For all the good things M-Pesa has brought, Michael Joseph, the man who gave life to the transformational idea that won global praises has some regrets too; the borrowing frenzy.
Mr Joseph regards himself as the “mother of M-Pesa” and has since 2007, then serving as Safaricom CEO, watched the idea grow into becoming one of the most admired innovations in Kenya and the world.
From sending and receiving money to paying for goods and services, the application of M-Pesa has kept expanding and transforming peoples’ lives as well as earning Safaricom up to 45 per cent of its revenue.
“I didn’t come up with the idea but I brought it to life. I consider myself the mother of M-Pesa. When we brought it to life, we didn’t know it could do this much,” said Mr Joseph in an interview with The Sunday Standard.
“The intention was to change peoples’ lives for the better. But to imagine to this extent that we have, no.”
The innovation has turned 15 years. Months after launch, M-Pesa gained life during the 2007 post-election as people lined up to register and send money to their stranded loved ones even when banks had shut.
From March 2020, when Kenya recorded the first Covid-19 case, M-Pesa also proved useful as people switched to cashless transactions to avoid contracting the virus.
“Nobody could have predicted the success of M-Pesa. Not a financial success or success in terms of changing people’s lives. It has also changed my life just like it has made the lives of so many other people much easier,” says Mr Joseph, now the Safaricom chairman.
But for all its good things, Mr Joseph carries some regrets over the borrowing spree that he has witnessed on M-Pesa linked lending products — Fuliza, Mshwari and KCB-M-Pesa.
“To some extent, there have been negatives as well. In my personal view, some of the things we are doing with M-Pesa, like borrowing, are not good for the people,” said Mr Joseph.
Borrowing through M-Pesa, he says, is “too expensive” for the customers. This is despite the mobile overdraft product, Fuliza, continuing to gain popularity among Kenyans.
Borrowings from Safaricom’s Fuliza hit Sh578 billion last year as ease of use and economic hardships pushed over 700,00 new users to the overdraft service.
Latest disclosures by NBCA and KCB Group — the two big banks that underwrite Fuliza overdrafts — show that the service has deepened its share of digital loans as customers get increased borrowing limits.
The overdrafts, utilised between January and December last year, translate to Sh1.58 billion daily borrowing, pointing to the increasing use of the service that was rolled out in 2019.
While this means more revenue for Safaricom, it is a statistic that bothers Mr Michael who says this was not the dream he had.
“When I introduced M-Shwari, the plan was that it was going to be a savings and borrowing product. So first, you save and get the habit of saving. Then after saving, you borrow money based on your savings,” Mr Joseph says.
“That was the plan. But unfortunately, it never worked out that way. People borrow more than they save, which is not what I intended.”
It is becoming common for people to give a quick instruction of “don’t send to this number, use the other one” whenever they are asking for money from friends or relatives.
The reason is usually that they have an outstanding overdraft and a pressing need competing for the money that is to be sent in.
If it is sent in, Fuliza will deduct up to the full amount of the overdraft and the customer will be left unable to sort the need at hand such as buying food or paying for bus fares.
This troubles Mr joseph given the “transforming lives” tag on whose wings Safaricom brand flies.
“I wanted people to save for the future instead of borrowing for funerals or weddings or school fees. Unfortunately, because you (telcos and banks) make more money when you lend people more money, it became a lending product,” said Mr Joseph.
Safaricom has been keen not to allow its products to promote or be associated with any negative externalities such as gambling or borrowing addiction.
For instance, despite making Sh4.26 billion as betting revenue - earned as a result of facilitating top-ups and withdrawals from betting wallets, Safaricom has in the past said “betting is not something that we actively track or target as a means to increase revenue.”
The use of M-Pesa for services beyond sending and receiving money started with M-Kesho - the ill-fated product launched by Safaricom in partnership with Equity Bank in 2010.
Hailed then as the pioneer mobile banking application, M-Kesho would later fade away as the two firms fought over commission sharing and other issues.
The product enabled customers to deposit and withdraw money from their M-Kesho account by transferring value to and from their M-Pesa account.
While the product did not take off, Safaricom walked away with valuable lessons on how to partner with banks - the institutions that once opposed M-Pesa.
Two years later, M-Shwari was born. Safaricom struck a deal with Equity’s rival, CBA Group - now NCBA after the merger with NIC.
This was followed by another partnership between Safaricom and KCB to form KCB M-Pesa.
The two products allowed both banks to lend to customers and take deposits via the M-Pesa platform.
M-Shwari and KCB M-Pesa resonated well with Kenyans seeking microloans for their daily and monthly needs.
The services enabled customers to save as little as Sh1 and get loans from Sh50 in a move that saw many people get hooked to the products.
Then in 2019, Safaricom launched a new product dubbed Fuliza. It has since taken the market by storm and the telco is mulling rolling out Fuliza for businesses.
Fuliza’s entry has upset the popularity of M-Shwari and KCB M-Pesa, with M-Pesa users seeking micro-loans getting hooked to the overdraft service.
The Fuliza fee starts from Sh2 per day for Sh100 overdraft and goes up to Sh30 per day for Sh2,500 and above.
Customers who do not clear the overdraft within 30 days are barred from utilising their unused Fuliza limit until they settle the outstanding amount.
The default rate for Fuliza is usually very low since the debt is settled instantly when the customer’s M-Pesa wallet receives money.