Kenya's Banking Revolution

  • Photograph by Sarah Elliott for TIME

    A street stall and a cell phone are all that is needed

    To meet the future of retail banking, cross Moi Avenue into the rougher part of downtown Nairobi, pass the Chicken Spot restaurant and squeeze between four stalls selling counterfeit mobile phones, and you'll reach a door — and behind it a tiny room containing a hat stand, a wall calendar, a strip light and a desk.

    Patrick Maina's offices don't look like a bank, his bank — Safaricom — doesn't sound like one, and Maina doesn't appear at all like a banker: 38 years old, he likes his suits iridescent and his head shaved; his manner is friendly and modest. Maina's results over the past few years are particularly unbanklike.

    While Western banks crashed, Maina's fortunes rocketed. Started with an investment of $1,000 four years ago, his financial empire now runs to 218 outlets across Kenya. Underlining how different Safaricom is from conventional banking, Maina praises his company not for how it enriched him — he earns $150,000 a year and owns a Lexus and a house in an upscale Nairobi housing development — but for how it boosted a nation. "Safaricom helped people, upgraded their lifestyles, helped them to get jobs," he says.

    Safaricom also helped start a banking revolution, one coming to the world from Africa. Says Carol Realini, executive chairman of Obopay, a California-based mobile-banking innovator: "Africa is the Silicon Valley of banking. The future of banking is being defined here. The new models for what will be mainstream throughout the world are being incubated here. It's going to change the world."

    So what is it? For a start, it's banking as envisaged by nonbankers. Safaricom, as the name suggests, is not really a bank — at least it was not originally. It was founded in 1997 as a Kenyan cell-phone company, and for a decade connecting Kenyans was what it did. That in itself was an innovation: most Africans have never had a landline (and now, courtesy of the leapfrog effect of mobiles, most never will). The number of African mobile-phone subscribers went from zero a little more than a decade ago to 506 million by the end of September 2010, and they are expected to total 800 million by 2014, according to industry analyst Informa Telecoms & Media.

    And in developing countries like Kenya, the arrival of an accessible communication network — for most, their first — has had a profound effect on economic growth. Studies by the London Business School, the World Bank and the consultancy Deloitte found that for every additional 10 mobile phones per 100 people in a developing country, GDP rose 0.6% to 1.2%.

    The link between development and phones provided the context for further innovation, much of it using the cheapest form of mobile communication: text messaging. Out of that came South Africa's Mxit, a social network based on texting; txteagle, a developing-world outsourcing network; and mPedigree, a Ghanaian service that determines whether a medicine is genuine or counterfeit from its bar code, sent to a central number by text.

    In that rich environment, it was a natural step for Safaricom to launch its own text-message innovations, including a "flashback" service, which allows mobile-phone owners who can't — or won't — pay for a call to let other subscribers know they are trying to reach them, and Kipokezi, which allows users to send and receive e-mails as text messages.

    But the big change came in 2007, when Safaricom launched a money-transfer-by-text-message service called M-Pesa ( M for mobile, pesa for money in Swahili). The idea is simple: A Safaricom subscriber takes cash he wants to transfer to another person, along with the recipient's mobile number, to a Safaricom agent like Maina. The agent takes the sender's money and, for a small fee, uploads the value to his or her prepaid phone account, then sends on the credit to the recipient's phone account.

    Mobile banking has been available for years in Japan and elsewhere, but only on a limited basis. M-Pesa's growth has nonetheless been extraordinary. Agents blossomed across the country and total 19,000 today. Of Safaricom's 16 million customers, 12 million have M-Pesa accounts — this in a nation of 39 million people.

    The world has taken notice of such success. Obopay is developing mobile-banking services for clients in the U.S., India and Nigeria. "There are 100 countries around the world looking to Kenya and asking, 'How do we do that?'" Realini says. South Africa's MTN, one of the world's largest mobile operators, announced last year it was rolling out its own service, MTN MobileMoney, to 21 countries. Vodafone, which is part owner of Safaricom and which first proposed a mobile-banking experiment in Kenya, is even taking mobile banking to Afghanistan.

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