Arriving in Nairobi, the technological hub of Africa
Do you have a mobile money account? On the balance of probability, I would imagine you do – at last count 65% of europeans hold one. Yet this falls rather behind Kenya where over 73% of adults have a mobile money account and where M-Pesa mobile banking is a household name.
It was because of these levels of financial and technological literacy that the Investment Committee from LMDF headed to Kenya. At our arrival at the airport, we were greeted with signs from Safaricom, the mobile operator which launched M-Pesa and as we headed into town, it became apparent that you could not travel more than 500m without an advert for M-Pesa coming into view. More perplexingly for a foreigner who has just arrived, some shops only appeared to accept mobile payments via M-Pesa.
The question follows of what the implications are of such widespread use of financial technology, particularly for the microfinance industry. The relatively high operating costs of the microfinance model have often been subject to criticism, yet there is a certain inevitability of such high costs when loan officers have to travel regularly to remote areas to reach their clients. This model has led the industry to have a very personal touch and it is notable that the industry has also been synonymous with low default rates.
There are now many fintech firms (notably in Nairobi) offering the potential for financing with rather lower operating costs and at great speed (in 5 mins in some cases). Yet this often comes at the expense of the personal relationships and may result in less time being spent considering the clients’ needs. Often these models have rather high default rates and there are also concerns about the lending practices that some of such firms adopt.
Clearly there are benefits to the efficiencies that technology can bring, but the challenge is ensuring that these do not come at the expense of understanding a clients’ needs. Over the course of the week, LMDF had a heavy schedule in place to see how various firms are doing this. In the meantime, however, I am trying to work out if I can setup my own digital money account with M-Pesa.