The tighter credit appraisal standards adopted by Kenyan banks and costly bank loans in the run-up to the March general election have helped push up demand for micro-loans offered by Safaricom’s virtual banking platform M-Shwari tenfold over the past seven months.

New data from the Central Bank of Kenya shows that the total loans issued under the revolutionary platform overtook the value of deposits in March, as customers frustrated by the increasingly selective lending by commercial banks turned to other credit options such as shylocks, savings and co-operative societies (Saccos) and M-Shwari.

The data shows that the total value of transactions through M-Shwari hit Ksh38.8 billion ($445.9 million) in July, from Ksh5.1 billion ($58.6 million) in January.

The total cumulative loans issued under M-Shwari stood at Ksh3.2 billion ($36.7 million) in July, from Ksh337.6 million ($3.88 million) in January — a tenfold increase.

The total value of savings stood at Ksh1.39 billion ($15.9 million) as of July, up from Ksh451.9 million ($5.194 million) in January. The increased usage of the platform for savings will see Safaricom deepen its foray into the financial services sector.

The M-Shwari service, run by Safaricom and Commercial Bank of Africa under the mobile money platform M-Pesa, was designed as a credit facility for those who have been locked out of the loans market for lack of collateral and credit history.

It was positioned as a pioneer financial service that promotes a culture of saving among ordinary Kenyans and allows those with no collateral to access loans through their mobile phones.

Commercial banks’ interest rates have averaged 16 per cent in the past four months. Banks concerned about growing non-performing loans — loans that have not been serviced for more than three months — occasioned by the high interest rates prevailing in the market at the beginning of the year, adopted a rigorous credit appraisal method, pushing borrowers to M-Shwari, Saccos and shylocks.

READ: Kenya’s Saccos battle for share of funds with commercial banks

Earlier in the year, lending to the private sector slowed down slightly, with most banks preferring lending to the government through purchase of treasury securities.

The CBK said the total private sector lending in the first three months of the year grew 11.2 per cent, compared with a government target of 13.7 per cent and about half of the 24 per cent recorded in the same period in 2012.

The interest on M-Shwari deposits (2-5 per cent) is higher than that offered by commercial banks — 0-1.6 per cent — meaning customers are better off putting their deposits on the nearly one-year-old platform.

Though M-Shwari does not require any security, that advantage is severely eroded by the one-month lending tenor that requires borrowers to pay a lump sum amount to settle the debt, compared with smaller monthly installments paid by those who borrow from commercial banks.

CBK Governor Njuguna Ndung’u, in a presentation to African central bankers in Mauritius on August 22, said available data paints an optimistic picture of the adoption of financial innovation and delivery channels using mobile phone platforms.

The latest survey by Mobile Money for the Unbanked (MMU), a global mobile operators’ lobby, shows that mobile phone money services have become the preferred platform of savings in sub-Saharan Africa.

The February 2013 survey shows that 81.8 million mobile service subscribers had money accounts, with the global use of cell phones for deposits growing by almost 38 per cent. In some countries like Kenya there are more mobile money transfer accounts — 26 million — than bank accounts, which stand at 15 million.

Nearly a year since the rollout of M-Shwari and six years since the launch of M-Pesa by Safaricom, Kenyans are starting to take mobile phones as an important distribution and savings channel.

This is significant because M-Pesa now has the same number of deposit accounts as the Kenyan banking system. This means M-Pesa can sit on a huge volume of deposits, depriving the banking system of cheap sources of funds.

READ: Africa eyes M-Pesa model as mobile phone use goes up

According to a credit survey by the CBK released last month, banks that reported a drop in private sector lending attributed it to increased competition from other lenders like M-Shwari and Saccos, which shows the growing importance of these channels, increasing financial inclusion.

Not alarming

M-Shwari NPLs stood at 10.5 per cent in July, but CBA said the figure is not alarming, considering that the typical tenure of an M-Shwari loan is shorter than that of an average bank loan.

“Owing to the short-term nature of the M-Shwari loans (30 days), it is not appropriate to compare the M-Shwari NPL against a typical bank loan portfolio that has typical tenor of over one year. We are satisfied with the proportion of past due loans, relative to value of loans disbursed since launch.

This has been better than the industry average,” said the bank.

Kenya has, over the past five years, deepened access to financial services. In this period, the country has increased the reach of M-Pesa services, and made amendments to the law allowing mobile and agency banking.

The country has also allowed Saccos to, upon approval from the CBK, start collecting deposits, which the regulator says have increased the reach as well lowered the cost of banking.

In the same period, the number of Kenyans who have access to formal banking services has risen to 40 per cent from 38 per cent.

Access has fuelled a jump in the country’s banking deposits and, by extension, the amount of money that banks can lend. The money multiplier has risen from five times in 2007 to six times as of May 2013.

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