Agreed on both counts Rob. They procure the equipment and the assemble their proprietary ‘sim-card enabling switch’.
So the savings product is provided by M-Pesa, but I wonder the same question with respect to micro insurance products. They are looking at other reasons to lend to customers, but I can understand their slow approach to this in the early stages – I think they have a lot more growth in their core vertical before looking further afield.
Mainly because M-Pesa caused a ripple through the banking sectors across the continent, where Central Banks blocked the telecoms from operating an M-Pesa model in its purest form – thereby stymieing their growth. Without the easy payment systems for these previously unbanked customers, you can’t create the same daily repayment schedule which I think is vital to their success.
Hey Ben, completely agreed! That is why they have to complete the Solar loan first as that is the only item they can dis-enable. Therefore when these guys take on new leverage for other small items, the collaterable becomes the solar kit. But as you note, this changes incentives a bit.
Hi Cookie Monster, great post and nice to see someone posting about a retail banking success in Kenya outside of M-Pesa. Do you think the Central Bank of Kenya should be doing more to drive volumes through products put out by actual banks, such as Equity, rather than a teleco such as Safaricom (given that Safaricom is not regulated be the Central Bank)?
Hi Maya, I am always excited when people highlight the opportunities opened up by branchless banking. How did you arrive at the $50bn valuation number for the 2012 mobile money market? In context that is the same as Kenyan GDP in the same year. The largest provider, M-Pesa represents around 10% of Safaricom Net income, and MTN, a far larger teleco than Safaricom, has a total market cap of $20bn across all of its African, Asian and Mid-East markets.
Others estimate that the mobile money market in Africa will be worth $14bn by 2020, from circa $2bn as of 2015: http://www.businesswire.com/news/home/20150921005630/en/Research-Markets-Africa-Mobile-Money-Market-2015. I like this articlehttp://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/04/SOTIR_2015.pdf.
How would you counter their valuation arguments?
Hi NC, enjoyable article. I have to say India must be the most compelling branchless banking market in the world. How do you think the Reserve Bank of India is going to manage increasing encroachment of telecoms on the banking space? How does current financial regulation manage this tension?
Hi David, great to see a post on M-Pesa. Clearly branchless banking is an important tool for increasing financial inclusion. However, what fears do you have with respect to financial products and infrastructure such as M-Pesa sitting outside of the financial regulators purview? in Kenya, the Telecommunication Commission regulates Safaricom, under which M-Pesa sits. Safaricom could in fact change the monetary supply in the Kenyan economy (10% of GNP flowing through their product) by changing the units of exchange from, for example, 1 M-Pesa unit to 1 KSh, to 1.2 M-Pesa units to 1 KSh.
How do you think other countries with low levels of financial inclusion should address this issue?
Good spot Haibo. Basically, I think this company can exist due to concessionary USD loans from Development Finance Institutions – I have very real concerns with respect to the inherent exchange rate risk that this company has taken on (their equity and debt are priced in USD). I suspect that the company has some flexibility on the pricing of the loans they are making, as the micro finance bank competitors in the space charge 80% – 120% – so should they seek KSH debt they could achieve an attractive positive net interest margin in the 30% – 35% range (assuming default rates don’t go above 10%). I also think there is likely some amount of transfer pricing within the company with respect to the solar kits.
Hi Daniela, great post and I think you capture the challenges. I was struck by the backlash from the banking systems of other African countries to the success of a telecom driven financial transaction system in Kenya (M-Pesa). I think there are strong arguments for this being a banking sector product due to the issues of regulation. However, to date, much of the African banking sector has had little incentive to move into this under served market, due to the weak economics. I would love to discuss in class how you think this is going to develop in the coming years (particularly as many of these markets go through a sustained period of commodity price weakness).
Hi Nelly! Yes exactly – everything, right now, has to run through a mobile money platform with this system having been developed from M-Pesa (M-Pesa being the world’s largest mobile money platform). Therefore people must have phones (though no need for smart phones, and I think M-Kopa provide them phones should they not have them, but do have the $35 down payment).
I really recommend reading the economics of M-Pesa for an overview of the system (http://www.mit.edu/~tavneet/M-PESA.pdf), I originally included that but couldn’t fit it into this derisory word limit.
Fascinating post, Billy. With these new potential shipping lanes what changes do you think can occur with respect to international trading partners? Theory suggests that increasing economic trade is a function of geographic proximity (due to cost of transportation) and shared history (due to cultural and legal commonality). Do you think that the introduction of climatic cargo barriers will impact this relationship to any degree?
Given the upfront capital intensive nature of power projects, and that most of the expansion of power generation will occur in capital constrained markets (i.e. emerging and frontier economies), where do you think nuclear comes out in respect to a per mega watt comparable to gas to power and coal to power? In addition, what safety concerns do you have as the resources for governance and oversight decrease?
Great post, and I wonder whether the technology I posted about could be of use in such a situation.
A thoughts, I wonder the emissions impact as we see an expansion of the use of data centers in economies with a much higher temperature (i.e. emerging markets vs developed markets). My question, however, is what will be the impact on the data center industry in the UK as a result of the tax breaks brought in to encourage more climate friendly centers, and where else could such tax systems be applied?
Hi Angelica, thanks for a really insightful post. I am always fascinated by countries approach to their marine economy. I wonder though whether closing down fishing would have some adverse side effects, and question whether this would be a carbon neutral activity. Fish represents one of the largest cheapest sources of protein for much of the developing world. Should they switch to chicken or beef, what would be the next carbon impact? In addition, these are some of the poorest people in the world, depriving them of a stable source of protein could have quite significant impacts on their nutritional intake. Surely there are groups of people globally better able to soak up a supply side shock to their consumption bundle?
NW thanks for sharing what I thought were well thought out, balanced and insightful comments with respect to the aviation industry. Clearly serious headway has been made historically, and that those benefits will see incremental gains out into the future.
I had two major thoughts when reading through your analysis, 1) what do you think of the European regulators decision to ensure that all flights within or from the European Economic Area are covered by the EU’s cap-and-trade program from 2012? Do you think this is something that could be rolled out in other developed markets? 2) Given rapid globalization, and the ever growing need for inter-continental travel, what other transport technologies could be tapped to provide such crucial services (the hyper-loop as a case in point)?