Kenyans can now save, earn interest and borrow money using their mobile phones thanks to the launch of a revolutionary mobile banking service by Safaricom and the Commercial Bank of Africa (CBA).
Dubbed M-Shwari, which means 'all is well' in Swahili, the new product makes it possible for people to save as little as one shilling and earn interest at rates of up to five percent per annum on their savings.
Safaricom Chief Executive Officer Bob Collymore said that there are no ledger fees, no limits on the frequency of withdrawals, no minimum operating balance and no charges on deposits for M-PESA to M-Shwari accounts.
"Many unbanked adults talk about distance from the banks and opening balances as impeding factors. M-Shwari will require no minimum balance and there will be no charges for moving money from M-PESA to M-Shwari and vice-versa," he revealed.
"There will be no need to fill in a paper, form or produce identity cards to access these services. Simply put, there will be no excuse for anyone to save money under a pillow, in a mattress or lock box," he added.
It is estimated that over Sh300 billion sits outside the formal banking system, with 12 million Kenyans still unbanked.
"In a population of 20 million adults, only about 12 million Kenyans have access to formal financial services and this means that almost half of the adult population in the country does not have access to the important ingredient necessary for economic growth," he said.
CBA Group Managing Director Isaac Awuondo said they partnered with Safaricom due to their long standing relationship that has facilitated the successful rollout of M-PESA over the last five years.
"With this mobile banking product, we will leverage on Safaricom's customer base of over 19.2 million subscribers - 15 million of whom are already M-PESA users - so that we can maximise on the reach of its extensive distribution network comprising of 47,000 agents," he said.
The loans from M-Shwari allow consumers to deposit as low as Sh1 in savings and borrow up to Sh100,000 or as little as Sh100, which is payable with a one-off interest rate of 7.5 percent.
Although the one-off interest rate of 7.5 percent seems competitive compared to the interest rates charged on commercial bank loans, it is a bit misleading because of the one month lending period, which will force borrowers to pay a lump sump amount instead of smaller more manageable monthly instalments.
To qualify for an M-Shwari loan, one needs to be an M-PESA subscriber for at least six months, deposit some savings in their M-Shwari account and be a regular user of other Safaricom services such as voice, data and M-PESA.
"M-Shwari will go a long way in sustaining many poor Kenyan families by providing a seamless avenue to save, earn interest, and borrow without loss of dignity," Collymore emphasised.
He acknowledged that for those with access to formal banking services, banks often come to the rescue but, for the millions of the unbanked, shylocks and the kiosk owners are the redeemers.
"On tough days, M-Shwari will be there to provide micro-credit services at a minimum of Sh100 anytime. The loan shall be transferred instantly to the customer's M-PESA account," he confirmed.
"M-Shwari users will be eligible for loans after at least six months of using the service and all loans are payable within a month of disbursement," he added.
Safaricom customers can sign up to the M-Shwari interest bearing savings account directly through the M-PESA menu on their phone and there are no forms to complete and no need to visit a bank branch.
They can sign up for M-Shwari by going to the Safaricom menu on their phone, selecting "M-PESA", going to "My Account", going to "Update Menu", then entering their M-PESA PIN before waiting to receive their updated M-Pesa menu.
Collymore revealed that the service will introduce a new feature to the Kenyan market that allows Safaricom's 19 million customers to know how much they can borrow by dialling *234*6#.
M-Pesa customers can also apply to CBA for a mini-loan, again directly from their phone and based on the individual customer's M-PESA transactions and savings history, CBA determines the customer's eligibility.
Collymore said that the loan money is sent by CBA to the customer's M-PESA account immediately, again emphasising the convenience and simplicity of M-Shwari.
Director of Global Mobile Money for Vodaphone and former Safaricom CEO Michael Joseph said, "M-Shwari is a transformational service because saving is no longer the privilege of the elite. All Kenyans can now save, even the smallest amounts, at their own pace."
"M-Shwari creates a safe environment for customers to borrow small amounts and links the amounts of credit available to the ability to save. Through their M-Shwari savings account, M-PESA customers are empowered to manage their financial lives," he added.
There are two million M-PESA transactions performed daily valued at Sh2 billion and the total amount of M-PESA users now stands at 15.2 million, compared to the 52,452 Kenyans who used the service when it launched in April 2007.
Revenue from M-PESA jumped 32 percent to Sh10.4 billion shillings in the six months through September and the service contributes about 18 percent of Safaricom's total revenue.
Collymore explained that Safaricom's partnership with CBA is a testament of the growing and mutually beneficial convergence between the telecommunications industry and the banking sector.
"Safaricom has extensive and dynamic relationship with 25 commercial banks that enables the company to offer mobile banking solutions using its M-PESA payment ecosystem," he said.
"We value the relationships and partnerships that we have with these banks and other financial institutions and we believe that these partnerships will help us all drive the financial inclusion agenda in Kenya," he added.