Safaricom’s introduction of M-Pesa was the game-changer, forcing banks to go back to the drawing board, as they saw frustrated clients snap up the mobile money transfer service with much aplomb, while voting with their feet in the banking halls.

Today, M-Pesa has at least ten million customers.

But even more significant, the decision by banks to partner with mobile phone companies like Safaricom, Zain Kenya and others, is helping them reduce the bloodletting caused by customers running away from their hefty fees and charges.

In January, Kenya amended a law that governs financial sector operations, allowing banks to use agents as channels for their services.

This was part of the Financial Sector Deepening (FSD) programme supported by the UK’s Department for International Development, the World Bank, and the Swedish International Development Agency, through which the Central Bank of Kenya (CBK) hopes to increase access to financial services in marginalised areas of the country.

Win-win proposition

The amending of the law was significant, because it opened a window for both Safaricom and banks to forge partnerships that can only serve to extend the reach to formal banking services, saving banks millions of shillings needed to build and operate new branches.

It was long overdue, given that 32 per cent of Kenya’s bankable population remains outside the realm of formal financial services, according to CBK.

Agent banking is thus a win-win proposition for all parties involved, and M-Kesho, the new product announced by Safaricom and Equity Bank Tuesday, can only be positive for the banking industry.

Safaricom already has a partnership with KCB that allows the bank’s customers to deposit and withdraw funds using their Safaricom lines.

However, as far as virtual bank accounts go, M-Kesho looks to be light years ahead of anything now in the market, by allowing registered M-Pesa account holders to get loans based on their M-Pesa usage and deposits, and also earn interest on their M-Kesho accounts.

Equity Bank CEO James Mwangi’s assertion that with M-Kesho at "the village level, the shopkeeper will allow his customers to deposit and withdraw money as they buy sugar and milk" is an acknowledgement that in Kenya, a major share of financial transactions are informal, mostly by women, and away from the banking halls.

A recent survey by the FSD programme estimates the total value of this money to be Sh1.5 billion ($19 million) monthly, or Sh18 billion a year, although it could be slightly more.

Mobile phone services firms, through the launch of wireless e-banking services, are now snapping up a market that banks long ignored.

It is in this light that the new M-Kesho product should be seen. Safaricom and Equity are acknowledged pioneers in their respective fields for innovation. It also allows Equity to rediscover the roots of its growth — lending to small- and medium-sized entrepreneurs.

Billions of shillings

And we hope that the deal with Equity Bank is not the last, and that Safaricom and other mobile industry players will seal similar deals with other banks, especially those with a keen interest in lending to the SME sector, where most of the jobs our youth badly need can come from.

It is sad to see banks announcing profits in the realms of billions of shillings in a country where poverty and hunger is widespread.

If the innovations sparked by the mobile phone revolution are to have a lasting positive effect, then banks need to increase their lending to SMEs.