22 December 2012

Kenya: M-Shwari Could Disrupt Banks' Operations

There is a familiar tale, how all great companies start. They identify a segment of the market in which the current big players are not serving well, and then they rise up to meet this need.

Those in strategy call this disruptive innovation. Disruptive innovation, a term coined by the Harvard Business School Professor Clayton Christensen, in his book, The Innovators Dilemma, is what is happening in Kenya's financial sector today.

First, it was the launch of two micro banks, Equity and Family bank, which took the war to the big banks. While the established banks were closing branches in rural areas, these two banks reversed the strategy, and instead, opened branches right in the very areas where the big banks were closing.

By targeting the neglected customers, these two banks have grown so much that they have joined the elite club of banks in Kenya.

The second major disruption was the launch of M-Pesa. Despite initial resistance from banks, it is now the most widely talked about mobile money transfer platform in the world, and a business school case study in many business schools around the world.

The third and final wave of the assault on banks could be the launch of M-shwari. Reports indicate that on the day that M-shwari was launched, it netted in 70,000 subscribers.

Banks and the whole financial industry must be unsettled. Saccos, which have ordinarily been the avenue through which unbanked Kenyans save and get loans, will be affected big time, as will be the estate shylocks, who pry on Kenyans to charge interest rates as high as 50 percent per week.

It isn't going to be a walk in the park for M-shwari. BThe high loan interest rates, the possibility of a high default rate, and the ongoing legal challenge from Faulu Kenya over the copyrights to the idea of M-shwari are just some of the challenges.

When 'okoa jahazi'- an airtime credit scheme - was launched, initially, users would use a Sim card and then throw it away, so, the default rules must be pretty clear.

However, if the M-shwari product managers at Safaricom and the Commercial Bank of Africa- CBA- get their act right, they could open a whole new blue ocean.

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