systems must
coexist and work in parallel to be fair with all the customers.
7.
As was mentioned before, the monthly flat
rate of interest of 7,5% in the M-Shwari® associated loan, it seems
to be excessive (7,5% x 12 months = 90% annual rate), in the worst of the cases
it should not be higher than applying the before mentioned average annual rate of
18%, that would be only a 1,5% monthly flat fee. True that any bank can apply
any lending interest rate within the limits of the country’s legislation. But
the Central Bank of Kenya (CBK) has formed a committee in 2014, to probe the
high rates charged on lending, (http://mobile.theeastafrican.co.ke/Business/CBK-team-to-probe-high-interest-rates/-/433844/2150782/-/format/xhtml/-/hjblj7/-/index.html),
maybe this happened due to the Kenya Members of Parliament pressure for a control
over interest rates demanded in August 2013 (http://mobile.theeastafrican.co.ke/News/Kenyan-MPs--push-for-control-over-interest-rates/-/433842/1974560/-/format/xhtml/-/2i8xx4z/-/index.html).
Under this circumstance and if the banking rates are reduced by the CBK; would
the M-Shwari® modify the light requirements for the savings account and if the
rate is significantly reduced will the loan be eliminated or fees charged to
the account? (And the CBA can do it unilaterally according to the Terms and
Condition published in the Internet (www.cbagroup.com/m-shwari/Mshwari_Terms_Conditions.pdf), if so, will the M-Shwari®
account continue to be as attractive without the loan?. Time will tell.
8.
The M-PESA® research
usually shows the unbanked and the bank user’s figures. However, I do not
remember a study that also shows how many of the actual banked users were
unbanked before the associated bank joined M-PESA® and the unbanked became banked
after; in order to evaluate its positive effect on the product on Financial
Inclusion. However, independent scholar’s studies have show that when a savings
product is added to M-PESA® (Such as M-Kesho® with the Equity Bank and more
recently M-Shwari® with the CBA), usually the main stream users are their accrual
bank customers, because these already have the experience with financial
products and M-PESA® is just a paying facility that make
the use of the bank products easier and more accessible. So were is the clear evidence
of the effectiveness of the “Mobile Money” services as a tool of Financial
Inclusion?. As an example, since the 90s, the Inter-American Development Bank (IADB)
has published a lot of research and detail statistics on Latin
America’s remittances for many years; in which there was no clear
evidence that these promoted financial inclusion, people still withdraw the total
value of the remittances in the teller window. I do not see the same level of information
availability in the “Mobile Money” sector where there are no detailed statistics
and information published other than general numbers on “Mobile Money” and “Mobile
Banking”. I hope to have this information some day in the future, as scholars and
development banking institutions devote their effort to this issue and publish
it.
9.
What worries me more is the
condescending attitude of the Banking Authorities not to prohibit the use of
the terms “bank” and “banking” to activities carried out by non supervised
institutions, for sure the Bank Law of any country prohibits specifically that improper
use of the name. What is happening?: can the Banking Authorities take the risk
of justifying the inappropriate companies to be presented as “pseudo bank”,
just for the sake of Financial Inclusion; and the risks, the trust, and the
probable confusion of the citizens about where to take safely their money. Are
the means more important than the ends?. A banking Authority once said on the “Mobile
Money” issue: “regulation to follow innovation”, why not both simultaneously,
as I understand; watch and regulation is the first obligation of any Banking
Authority, according to the Bank Laws.
I am neither
against M-PESA® nor against any transference or remittances service, all I
considered them absolutely necessary. I studied the international family
remittances services for years and developed savings products in Asia, Africa
and Latin America, for MFIs, Banks, Credit
Unions and Savings and loan Cooperatives; to receive the family remittances in an
account and not totally in the branches, withdrawing the money from the account
as needed. This in practice has always showed that an small amount is always left
in the account and with time important savings are made
What I
am against is in the inexact way the idea is massively sold by telecommunications
operators and other parties to make it become a fashion, that it is now a days,
the lack of detailed research focused on Financial Inclusion to learn more on
the motivations, attitudes and the pattern of behavior of the non banked, the
limited statistical information available and published by the operators, banks
and regulators which reflects a lack of knowledge and leads to risky models
like the lending that produced the NINJAS (No job, no income) before the 2008. This
demands from the Banking Authorities detailed data from the financial
Institutions that they watch and then publish it to assure the highest
transparency in the financial system under their responsibility. I would like
to know more about what are the detailed results of the evolution of the M-Kesho®,
M-Shwari®, Iko Pesa®, M-Paisa® accounts, the M-Shwari® attached loan, etc. Not
only in Kenya, Tanzania and the rest of Africa, I would also
like to learn what is happening in Asia and Latin America.
But, transparency is not in the typical culture of the telecommunications companies
these are obscure and evasive, maybe due to the intense competition between
them; at least that has been my personal perception as a user of a mobile phone
for years. So, unless the banking regulators start collecting and publishing by
their own the mobile banking statistics, I will have to continue picking
information from a myriad of sources in the Internet to construct and understand
the whole picture of what is going on with this issue.
Jose
Linares Fontela
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