Financial Inclusion – The Kenyan Case

ByStephen Mwaura Nduati

Head, National Payments SystemCentral Bank of Kenya

EFINA INNOVATION FORUM:GLOBAL PESPECTIVES ON FINANCIAL INCLUSION

November 4, 2010Lagos, Nigeria

Outline• Internet• Internet usage in Africa• Financial Access in Africa• Challenges• Mobile phone financial services• The Case of Kenya• Enabling Environment• Way Forward

2

Internet

World Internet Penetration Rates

4

Internet Users in the World

5

Internet usage in Africa

6

Internet Points of Presence In Africa

Top 10 Internet Usage in Africa

8

Financial access

9

Financial Access strands in Africa (www.finscope.co.za)

10

Financial access strand

11

Source: Finscope South Africa

Payment landscape in Africa• African countries are generally, less developed with high

unbanked populations, unemployment rates, illiteracy and poverty

12

Challenges

Poor infrastructure

14

Difficult terrain

15

High adult illiteracy

16

Poverty

17

But Africa has the highest mobile growth rate in the world

18

Mobile phone financial services

19

Benefits of the mobile phone

• Affordability• Wide reach• Use for utility payments• User friendly• An opportunity to marshal deposits outside

the banking system

20

Comparing the mobile phones with alternatives

Quicker98%

Slower2%

More convenient

96%

Less convenient

4%

Safer98%

Less safe2%

Cheaper96%

More expensive

4%

21

Speed Convenience

Safety Cost

Mobile phone financial services….

Mobile phone financial services

mBanking

mPayments m…..

mInsurance

22

Types of mobile phone financial servicesAD

DIT

IVE

MO

BILE

PH

ON

E M

OD

EL

• Additive mobile phone model– Bank led– Added service to existing customers

• Transformational• Non bank led• Introduction of new entities• Reaches out to the unbanked

Bank

Mobile Service providerTRAN

SFO

RMAT

ION

AL

MO

BILE

PH

ON

E M

OD

EL

23

Mobile phone banking (M-Banking)Additive

Access to a customers account via the mobile phone

Bank • Balance Inquiry • Fund Transfer • Bills Payment• TOP-UP / Reload phone• Checkbook Request • List Accounts • Change PIN request

24

Mobile payments/remittancesTransformational

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The Case of Kenya

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Access To Financial Services - Kenya

27

19.00%

8.00%

35.00%

38.00%

2006

Formal - Regulated banks, building societies or Postbank

Formal Other -SACCOs and MFIs

Informal - ASCA and ROSCAs

Unbanked - No formal or informal financial products used

22.60%

17.90%

26.80%

32.70%

2008

Formal - Regulated banks, building societies or Postbank

Formal Other -SACCOs and MFIs

Informal - ASCA and ROSCAs

Unbanked - No formal or informal financial products used

Source - National Survey on Access to Financial Services in Kenya

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

GROWTH IN USAGE 1999 -2009

0

200

400

600

800

1000

1200

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

No

of B

ranc

hes

GROWTH IN BANK BRANCHES

0200400600800

100012001400160018002000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Number of ATM machines

Va

Vo

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

RTGS (KEPSS)ACH (Cheques)

ACH (EFTs)ATM

MOBILE

64,810 7,000

1,136 2,852

1,993

3,422 70,647

34,709

499,703

868,226

Throughput Comparison Across Various Payment Systems In Kenya

Value (m) Volume

High value payment system

Retail payment systems

Local Money Transfer After M-pesa

Source: FSDK presentation (2009)

30

Why Mobile Money Transfer

31

70%

30%

Addressable Mobile Market

Mobile Penetration

People without Mobile Phones

19%

81%

Banked Population

Banked

Unbanked

Only 19% of Kenyans have bank accounts but many more have access to a mobile phone & the gap is widening

M-PESA: Growth

Growth of M-PesaUSERS

(millions)

Growth of

M-PesaAGENTS

09/2010:More than

12.7 millionregistered M-PesaUsers

09/2010:More than

20,000M-PesaAgents

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0.00 2.00 4.00 6.00 8.00

10.00 12.00 14.00

Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep

2007 2008 2009 2010

Total Mobile Active* customers as at end of (cumulative) million

0

5,000

10,000

15,000

20,000

25,000

Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep

2007 2008 2009 2010

Total number of agents (cumulative)

The potential for mobile phones –The case of Kenya

• 19 million own mobile phones in Kenya as at 2009• Financial sector serves 23% of the bankable

population• Deployment of mobile money transfer services (M-

Pesa) in 2007 led to 27.9 % of bankable population accessing money transfer services by 2009 and perhaps better by 2010.

• Has increased deposit accounts from 2.55million in 2005 to 12million in 2010. Transferred Ksh 68.02 billion equivalent to US$ 841 million with 28.45 million transactions

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• M-Pesa remains a low value payment system: targets the bottom population

• Mkesho launched in May 2010 has enrolled over 700,000 with over USD5 million mobilised.

• Other banking products that leverage on mobile phone technology include KCB Bank Connect and Family Bank’s Pesa Pap.

• Other mobile phone operators have also launched their mobile money products – Zain (Zap) and Essar (Yu Cash).

• Many service providers e.g. power and water have integrated their bill enquiries and payments to the mobile phone

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Enabling Environment

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Policy Framework

E-commerce

AML-CFT

Bank Agency Payment

systemsBank outsourcing

Comp-etition

Telco

regulation

EE: MOBILE PAYMENTS & MOBILE

BANKING

36

Enabling Environment: Policy Balance

Stability of the financial system

Efficiency

Broader access

Financial

integrity

Consumer protection

& choice

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What is the role of the private sector?

What is the role of the Government?

What is the role of the central bank?

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Possible roles for policy makers

• Regulator

• Supervisor

• Standard setter

• Information gatherer

• Facilitator

• Coordinator

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Strategic Approach

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Innovative Payment Systems

Strategic Approach

Industry Payment

Body

National Payment

Data

Payment Legislation

Infrastructure & Standards

Cross Border

Connection

The need for cooperation and coordination in the payment market

The need for payment system data to support decision and policy making

The need for an explicit legislation on payment systems to safeguard financial stability

To develop a common payment platform based on interoperable standards

To develop cross border payment infrastructures to support the growth of cross border payments

Way Forward• Proposed enactment/amendment of relevant laws• Encourage usage of RTGS and other e-payments to reduce

risks• Manpower development/deployment and training• Promotion of cooperation among stakeholders through the

National Payment Systems Committee• Harmonization initiatives including MAC, COMESA & BIS.• Sensitization of the public and banking industry• Thorough appraisal of payment service providers applications

41

What is the next innovation?

Microwave Banking???

Thank youQuestions?