Nairobi — Mobile phone service providers in Kenya have taken the battle for banking services right at the door steps of traditional banking service providers.
In what will definitely spur a rush for banking customers, Mobile service provider Safaricom Tuesday unveiled a service the will enable Kenyans to save money, borrow loans and even earn interest by use of mobile phone.
I what is drastically promising to take the concept of mobile banking to the next level, M-Shwari as the service is called will get people from the banking halls to transact banking transactions such as loan applications and borrowing among others just by the touch of a button.
Safaricom has launched the service jointly with the Commercial Bank of Africa (CBA).
Under the arrangement consumers can 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 installments.
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.
With this product, 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," said Safaricom Chief Executive Officer Bob Collymore at the lasu7nch event also attended by Finance Minister Njeru Githae and his Information and Communication counterpart Samuel Poghisio.
The product will among other things tackle challenges associated with distance, infrastructure and financial literacy billed as the major impediments to financial inclusion in Kenya currently.
Out of a population of slightly over 40 million people half of which consists of the adult population, some 12 million remain unbanked and completely locked out of mainstream financial services in Kenya. It is estimated that some $35.2 million is changing hands between Kenyans outside the formal banking system.
"The financial sector is a key driver for economic growth. It is regrettable that a huge chunk of our population can't still access these services. This product will play a major role in addressing this mismatch," said Githae.
Safaricom is banking on it largely successful M-PESA service to break even with the new service. Some 15 million people out of the total 19.2 million subscriber base are currently hooked onto the M-PESA mobile money transfer service. The company has the largest agent network totaling 47,000 and spread across the country.