M-KESHO in Kenya: A new step for M-PESA and mobile banking

M-KESHO in Kenya: A new step for M-PESA and mobile banking

Financial Access Initiative Blog

*This post is part of a "before and after" series on a Gates Foundation-sponsored visit to Kenya that Jonathan Morduch and others participated in.

M-PESA, a successful mobile payments service in Kenya, is already demonstrating how m-payments can successfully expand the range of financial options available to poor households.  Earlier this month, the Gates Foundation took several microfinance experts to Kenya, including Bob Cull; FAI's Dean Karlan and Jonathan Morduch; David Roodman; Stuart Rutherford and Dean Yang, to learn about M-PESA first hand.

And while we were there, M-PESA announced some big news:  finally, M-PESA is connecting with banks in Kenya. And with a big bang too, as two big players in the financial inclusion scene in Kenya are joining forces: Safaricom (the mobile operator behind M-PESA) and Equity Bank are launching M-KESHO, a co-branded suite of financial products that will ride on the M-PESA transactional 'rails.' Three years ago, there were 2.5 million bank accounts in Kenya, out of a population of 39 million. Today, there are close to 8 million bank accounts (of which 4.5 million are with Equity Bank) plus a further 9.5 million M-PESA accounts. One third of M-PESA accounts are held by people that are otherwise unbanked, and this is the segment that the new product is targeting. Equity's aggressive objective is to acquire 3 million M-KESHO customers by the end of this year.

In late April, the Central Bank of Kenya issued new agent banking regulations which for the first time allowed banks to engage a wide range of retail outlets for transaction handling (cash in & out) and product promotion (receiving account applications, though applications must be approved by a bank staff). This paved the way for banks to begin utilizing the M-PESA platform and associated network of M-PESA outlets as a channel.

On March 18, the President and Prime Minster of Kenya attended the high-profile launch of M-KESHO, a full savings account issued by Equity Bank but marketed as an "M-PESA Equity account." Like M-PESA accounts, M-KESHO accounts have no account opening fees, minimum balances or monthly charges. But unlike M-PESA accounts, M-KESHO accounts pay interest, do not have a limit on account balances, and are linked to limited emergency credit and insurance facilities. And unlike its regular Equity account holders who can only transact at the bank's 140 branches, Equity's M-KESHO customers will be able to transact at any of the 17,000 retail outlets that accept M-PESA.

M-KESHO is fully integrated into the M-PESA user interface on customers' mobile phone, and is also accessible through Equity Bank's own mobile banking service (available on JAVA or USSD). Customers can deposit and withdraw money from their M-KESHO account by transferring value to/from their M-PESA account, which they can in turn cash into or cash out from at any M-PESA outlet. Deposits into M-KESHO are free to the customer, whereas withdrawals incur a KSH 30 (40¢) payable to Equity Bank plus the normal KSH 25 (33¢) cash out fee payable to Safaricom.

Safaricom is also connecting M-PESA with the accounts of other banks, enabling customers to cash in/out of their bank accounts through M-PESA. But Safaricom and Equity have agreed on a short-term exclusivity on M-KESHO, relating to product co-branding, use of select M-PESA agents to promote the bank's products, and user interface integration.

What are the product features and how does it work?

•    Product suite. M-KESHO is a package of financial products issued by Equity Bank that runs on the M-PESA transactional rails. The core product is a savings account, but account holders can also tap into loan and insurance facilities.
•    Branding. It is jointly branded by Safaricom and Equity Bank – they own the brand and logo jointly. The first part of the logo takes after the M-PESA logo, while the second part has the brown color of Equity (to me it looks more M-PESA-like than Equity-like). 'Kesho' means 'future' in Kiswahili. So they are positioning this as a more aspirational service than M-PESA, which is more functional.
•    Marketing. Equity Bank and Safaricom have developed a joint marketing plan with joint funding to market M-KESHO.
•    Account terms. Like existing Equity and M-PESA accounts, the savings account has no account opening fees, minimum balances or monthly charges. Like M-PESA accounts, there are no monthly statements or passbooks. Unlike M-PESA accounts, it pays interest (though not very much: 0.5%-3% depending on saved balance) and does not have a limit on account balances.
•    Account linkages. M-KESHO customers must have an M-PESA account (and hence be a Safaricom customer). In addition, they may have a normal Equity Bank account and this can be linked to their M-KESHO bank account, but that is not required.
•    Account opening. Under the new agent banking regulations in Kenya, account opening cannot be delegated to agents. So account opening will take place either at branches or at a subset of some 5000 M-PESA agents at which Equity Bank will place a bank representative. (These are students paid on commission; how this is better than giving the commission directly to the store owner is beyond me.) Customers must bring the original plus a photocopy of their ID and two photographs (at agent locations their picture will be taken on the spot with a digital camera). Customers complete a relatively short and simple application form, but accounts won't be active until 48 hours later.
•    Account management. M-KESHO accounts are held in a server owned, hosted and operated by Equity Bank. Equity Bank has the right to up-sell M-KESHO customers to full Equity Bank accounts when their account balance reaches KSH 10,000 = USD 133.
•    Deposit/withdrawal options. M-KESHO only takes electronic transactions, offering no direct cash in/out possibilities. Money can flow into and out of the M-KESHO account either from a customer's M-PESA account or (optionally) from a normal Equity Bank account. M-KESHO customers can't do cash transactions at an Equity Bank branch teller, but of course Equity branches are M-PESA agents so they can first cash into either their M-PESA or Equity Bank account and then transfer the amount into M-KESHO. M-PESA's minimum transaction size of KSH 100 = USD 1.30 and maximum transaction size of KSH 35,000 = USD 467 also apply to M-KESHO.
•    Accessing M-KESHO through Safaricom's M-PESA phone menu. M-KESHO customers will have one more item on their M-PESA menu that says 'M-KESHO' (their M-PESA menu will get refreshed automatically over the air upon registration). A submenu then allows customers to fully manage their M-KESHO account: transfer money to/from their M-PESA account, request a balance inquiry or mini-statement (last five transactions only), and apply for the loan or insurance facilities.
•    Accessing M-KESHO through Equity's Easy 24x7 phone menu. Equity has its own mobile phone user interface for its customers, available through a number of channels: JAVA, WAP and USSD. Customers will have the option of managing their M-KESHO account (including transferring money in either direction between their M-PESA and M-KESHO accounts) from either their M-PESA phone menu or through the Easy 24x7 service.
•    Transaction confirmations. A transfer of value between a customer's M-PESA and M-KESHO accounts will entail two SMS confirmations: one from Safaricom confirming that the M-PESA has been credited (debited) and one from Equity confirming that the M-KESHO account has been debited (credited). While the M-PESA confirmation typically comes within seconds of the transaction request, the M-KESHO confirmation may take 1-5 minutes. (Equity claims this is a Safaricom issue.)
•    Customer transactional fees. Deposits into M-KESHO (i.e. transfers from a customer's M-PESA account to his M-KESHO account) are free for the customer, while withdrawals (i.e. transfers from the customer's M-KESHO to his M-PESA account) cost KSH 30 = USD 0.40 (i.e. they are tariffed as a normal P2P). This is in addition to the M-PESA cash out fee, which for amounts less than $30 is an additional KSH 25 = USD 0.33. Thus, a 'full' deposit (cash to M-PESA to M-KESHO) is free to the customer, while a 'full' withdrawal costs the customer a fairly steep USD 0.73. M-KESHO (but not M-PESA) fees are deducted directly by Equity Bank from customers' M-KESHO account. Equity also a KSH 5 = USD 0.07) charge for each balance inquiry and mini-statement.
•    Credit facility features. Loans must be requested from the mobile phone, and are for amounts between KSH 100-5000 = USD 1.30-67. Equity intends to use a credit scoring system based on the balance and transactional history of the customer on their M-PESA

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The Problem with Fair Trade Coffee

The Problem with Fair Trade Coffee

SSIR Articles

Peter Giuliano is in many ways the model of a Fair Trade coffee advocate. He began his career as a humble barista, worked his way up the ladder, and in 1995 co-founded Counter Culture Coffee, a wholesale roasting and coffee education enterprise in Durham, N.C. In his role as the green coffee buyer, Giuliano has developed close working relationships with farmers throughout the coffee-growing world, traveling extensively to Latin America, Indonesia, and Africa. He has been active for more than a decade in the Specialty Coffee Association of America, the world's largest coffee trade association, and currently serves as its president. Giuliano originally embraced the Fair Trade-certification model—which pays producers an above-market "fair trade" price provided they meet specific labor, environmental, and production standards—because he believed it was the best way to empower growers and drive the sustainable development of one of the world's largest commodities. Today, Giuliano no longer purchases Fair Trade-certified coffee for his business. "I think fair trade as a concept is very relevant," says Giuliano. But "I think the…

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The case for mission investing

The case for mission investing

Philanthropy Journal - All Articles

Through mission investing, foundations can put their assets to work on behalf of their mission, without necessarily sacrificing the financial returns they need for long-term stability.

read more

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Eliminating the Charitable Deduction: The End of the World as We Know It, and I Feel Fine

Eliminating the Charitable Deduction: The End of the World as We Know It, and I Feel Fine

SSIR Opinion & Analysis

As governments at all levels scramble for resources, the idea of eliminating the charitable deduction from the income tax code has begun to attract support. Many people who work in nonprofits say this would damage the sector, because people would be less inclined to give and those who did give would give less. Let's assume this is true (though Americans' passion for voluntary organizations long predates the tax code—Tocqueville, anyone?). Is the health of "the sector" really the relevant concern?

It may be that people will give less to their churches or alma maters or prestige arts organizations if deprived of a tax benefit for doing so. But that money will be in the public treasury, where it will go for health care and education and environmental protection (and even a pittance for the arts). So wouldn't the goals of nonprofit hospitals and nonprofit schools and environmental nonprofits and arts nonprofits actually be advanced if the government had more to spend on these essential services?

In other words, as with health care, the question isn't whether people pay; it's how. You either pay for health care by giving money to an insurance company, or by paying taxes and letting the government insure you. (The latter model, in use in this country only for the aged, produces the greatest efficiencies and greatest satisfaction among patients, families, and caregivers; but of course extending it to the rest of the population would set us on the road to serfdom. Hayek himself endorsed public provision of health care, so what are we arguing about, again?)

Likewise, you pay either way for education and schools and environmental protection and so on; it's just a matter of which pot you're anteing up in, the private nonprofit or the public.

So there's a real discussion to be had about whether the charitable deduction is a good idea for the entire sector, or whether in fact social service and social justice nonprofits–-the ones that struggle the most for philanthropic support–-would be better off without deductions but with a bigger public fisc.

Yes, the money might go for defense, or subsidies for oil companies, or some other boondoggle. It's our responsibility as citizens to prevent this; tax deductions were not designed to protect us from self-government.

This is another version of the argument I've made elsewhere about the generosity of billionaires versus the reinstatement of a significant inheritance tax. (Democrats like myself should make a point of calling it "the inheritance tax," because that's the whole point: At the moment, people who work for their money pay income taxes on it while people who inherit their money don't. Or we could call it "the windfall profits tax," which is what it is: a tax on the windfall profits of people whose only contribution to society is having picked the right parents. And I speak as a windfall recipient.)

When the government collects inheritance taxes, it can spend the money on things we as a democratic society think important: health and education and social services and, yes, roads and weapons systems, and a bunch of other things about which my opinions are in the minority. If the government doesn't collect, billionaires' offspring can spend the money on the things they as potentates think are important, which might be eradicating malaria and endowing charter schools. But they might also spend the money on scholars to produce support for the elimination of public education or the abolition of all regulation, or even pay legislators directly for said elimination and abolition.

The tax code is designed to provide the government with resources to do its job. Its job, among other things, is to provide essential services to citizens who cannot provide those services for themselves; and the more money it collects, the more services it can provide. What's important is that those services are provided, not that they are provided by the sector that happens to employ me.

So the question here is not, "Is it good for the sector?" but "Is it good for social welfare and social justice?" The answer is not clear-–crunching the numbers would be a huge job for which I'm totally unqualified-–but let's make sure we're asking the right question.

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Kelly Kleiman, who blogs as The Nonprofiteer, is principal of NFP Consulting, which provides strategic planning, Board development and fundraising advice to charities and philanthropies. She is also a lawyer and freelance journalist whose reportage and essays about social justice, the arts, and woman's issues have appeared in the Chicago pages of the New York Times as well as in the Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; in the Alternative Press; on Chicago Public Radio and the BBC; and on websites including The Huffington Post.

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