November 15th, 2016

Background

The telecom sector in Kenya has experienced phenomenal growth over the past decade. Mobile phone penetration has topped 90%, with 78% of Kenyan adults now owning a working mobile phone. With service providers fronting various value-added services, the outlook is positive. Further, promotions offered by mobile operators help consumers to continue to enjoy their services during times of financial hardship. One such offer, airtime borrowing, has gained a lot of popularity. So, who borrows airtime, with what consequences, and why?

“Negligible” borrowing costs?

Joy (real name concealed) is a greengrocer next to the Lower Kabete campus of the University of Nairobi. She qualifies for Safaricom’s Okoa Jahazi service, Swahili for “save the ship”, of up to KSh 100. Joy is constantly repaying and borrowing again, instantly, on an almost daily basis. For her, the 10% charged for borrowing Okoa Jahazi is “negligible”, since Safaricom “usually helps” her by giving her airtime on credit, a lot. If we assume that Joy borrowed on average 4 times per week, then the annual cost for this “help” is over KSh 2,000 (equivalent to 11 hours of airtime).

The telecommunications giant, Safaricom, launched airtime lending in 2009. In 2015, through its Okoa Jahazi service, Safaricom earned KSh 3.1 billion in revenues, registering 23% annual growth in Okoa Jahazi. Millions of subscribers, borrowing multiple times, borrowed approximately KSh 30 billion worth of airtime, nearly a third of all airtime sold by Safaricom in year 2015. At KSh 30 billion, Okoa Jahazi’s loan book was more than that of some of tier 3 and tier 4 commercial banks – making it a significant player in the credit market.

The notion of lending airtime does not end with voice and SMS communication. Airtel Kenya runs a service known as Kopa Internet (“borrow internet”). The service allows data users to borrow internet bundles on credit when they run out and they don’t have airtime to buy another bundle. The money is recovered when the customer tops up, usually within 72 hours. Just like Safaricom, Airtel Kenya charges a 10% fee.

What is the problem?

Airtime accounts for 86% of all low-income household e-purchases, with an average low-income spend of KSh 271 per month per person – considerably less than the nationwide average spend of KSh 852 a month. Naturally, it is urban Kenyans, the wealthy and employed, who spend more on airtime (figure 1), and it is not expected that these Kenyans would regularly borrow airtime at a fee when they could buy it. This then leaves one wondering, who is borrowing airtime at a fee? And with whom are they (the low-income Kenyans, often in rural areas and (urban) informal settlements) feeling so compelled to communicate?

A respondent from one of our recent ‘Field Friday’ research trips called Rotich (not real name), is a habitual user of Airtel’s Kopa Internet as well as Safaricom’s Okoa Jahazi. Rotich is a third-year student pursuing a degree in Real Estate Management at the Technical University of Kenya. He owns over ten SIM cards, mostly bought for the free resources offered by providers to new customers. Rotich will Okoa Jahazi even when he has money in his M-PESA wallet, and he does so several times a week. Why?

Firstly, if Rotich runs out of airtime, especially while on call, he finds it cumbersome and tedious to go to the M-PESA menu to buy airtime, as opposed to just pressing *131# to Okoa Jahazi. Secondly, money in his mobile money wallet is for day-to-day transactions and airtime is not part of these day-to-day expenses, and he likes a clear mental accounting of his finances.

The decision to borrow at a penal 10% for three days from Airtel Kenya, and five days for Safaricom, points to either a lack of alternative sources of cash to buy airtime among consumers, especially the low-income, or lack of awareness on the existence of cheaper alternatives like mobile loans, friends, family or even using shopkeeper credit, the largest source of credit for households in Kenya2. If a telco services consumer were perpetually living on borrowed airtime like Kopa Credo or Okoa Jahazi, and repaying every three (or five) days, then we are talking of an interest payment of at least 40% per month (or 480% per annum)! Using a very limited sample, recent qualitative ‘Field Friday’ work by FSD Kenya staff on this subject suggests that there are Kenyans who borrow airtime on a near day-to-day basis.

The need for better understanding

Does strict logic and calculative rationale play any role in the decision-making process of the low-income’s airtime borrowing? If not, how accurate is the framing of the approximate rules of thumb? Before one takes up airtime credit, the appeal of immediate gratification, puffed up by service providers’ aggressive advertising, seems to gloss over the gravity of the bond that is, in the end, a credit contract.

Going back to Joy’s and Rotich’s stories, we may be compelled to ask ourselves whether the mobile network operators, are truly bailing out a customer in need (“corporate altruism”), or whether in fact, service providers are driven by rent-seeking motives. Do the consumers need some level of protection or are they deriving real value from the services, albeit at a high cost? These are some of the questions that remain to be pondered, even as these type of services continue to grow and gain popularity.

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