M-Shwari:

The Story So Far

April 2015

7 out of 10 Kenyans are active mobile money users:

8 out of 10 Kenyans live within 5km of financial access point:

Enter M-Shwari: a savings and loan bank account

exclusively accessed through M-PESA

HOW M-SHWARI WORKSPeace Osangir, Financial Risk Manager

Commercial Bank of Africa

What is M-Shwari? Mobile-based banking service provided by CBA through the Safaricom mobile channel.

Product Offering: Banking products that provide convenience, reliability and cost-effectiveness for making micro-savings and taking micro-loans.

Target market: All M-PESA customers; to enhance the M-PESA value proposition, whileaspiring to deepen Financial Inclusion in Kenya by offering a bank deposit and creditproduct.

Purely unsecured

High Volume, low value, high frequency transactions

Short term (1 month)

Services offered by M-Shwari…

Deposit:

Withdrawal: transfer from M-Shwari to M-PESA

Loan request

Loan repayment

Balance enquiry

Mini statement

Highlights of Product Features

– Customer Promise

Banking service that is accessible and convenient

True partner to offer better savings option in time of plenty and reliable help in times of need

We trust you with our money even before you trust us with yours

Credit offered/rejected discreetly, without much hustle

Your character counts.

Deposit Features Credit Features

No minimum balance requirement to open account Loan amounts range from USD 1 – USD 500

Electronic customer enrolment and account activation Loans offered at a 7.5% one-time fee for 30 days

Defined KYC criteria and verification workflow Customer allowed to roll-over debt for another 30 days at a fee of 7.5%

Deposit Limits defined for Tiered KYC Levels No compounding penalty interest for delayed payments

Deposit insurance of up to a max. of KES 100,000 (USD 1,100)

Customer information to be used for credit scoring

No charges levied against account (no value erosion) Promote savings – credit strongly linked to savings profile

HOW M-SHWARI WORKS

How M-Shwari Works

8Sec

Turn around time on account activation

6Sec

Turn around time on transaction processing

Instant electronic customer enrolment and account activation

Electronic KYC verification

Instant credit scoring and credit limit assignment

CREDIT SCORING

Initial scorecard & Limit Assignment

Customer profile

Mobile Money usage

Telco Airtime

data

Subsequent limit Adjustments

Customer profile

M-Shwari Product Usage

Subsequent Limit

increase

Dat

a So

urc

esSc

ore

card

Dev

Loan Performance• USD 339.4M in loan disbursement• 300 bps better NPL rate than industry average as at Dec

2014

Repayment Triggers• SMS reminders• Limit sanctions• CRB listing

Value Proposition

1111

LOW-INCOME KENYANS AND THE LIQUIDITY CRUNCHJulie Zollmann, Principal Investigator

Kenya Financial Diaries

There’s not enough money.

Buy stock for business

$30

Have

US$ 33Need US$ 71

72% of Diaries households live on less than $2/day.

Out of a monthly income of US$100, after absolute essentials, …

Income is very volatile.

Median household’s income fluctuates

54% from

month to month.

If Average Income=US$ 100

Good month: US$ 150

Bad month:US$ 50

Short-term LiquidityLonger-term Investment

There are tradeoffs between stretching and growing money.

Falling Short on

Both

“We cannot sleep hungry while money is on the phone.”

Money should be working!

People use a whole range of financial devices to stretch and grow.

PatrickJua kali artisan worker in Nairobi

who supports three sons with him and wife and kids upcountry

Median HH=14 devices

But they face a huge range of risks.

Temporary disabilityPermanent disability

Chronic IllnessHospitalization Outpatient treatmentDeath of relative

Death of main income earner

Divorce, separation

Loss of income source

TheftAttack

Legal case

Eviction

Fire

Death of livestockDrought

Crop disease0

10000

20000

30000

40000

50000

60000

70000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

All Households Incidence & SeverityProbability of Population at Risk Experiencing Event in One Year (%) by Median Cost of One Event (KSh)

FrequencyLow

FrequencyHigh

Financial ImpactLow

Financial ImpactHigh Module:

5 yearsColors indicate population

at risk:

All household members

Adults

Households

Households who owned

livestock or cultivated land

during Diaries

Savings in the house and social networks help, but leave gaps.

Temporary_disabilityTemporary_disability

Permanent_disabilityPermanent_disability

Chronic_IllnessChronic_Illness

HospitalizationHospitalization

Outpatient_treatmentOutpatient_treatment

Death_of_relativeDeath_of_relative

Death_of_main_income_earnerDeath_of_main_income_earner

Divorce,_separationDivorce,_separation

Loss_of_income_sourceLoss_of_income_source

TheftTheft

AttackAttack

Legal_caseLegal_case

EvictionEviction

FireFire

Death_of_livestockDeath_of_livestock

DroughtDrought

Crop_diseaseCrop_disease

savi

ngs_

form

al

savi

ngs_

cash

savi

ngs_

mpe

sa

savi

ngs_

mon

eygu

ard

savi

ngs_

cham

a

borr

ow_c

ham

a

borr

ow_f

amily

borr

ow_f

orm

al

borr

ow_i

nfor

mal

borr

ow_e

mpl

oyer

good

s_on

_cre

dit

accr

ue_a

rrea

rs

insu

ranc

e

wel

fare

_gro

up

reso

urce

s_re

ceiv

ed

sell_

asse

t

wor

k_m

ore

othe

r

0-1 1-5 5-20 20-40 40-60

Heat Map of Coping Strategy by Shock

Saving the house

RR

For example, in health, existing tool box incomplete.

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Saving inhouse

Socialnetwork

Bank saving Chamasaving

Borrow fromnetwork

Sell assets

Sweet spots of financing for health

Most common resources

Small, on demand credit can ease the tradeoff between stretching and growing.

0

1000

2000

3000

4000

5000

6000

7000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

School Fees Payments and Aggregate Income, KSh

Total income School fee payments

Primary kids sent home

Install electricity,

buy tv

Pay lots of school fees, still primary

kids sent home for lunch/food

Primary child sent home. Out of food

from last harvest.

Vivian sent home in Sept &

early Oct. Misses several days of classes.

21

WHY M-SHWARI WORKSClaudia McKay

M-Shwari Demographics: 2013

M-Shwari Demographics Shifting

M-Shwari offers easy access to small amounts of liquidity in a way that fits how low-income people think about finances.

“My son was bleeding a lot from the nose and I was just

back from the market and had used all of the money. I

needed $12 and that money helped a lot.”

“I am in transport business. Not all the time do I have

money so I can borrow money to help out my drivers when

they are caught by the police.”

Easy, accessible and private

Simple and clear rules

Highly engaging

Matches the way low-income people think about their finances

1

2

3

4

4 REASONS FOR HCD IMPACT: Why so popular?

Easy, accessible and private

Simple and clear rules

Highly engaging

Matches the way low-income people think about their finances

1

2

3

4

4 REASONS FOR HCD IMPACT: Why so popular?

Interviewer:“The first time you were

activating M-Shwari, is there anyone who did it for you?”

Edwin:“Nobody! I just followed the procedure. When you go to M-PESA menu, there is M-

Shwari. It is just logic.”

Easy, accessible and private

Simple and clear rules

Highly engaging

Matches the way low-income people think about their finances

1

2

3

4

4 REASONS FOR HCD IMPACT: Why so popular?

“All I do is just play with my money by moving it back and forth. I love to play that game between M-Shwari and M-PESA.”

Easy, accessible and private

Simple and clear rules

Highly engaging

Matches the way low-income people think about their finances

1

2

3

4

4 REASONS FOR HCD IMPACT: Why so popular?

Challenges of Transparency and Disclosure

Visit

www.cbagroup.com/

m-shwari

www.Safaricom.co.

ke

OK Back

Terms and

conditions read

and accepted?

OK Back

Why is M-Shwari important beyond Kenya?

First large-scale loan product using a person’s telecom data to make initial credit

decision

How else can digital information be applied to poor and unbanked segments?

Why is M-Shwari important beyond Kenya?

First successful bank account layered on a mobile wallet used by majority

Demonstrating mobile money rails can be used to bring the unbanked into the formal banking sector

Advancing financial inclusion to improve the lives of the poor

www.cgap.org