Kenyan banks missing Sh132 billion by ignoring the poor

Kenyan banks are losing close to Sh132 billion in revenue annually by ignoring low income earners – those earning less than Sh233 a day.

This is according to a report by Non-Governmental Organisation Care Kenya, and consultancy firm Accenture. The report is titled Within Reach: How banks in emerging economies can grow profitably by being more inclusive.

It was based on research within 30 mainstream banks across 12 developing countries. The report wanted to establish current strategies, capabilities and challenges that banks encountered while serving the unbanked and under-banked customer segments.

Globally, the report estimated that banks could be losing as much as Sh38.7 trillion ($380 billion) by ignoring the same low market segment annually.

As a result of this, Care Kenya has started to promote Village Saving and Loans (VS&L), a financial inclusion programme where over 700,000 individuals have been clustered into groups and linked to formal financial institutions in order to save and obtain loans.

Care Kenya Sector Manager for Financial Inclusion Phyllis Kariuki said that her organisation has identified mobile payment services such as M-Pesa as the perfect platform for ushering under-banked consumers into formal financial services.

“Mobile payment services make sense between the customer and the provider since they will require a very low level of trust between the two, the transaction decision point is simple, and the risks are low. More so, the convenience, speed and efficiency of the mobile platform is far more compelling than traditional alternatives,” Ms Kariuki said.

Kariuki decried the monopoly enjoyed by some telecommunication companies in Kenya, where lack of competition in mobile money transfer has yielded higher pricing, less than desired innovation to improve the service..

“A Kenyan banker told me recently that banking here is a very heavily regulated industry and this comes to a disadvantage for banks, since telecommunication companies (telcos) could move earlier and quicker to take over. Banks are facing a huge challenge in the mobile payment space as telcos have connectivity as well as products, while banks have only products and depend on telcos for connectivity,” she said.

However, this challenge is being faced since a bank like Equity has launched a direct competitor to M-Pesa by offering its own payment product Equitel.

Chamas

Also, the Kenya Bankers Association has established a system to increase the integration of some of its members’ payment and cash networks (ATMS and cards).

The system will provide a shared platform to give bank account holders easier access to much larger selection of cash in and out points, thus reducing reliance in mobile phones.

Care Kenya also announced a financial education programme that will be rolled out to educate those ignored by formal financial institutions, on how they can save even as small groups (Chamas) in order to attract financing from mainstream banks.