M-Shwari: The Story So Far and Financial Inclusion
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M-Shwari is a mobile-based banking service in Kenya that allows customers to save money and take out small loans through their M-PESA accounts. It has been very popular among low-income Kenyans as it provides easy and convenient access to savings and small amounts of short-term credit. M-Shwari's success is largely attributed to its ability to simplify banking for customers with minimal requirements, clear rules, and a user-friendly process that is well-integrated with M-PESA. It also addresses the liquidity needs of the poor by providing a way for them to access small loans on demand to help manage irregular income and unexpected expenses. M-Shwari has demonstrated
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M-Shwari: The Story So Far and Financial Inclusion
- 1. M-Shwari: The Story So Far April 2015
- 2. 7 out of 10 Kenyans are active mobile money users: 8 out of 10 Kenyans live within 5km of financial access point:
- 3. Enter M-Shwari: a savings and loan bank account exclusively accessed through M-PESA
- 4. HOW M-SHWARI WORKS Peace Osangir, Financial Risk Manager Commercial Bank of Africa
- 5. What is M-Shwari? Mobile-based banking service provided by CBA through the Safaricom mobile channel. Product Offering: Banking products that provide convenience, reliability and cost- effectiveness for making micro-savings and taking micro-loans. Target market: All M-PESA customers; to enhance the M-PESA value proposition, while aspiring to deepen Financial Inclusion in Kenya by offering a bank deposit and credit product. Purely unsecured High Volume, low value, high frequency transactions Short term (1 month) Services offered by M-Shwari… Deposit: Withdrawal: transfer from M-Shwari to M-PESA Loan request Loan repayment Balance enquiry Mini statement
- 6. Highlights of Product Features – Customer Promise Banking service that is accessible and convenient True partner to offer better savings option in time of plenty and reliable help in times of need We trust you with our money even before you trust us with yours Credit offered/rejected discreetly, without much hustle Your character counts. Deposit Features Credit Features No minimum balance requirement to open account Loan amounts range from USD 1 – USD 500 Electronic customer enrolment and account activation Loans offered at a 7.5% one-time fee for 30 days Defined KYC criteria and verification workflow Customer allowed to roll-over debt for another 30 days at a fee of 7.5% Deposit Limits defined for Tiered KYC Levels No compounding penalty interest for delayed payments Deposit insurance of up to a max. of KES 100,000 (USD 1,100) Customer information to be used for credit scoring No charges levied against account (no value erosion) Promote savings – credit strongly linked to savings profile
- 8. How M-Shwari Works 8 Sec Turn around time on account activation 6 Sec Turn around time on transaction processing Instant electronic customer enrolment and account activation Electronic KYC verification Instant credit scoring and credit limit assignment
- 9. CREDIT SCORING Initial scorecard & Limit Assignment Customer profile Mobile Money usage Telco Airtime data Subsequent limit Adjustments Customer profile M-Shwari Product Usage Subsequent Limit increase DataSourcesScorecardDev Loan Performance • USD 339.4M in loan disbursement • 300 bps better NPL rate than industry average as at Dec 2014 Repayment Triggers • SMS reminders • Limit sanctions • CRB listing
- 11. 11 11 LOW-INCOME KENYANS AND THE LIQUIDITY CRUNCH Julie Zollmann, Principal Investigator Kenya Financial Diaries
- 12. There’s not enough money. Buy stock for business $30 Have US$ 33 Need US$ 71 72% of Diaries households live on less than $2/day. Out of a monthly income of US$100, after absolute essentials, …
- 13. Income is very volatile. Median household’s income fluctuates 54% from month to month. If Average Income= US$ 100 Good month: US$ 150 Bad month: US$ 50
- 14. Short-term Liquidity Longer-term Investment There are tradeoffs between stretching and growing money. Falling Short on Both
- 15. “We cannot sleep hungry while money is on the phone.” Money should be working!
- 16. People use a whole range of financial devices to stretch and grow. Patrick Jua kali artisan worker in Nairobi who supports three sons with him and wife and kids upcountry Median HH=14 devices
- 17. But they face a huge range of risks. Temporary disability Permanent disability Chronic Illness Hospitalization Outpatient treatmentDeath of relative Death of main income earner Divorce, separation Loss of income source TheftAttack Legal case Eviction Fire Death of livestock Drought Crop disease0 10000 20000 30000 40000 50000 60000 70000 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% All Households Incidence & Severity Probability of Population at Risk Experiencing Event in One Year (%) by Median Cost of One Event (KSh) Frequency Low Frequency High Financial Impact Low Financial Impact High Module: 5 years Colors indicate population at risk: All household members Adults Households Households who owned livestock or cultivated land during Diaries
- 18. Savings in the house and social networks help, but leave gaps. Temporary_disabilityTemporary_disability Permanent_disabilityPermanent_disability Chronic_IllnessChronic_Illness HospitalizationHospitalization Outpatient_treatmentOutpatient_treatment Death_of_relativeDeath_of_relative Death_of_main_income_earnerDeath_of_main_income_earner Divorce,_separationDivorce,_separation Loss_of_income_sourceLoss_of_income_source TheftTheft AttackAttack Legal_caseLegal_case EvictionEviction FireFire Death_of_livestockDeath_of_livestock DroughtDrought Crop_diseaseCrop_disease savings_formal savings_cash savings_mpesa savings_moneyguard savings_chama borrow_chama borrow_family borrow_formal borrow_informal borrow_employer goods_on_credit accrue_arrears insurance welfare_group resources_received sell_asset work_more other 0-1 1-5 5-20 20-40 40-60 Heat Map of Coping Strategy by Shock Saving the house RR
- 19. For example, in health, existing tool box incomplete. 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 Saving in house Social network Bank saving Chama saving Borrow from network Sell assets Sweet spots of financing for health Most common resources
- 20. Small, on demand credit can ease the tradeoff between stretching and growing. 0 1000 2000 3000 4000 5000 6000 7000 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 School Fees Payments and Aggregate Income, KSh Total income School fee payments Primary kids sent home Install electricity, buy tv Pay lots of school fees, still primary kids sent home for lunch/food Primary child sent home. Out of food from last harvest. Vivian sent home in Sept & early Oct. Misses several days of classes.
- 21. 21 WHY M-SHWARI WORKS Claudia McKay
- 24. M-Shwari offers easy access to small amounts of liquidity in a way that fits how low-income people think about finances.
- 25. “My son was bleeding a lot from the nose and I was just back from the market and had used all of the money. I needed $12 and that money helped a lot.” “I am in transport business. Not all the time do I have money so I can borrow money to help out my drivers when they are caught by the police.”
- 26. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular?
- 27. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular?
- 28. Interviewer: “The first time you were activating M-Shwari, is there anyone who did it for you?” Edwin: “Nobody! I just followed the procedure. When you go to M-PESA menu, there is M- Shwari. It is just logic.”
- 29. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular? “All I do is just play with my money by moving it back and forth. I love to play that game between M-Shwari and M-PESA.”
- 30. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular?
- 31. Challenges of Transparency and Disclosure Visit www.cbagroup.com/ m-shwari www.Safaricom.co. ke OK Back Terms and conditions read and accepted? OK Back
- 32. Why is M-Shwari important beyond Kenya? First large-scale loan product using a person’s telecom data to make initial credit decision How else can digital information be applied to poor and unbanked segments?
- 33. Why is M-Shwari important beyond Kenya? First successful bank account layered on a mobile wallet used by majority Demonstrating mobile money rails can be used to bring the unbanked into the formal banking sector
- 34. Advancing financial inclusion to improve the lives of the poor www.cgap.org
Notes de l'éditeur
- - Come down from the global level and spend the next session really exploring the details of one product in Kenya that is providing digital credit at scale in Kenya– M-Shwari. - This is a product that has brought millions of poor, previously unbanked Kenyans the full benefits of a banking product (interest, deposit insurance, access to credit) – using mobile money as a gateway. We think that this is very important since it is the first demonstration at scale of several of the concepts that those of us in financial inclusion are interested in. I’m really grateful that with me today are two experts who will be able to give a lot of insight from the perspective of both the bank that created the product as well as the Kenyan consumer side. First, we’ll hear from Peace Osangir who is the Financial Risk Manager for New Business Ventures at CBA. Peace spearheaded the development of the M-Shwari credit decision model as well as the M-Pawa model which is the Tanzanian version that launched about a year ago. She will kick us off by giving an overview of the product itself and how it works. Then we’ll hear from Julie Zollmann who is the Principal Investigator of the Kenya Financial Diarieis. The Diaries tracked ALL the financial transactions of 300 low-income Kenyan households over the course of a year and the final report – which I encourage all of you to read if you haven’t already – has a wealth of insights into Kenyan households and their financial behavior. Julie will share some of these insights and in particular the liquidity constraint faced by Kenyan households. Finally, I’ll come back and try to wrap this all together to understand how and why M-Shwari is working. We’ll then have time for discussion and Q&A with all of us.
- Just to briefly set the scene before Peace gets started: Kenya’s mobile money infrastructure and usage is unparalleled. The predominant mobile money service is called M-PESA and was launched in 2007 by the mobile network operator Safaricom which at the time had 80% market share. Today, 7 out of 10 Kenyans are active mobile money users (last 90 days) And 8 out of 10 Kenyans live within 5km of a financial access point, mostly M-PESA. If any of you have been to Nairobi, you’ll know that the agent network there is truly ubiquitous and anywhere you go you’ll find several agents. So on the backbone of this infrastructure…
- So, in November 2012 a relatively small bank called Commercial Bank of Africa (CBA) that previously had been focused on the elite segment and the giant Safaricom that has one of the most recognizable brands in the country teamed up to launch a new product – M-Shwari. M-Shwari can only be accessed through the mobile wallet M-PESA – BUT it’s a full savings and loan bank account issued by CBA.
- Handover to Peace to tell you some of the basic facts and figures about M-Shwari.
- Let us now turn to the cba brand and share some of the key insights from the last couple of years developing the cba brand strategy
- So now we’ve shared a bit about how the product works and some of the constraints facing Kenyan households. I’m going to try to wrap up with sharing what CGAP has found about how customers are using the product and why it meets their needs so well. To do this, we looked at 3 different sources of information. First, was the Financial Diaries since 32 individuals opened M-Shwari accounts in the course of the study and Julie was able to look at how they used the product with the backdrop of a deep understanding of all their financial transactions. The nationally representative Financial Inclusion Insights survey (conducted by InterMedia) did a follow-up phone survey of M-Shwari users. Finally, CGAP conducted in-depth interviews of low-income M-Shwari users. So, let’s take a look at how such small loans with such short loan terms can be so popular.
- Well – ‘M-Shwari…” Let’s unpack this a bit.
- Let’s look at two typical use cases that demonstrates how these loans are frequently used. One woman told us: “My son was bleeding…” This is a very typical scenario. Someone was sick and the money was needed quickly. She did not want to go around to friends and family asking for help while her son was bleeding a lot. From what we can tell, this was not an issue of whether or not she could afford to spend $12. She had had the money that morning but had spent it at the market, not knowing it would be needed later. So she wanted something that was fast and easy. Let’s look at a business example. Many people say they use M-Shwari for business expenses. This is again, a very typical scenario. This guy owns some taxis or motorbikes and one is caught by a police and needs to pay a bribe. M-Shwari is not used for business investment – definitely not an MFI loan – but for meeting short-term gaps in cash flow. If the amount is about $15 would pay $1 fee. However, if you look at the opportunity cost of having the taxi sit idle for a few hours or half a day while this guy gets money and brings it over – probably much more than $1.
- Easy – Instant opening, loans in 6 seconds. Can’t be beaten by any other sources of credit that have transaction costs. Accessible – middle of the night, when hardest to find other sources of liquidity Private – Savings side – considered more private and hidden than M-PESA. On loan side – often used in the middle of the night or when emergencies arise when you don’t want to go around telling your friends and family about your troubles or that you can’t afford school fees.
- M-Shwari is very easy for people to figure out how to use. They may not understand the details of the terms and conditions – more on that later – but the basic process of how to open and use the product is pretty intuitive.
- Customers don’t really understand the nuances of the credit scoring or how exactly loan decisions are made but they know it is connected with frequency of transactions and deposits. Interestingly, this has led to a high level of engagement with the product. Customers enjoy the challenge of experimentation and figuring out ‘the game.’ The product offers a reciprocal relationship with the customers, rewarding them pretty quickly for ‘good’ behavior and customers like this.
- Finally, but perhaps most importantly, M-Shwari seems to have tapped into how low-income people think about their finances. Putting money into M-Shwari makes people feel their money is “working” – in a way they don’t feel about traditional bank accounts. The main appeal appears to be that customers can save for short-term needs while also increasing access to credit in the future. And this is not necessarily about qualifying for a specific loan in the short-term but using a service that might provide resources when needed, similar to maintaining a friendly relationship with a shopkeeper who might extend a line of credit at some point in the future when it’s needed. Poor Kenyans are always looking for ways to expand budget elasticity and to give them more options when needed – and M-Shwari does this, along with providing a safe place to save that provides some interest.
- I don’t want to give the impression that M-Shwari is perfect. It faces plenty of challenges. In particular, effective transparency and disclosure is chalenging. When customers activate the account, they are asked to visit a website to read the terms and conditions and then accept them – but the majority of customers don’t have any way to access the internet either through their basic phones or a computer. So, the very feature that customers love most: ease, speed and accessibility of the product – leads to a low level of understanding of details of terms and conditions. There is no easy solution in how to effectively and transparently convey terms and conditions for a virtual product that is offered instantly.
- To finish, I just want to end with two points on why M-Shwari has global relevance. It’s the first large-scale loan product using a person’s telecom data to make a credit decision. We’ve talked a lot about the vast new flood of digital information out there but until M-Shwari, applying this to the poor and unbanked segments seemed distant.
- Second, M-Shwari is the first successful bank account that is layered on top of a mobile wallet used by the majority of a population. For years, many in the digital financial services space talked about the mobile money ‘rails’ that would be the foundation for a host of other value-adding financial products and services. A lot of this was just speculation – until M-Shwari. The product has proven that mobile money can be used to bring the unbanked into the formal banking sector in large volumes. I think the story is just beginning. M-Shwari uses mobile money as a gateway to bring the benefits of a full bank product to the mass market in Kenya. It’s groundbreaking in several ways but is very dynamic and will fascinating to see where things go from here.