MOBILE PHONE FINANCIAL SERVICES INTEGRATION & FINANCIAL INTERMEDIATION     Discussant:  PROF. NJUGUNA NDUNG’U, Governor, Central Bank of Kenya                                  

Mobile Phone Financial Services Background Mobile-phone based financial services are having a transformative impact on low-income economies.  In Kenya, the mobile phone financial service plays a dominant role in rural areas, with important vertical integration consequences for existing financial service providers, including micro-finance institutions and SACCOS.  There has been vertical integration with mobile phone financial services and commercial banks.   Question: Does mobile Technology enhance financial inclusion for the poor?                                      

Mobile Money Transfer Industry Overview A Fact Sheet on Kenya Mobile financial services commenced in 2007 with the introduction of M-Pesa money transfer service by Safaricom. Mobile financial services are offered through a network of agents spread across the country Currently these agent number 50,471 and include outlets such shops, petrol stations, chemist shops, banks and micro-finance institutions; these are now agents and super agents . Customer base as at end of December 31, 2011 stood at over 19.2 million. The industry transferred Ksh 118.4 billion with 41.42 million transactions in December 2011

Mobile Money Transfer Industry Overview As at DECEMBER 2011 Safaricom 15.21 million customers. Airtel 3.16 million customers. Yu 0.52 million customers. Orange 0.13 million customers Tangaza 0.07 million customers Mobikash 0.11 million customers

Mobile Money Transfer Industry Overview As at DECEMBER 2011 Safaricom moved Ksh 116.60 billion with 40.01 million transactions. Airtel moved Ksh 0.42 billion with 0.35 million transactions. Yu moved Ksh 0.02 billion with 0.01 million transactions. Orange moved Ksh 0.02 billion with 0.06 million transactions. Tangaza moved Ksh 1.31 billion with 0.98 million transactions. Mobikash moved Ksh 0.004 billion with 0.01 million transactions

Integration & Financial Intermediation outlets Bank of Africa 1 Barclays Bank of Kenya 64 Commercial Bank of Africa Chase 15 Consolidated 9 Co-operative 83 Eco Bank 12 Equity 22 Family 53 Gulf 10 Housing Finance 7 Imperial KCB 157 KFWT NBK TOTAL 461

Integration & Financial Intermediation (cont) OBSERVATIONS A number of banks offer mobile money financial services and include both large and small banks. They facilitate transfers to and from bank accounts from the mobile phone platforms. Number of participating bank outlets as at December 31, 2011 was 461 In addition, a number of banks use the mobile channels to mobilize deposits, make inter-bank transfers, or loan repayments. Such interfaces render banking services more convenient for customers who need not travel to their branch for financial services

Integration & Financial Intermediation (cont) The M-Kesho, Pesa-Pap, KCB Bankconnect, and ATMs mobile link are recent initiatives to integrate the mobile payment platform with the Banking Sector. The impact on intermediation and deposit mobilization will be the subject for research. The M-Kesho is important because it transfers the balances in Sim cards to micro savings account – now we can see a direct link from M-Pesa to financial intermediation

M-Kesho Account - Highlights 799,532 accounts already opened since May 2010 launch. 240,633 customers have already transacted. Total deposits Ksh 884,845,626 equivalent to US$ 10 million, average deposit Ksh 1,106 equivalent to US$12.7. Transaction turn-around is less than 5 minutes. Account opening can be originated at 136 Equity Branches and 1,162 M-Pesa Agents and 3,087 Equity specific agents. Accounts opened within 48 hours at Equity Branches. Credit to be based on M-Kesho and Safaricom track record. No. of accounts Balances (Ksh) Central region 141,316 151,302,388 Coast region 36,348 75,342,398 Eastern region 81,328 120,962,340 Nairobi region 172,360 240,234,450 North Eastern region 7,678 10,283,544 Nyanza region 76,238 52,959,546 Rift Valley region 207,124 202,390,901 Western region 77,139 31,370,061

Mobile Phone Financial Services Cost Curves Withdrawals & transfer costs Cost of both withdrawals and transfers are now below 5 percent of withdraws or transfers above Ksh 500($ 6) However, transfers and withdrawals of Ksh 10-500 are still high.

Risk Mitigation Approaches Mobile phone financial service providers must always ensure adequate risk mitigation. Some methods used in Kenya include; Filtering out fraudulent SMS through SMSC filtering engine Tracking of fraudsters and enhancing the KYC procedures. Automatic black listing of fraudsters Agent training programmes

Conclusions Increased use of mobile phone financial services by both individuals and corporate organizations: Person to person is still dominant, business to persons and persons to business - are all increasing. Mobile money transfers appeals to consumers across the geographical divide. The cost of mobile financial services has remained low, enhancing use by the poor. The mobile technology therefore is contributing towards financial inclusion: services, cutting costs, improving access and now a mode of savings from phones to savings accounts.

Person to Person Transfers Person to person transfers dominate M-Pesa transfers. In December 2011, Ksh 63.87 billion equivalent to US$ 751 million was transferred.

Other Transfers (P2B, B2P & ATM) Person to person transfers have dominated Person to business and business to person have picked up from March 2011.

THANK YOU & DISCUSSSIONS