May 20, 2013

Shift to electronic payments holds key to financial inclusion in Africa

Almost 400 million adults in Sub-Sahara Africa remain outside the formal financial system because of poverty, cost, and travel distance and paper work involved. Even in Kenya and Sudan where over 68 per cent and 52 per cent of adults use mobile money, 43 per cent and 92 per cent of them respectively, do not have a formal bank account . A research by the World Bank and the Bill and Melinda Gates Foundation paints thepicture clearly (pdf).

In November 2012, Safaricom and Commercial Bank of Africa announced the launch of M-Shwari; a virtual banking platform that rides on the M-PESA rails.

M-Shwari allows M-PESA users to operate savings accounts, earn interest on deposits, and borrow money using their mobile phones. Deposits into M-Shwari earn interest depending on the size of the deposit. Additionally, borrowers can request loans of up to KES 20,000 through the mobile phone.

 M-Shwari is fully integrated into the M-PESA user interface on customers’ mobile phone and it uses a credit score algorithm based on your credit history as well as usage of M-PESA and other  products to determine your loan eligibility and maximum loan amount.

Receiving a payment into a digital account (M-PESA) is creating a point of entry into the financial system for millions of Kenyans. M-Shwari now has over 1.2 million active users - a good example of how a shift to electronic payments can reduce the financial inclusion gap and democratize financial services in Sub-Sahara Africa.