Exploring the differences of two front-running digital banking products.

August 10th, 2015

Since the Commercial Bank of Africa (CBA) and Safaricom launched M-Shwari in late 2012, a mobile phone based savings and loan product, there has been a lot of buzz about how it has helped to scale formal financial inclusion, scoring Kenya another first at the global stage. On 6thMarch 2015, it was reported that CBA had signed the 10 millionth customer to M-Shwari, having handled a total of Sh153 billion in deposits. This is no small feat for a product just 2 years old. M-Shwari has received a lot of attention, locally and internationally. Now,the first rival product, the KCB M-PESA account, has hit the market. The question is, could it steal the show?

On Tuesday March 10, 2015, Safaricom and KCB jointly launched theKCB M-PESA account. Safaricom’s CEO made it clear that the exclusivity clause with CBA had elapsed, so they are free to pursue strategic partnerships with other banks.

The KCB M-Pesa account had registered 640,000 subscribers in three weeks, translating to an average of 40,000 sign-ups a day, according to a media release available on the bank’s website. In that same period, customers deposited KShs 36 million,and borrowed KShs 380 million. The average loan was KShs 3,500, according to the release. In total, KShs 90 million moved from M-Pesa to the KCB M-Pesa account in the same period, while transfersfrom KCB M-Pesa to M-Pesa were KShs 380 million.

The features of the KCB-M-PESA account largely mimic the M-SHWARI product, but a few differences in amounts and rates and repayment structures exist, as the following table demonstrates:


Account deposit M-PESA only M-PESA and KCB bank branch (over the counter)
Inter-account transfer Not possible, except via M-PESA wallet; M-Pesa to M-Shwari and vice versa is free. M-Pesa daily limits apply to M-Shwari. Feature available; M-PESA limits and transfer charges apply
Loan limit Min. Kshs. 100 (Maximum depends on your loan limit) KShs. 50 to KShs. 1M
Repayment period 1 month (or 2 if rolled over) 1 month, 3 months and 6 months
Loan interest/Facility fee 7.5% facilitation fee on the amount borrowed 30 day loan at 4% per month (4%) • 90 day loan at 3% per month (9%) • 180 day loan at 2% per month (12%)
Rollover fee 7.5% facilitation fee on the outstanding balance No rollover fee but interest will continue to be charged on the outstanding balance
Auto-debit Feature not enabled Automation and recovery of overdue loans from KCB M-PESA account, followed by existing KCB account and lastly from M-PESA
Fixed deposit account Locked savings available, and lock period decided by customer Allow customers to lock a specific amount of cash for a certain period of time (Locked periods: 1, 3, 6, and 12 months with minimum amount of Ksh. 500)
Interest rates for locked/ Fixed funds Ranges between 2-6% dependent on the amount saved. The interest earned for the KCB M-Pesa isn’t specified. Upon early or premature redemption the customer forfeits all interest accrued
Target savings Not a separate product but locked savings product enables additional deposits. Allow customers to set a target and make deposits towards achieving their target. (Target Periods: 1, 3, 6 and 12 months with minimum contribution of Ksh. 50 at an interest rate of 3%, 4%, 5%, 6% respectively). The customer is allowed 4 withdrawals to maintain interest.
Accessibility STK (sim toolkit): strategically sits on the M-PESA menu Via *844# USSD code
Loan eligibility Credit limit can be checked as soon as the first deposit is made. Customer may be informed of credit limits before a deposit is made.
Loan amount Instantly transferred to personal M-PESA wallet Loan amount sits with KCB-M-PESA account until you transfer to M-PESA
PIN to access service Same as M-PESA since M-Shwari is STK-based Sent by text message after account is opened and then can be reset by customer
Product name Unique Combination of two brands; sub-products named after traditional banking terminology
Loan interest Calculated upfront and due at the end of the loan Added to the principal amount borrowed on a monthly basis
Loan default M-Shwari savings frozen, negative impact on credit limits and reporting to the credit bureau Reporting to the credit bureau


So what are the key differences?

The KCB M-PESA account has more features than M-Shwari. In addition to loading the account through M-PESA, one can still access it through any KCB branch or agent. This means it is possible to set up standing orders for convenience.

We have heard M-Shwariusers complain about the low loan limits. This has been addressed by the KCB account, which has set the maximum loan to 1M.The KCB M-Pesa account has also upped the maximum repayment term to 6 months, compared with M-Shwari’s maximum term of one month, or two if rolled over.M-Shwari customers have reported difficulties in repaying their loans in a month, especially in emergencies when it takes them time to recover financially.

The KCB account’s monthly interest rate depends on the loan tenure, from 2% for a 6-month loan to 4%, for a1-month loan. This is an interesting offer by KCB.

When you apply to M-Shwari for a loan and it is approved, the funds are disbursed directly to your M-Pesa wallet. With KCB M-Pesa, funds are disbursed to the customer’s KCB M-Pesa account before they can be transferred to M-Pesa. However, when it comes to repaying the M-Pesa loan, KCB auto-debitscustomers’ accounts, looking first from the KCB M-PESA wallet, and if there is not enough funds, then any other existing KCB account and lastly M-Pesa. M-Shwari loans have to be manually repaid; sometimes the customer may not remember the exact date of repayment or the exact amount.

As Kenyans decide which product suits them best, they will spur competition amongst the banks to better serve the population, and thus help to shape the future of micro-savings and micro-loans.



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