Sunday, December 21, 2008


After a year or so of pretending to be mildly irritated while feigning disinterest, local banks have now woken up to the danger mobile cash transfer service M-PESA poses to their business and moved to curtail it.

The first signal that the industry was not happy was when out of the blue the finance minister John Michuki directed that M-PESA be investigated by the Central Bank of Kenya to prevent its misuse by money launderers or pyramid schemes.

Apparently, the banks have chosen a three-pronged attack. One, lobby parliament to become hostile to M-PESA although this hasn't worked as well as they expected. Two, use Central Bank of Kenya which is their regulator, to insist that M-PESA be halted until regulations are in place. How effective this approach is not known but it is worth noting that Zain which intended to launch its own money transfer service last month (November) had to hurriedly cancel it when CBK intervened citing legalities. Lastly, and curiously enough to sponsor cases against the service in courts across the country.

A closer look at M-PESA's growth reveals why banks would be worried. The service in less than two years (It was launched on March 6th 2007) has grown to more than 5million members and sees volumes of more than Sh10billion transacted every month according to official figures.

And its potential is even greater. Delayed by lack of regulation and non-recognition of electronic evidence by the Evidence Act, the service's potentially lucrative applications such as buying goods and services with M-PESA or running commercial websites where the service could be used for processing payments.

It is this fear that has prompted banks to circle the wagons to ward off this invader into their territory. Four banks led by KCB and Equity Bank along with Postbank and Cooperative Bank have formed a committee to "kill" M-PESA.

The four are said to have the support of international banks who because of corporate governance rules would not like to be directly associated with the committee.

However, efforts to bring Barclay's and Stanchart into the mix has failed while players in the industry say bankers are divided over the issue.

Wednesday, December 17, 2008


The Kenyan economy which just last year was riding historic highs and on its way to recording an unprecedented 7 per cent growth has like its big western counterparts hit the brakes hard. Growth this year is projected at 4.5 per cent and that is optimistic.

The largest contributor to GDP, Agriculture with 25 per cent, is in turmoil. Farmers do not want to deliver maize to millers holding out for better prices while government is working hard to stave off popular unrest over current high prices of maize flour. It is a tough balancing act with government having to step in and subsidize consumers from its already thin budget.

Coffee and Tea are in crisis with poor global prices and unrest in some of the sectors further hindering progress. Horticulture may be the only bright spot but this is also dealing with high fertilizer prices and has been hard hit by the high electricity prices which have plagued the country since June. Flowers typically have to have halogen lamps beamed on them 24 hours in greenhouses.

Although transport and communication has been growing, the manufacturing sector has not been doing so well in light of high fuel and power prices coupled with diminished demand as consumer purchasing power diminishes rapidly.

Tourism which accounts for just 1.44 per cent of GDP but is nonetheless an important source of foreign exchange and remittances from Kenyans abroad has not been faring well.

The government's fiscal budget for the year 2008/2009 is in shambles. Many of the areas it anchored its revenue projections on are proving unreliable beginning with the Kenya Revenue Authority. The taxman has already missed his first quarter revenues target and the climate is looking increasingly tighter. No less than the President himself has on time called on Kenyans to pay their taxes.

Much of the country's development budget is hinged on borrowed funds but these are not coming through. A Sh39billion international sovereign bond has had to be shelved while plans to raise Sh18.5billion via infrastructure bonds has also not materialized.

So what way forward?