M-Shwari

“Shwari” means calm in Kiswahili, yet M-Shwari, a bank account offering a combination of savings and loans, has taken the Kenyan market by storm. Offered as a collaboration between the Commercial Bank of Africa (CBA) and mobile network operator Safaricom.

Through its ubiquitous mobile money service M-PESA, M-Shwari has piqued the interest of mobile money watchers looking for the next innovation to drive financial inclusion globally. M-PESA is rightly lauded as a global success story: It is used by two-thirds of Kenyan adults, has more than 80,000 agents, and processes nearly $20 million in daily payment transactions.

M-Shwari has already brought millions of  unbanked Kenyans the full benefits of a banking product (including interest, deposit insurance, and access to credit) using M-PESA’s unparalleled mobile money infrastructure. M-Shwari is also the first large-scale product that taps into digital information (in this case, telecommunication data) of poor and unbanked customers in an emerging market to make credit-scoring decisions.

At the heart of this success is a product that emulates the way low-income earners manage their money. Kenyans constantly balance the need for short-term liquidity with providing a return for the future. The M-Shwari product allows customers to save for the short term while also increasing access to credit options in the future, which makes customers feel that their funds are “working” for them. In addition, the product is easy to figure out and highly engaging as it rewards customers for “good” behavior quickly. The fast, virtual nature of the product does exacerbate the usual challenges of customer education and disclosure but represents an unprecedented new channel of access to short-term loans and secure savings for a swathe of the population who has not had previous access to formal financial services.

 As per the study by FSD Kenya Here are some facts about M-Shwari : The next frontier of digital financial services as it demonstrates that mobile money infrastructure can be leveraged to offer higher value financial products at scale.

1. M-Shwari is a bank account offering a combination of savings and loans.

M-Shwari is a bank account issued by CBA and subject to all the regulatory requirements of a bank account in Kenya. CBA is responsible for maintaining a dedicated management information system, regulatory compliance, reporting to the credit bureau and providing capital to fund the loan portfolio. Critically, it is CBA that carries the risk and absorbs losses from non-performing loans.

2. 1 in 5 Kenyan adults (4.5 million) are active M-Shwari customers.

The uptake and usage of M-Shwari in the past two years has been remarkable. There are over 10 million M-Shwari accounts and CBA disburses 50,000 loans every day. One-third of all active M-PESA users are also active M-Shwari customers.

3. M-Shwari accounts can only be accessed via M-PESA.

M-Shwari leverages M-PESA’s unparalleled mobile money reach (7 out of 10 Kenyans are active mobile money users) as M-Shwari accounts are the only financial service that customers can access directly via the M-PESA menu on a mobile device. It is free to transfer funds between M-PESA and M-Shwari an unlimited number of times.

4. The vast majority of Kenyans are able to open M-Shwari accounts instantly. 

CBA is able to use existing “know-your-customer” (KYC) details that Safaricom collects during customer registration of the SIM card and M-PESA account. It then cross-references this information with the national ID system to enable instant and remote account opening. Kenya has a well-functioning national ID system and so for the many first-time customers, opening this bank account takes less than 30 seconds.

5. M-Shwari savings accounts earn interest and are protected by deposit insurance.

M-Shwari pays interest ranging from two percent to five percent, based on a customer’s average daily balance. These rates are well above the 1.5 percent weighted average reported by the Central Bank. M-Shwari funds are also insured up to about $1,200. Millions of people across Africa are now saving in mobile wallets, but with very few exceptions, they do not earn interest or have deposit insurance on these savings. The fact that many of these mobile money customers can now easily move their funds into an account that does have these benefits is a big win.

6. A huge part of the appeal of M-Shwari is easy access to short-term credit.

As soon as customers have opened an M-Shwari account, they can apply for a loan – even if they have had no previous banking history. Customers can instantly check their loan limit and, if approved, receive a loan in a matter of seconds.  Each 30-day loan comes with a 7.5% facilitation fee. Since launch CBA has disbursed 20.6 million loans totaling $277 million to 2.8 million unique borrowers with an average loan of $15. To put this in perspective, FinAccess 2013 reported just 700,000 people had a personal bank loan and 310,000 had a microfinance loan.

7. CBA uses Safaricom data to score potential clients.

With M-Shwari, a customer’s Safaricom phone and M-PESA usage history is used to develop a credit score. CBA uses an algorithm based on customer use of Safaricom services to assess credit-worthiness, assign individual credit limits, and lend to new M-Shwari applicants. There is a lot of hype about the vast new flood of digital information or ‘Big Data’, but M-Shwari may be the first service to apply this to the poor and unbanked segments of an emerging market at scale.

8. In case of non-payment, the customer relationship with Safaricom and the M-PESA service is left largely undisturbed. 

No airtime or M-PESA balance will be transferred to the loan without the customer’s consent. If the loan is not repaid by day 31, it is automatically renewed for an additional 30 days, and the customer receives a text letting her know that if the loan is not repaid, it will be reported to the credit bureau as required by law. If the loan remains unpaid, a second reminder is sent on day 60, a third and final reminder is sent on day 90, and the loan is reported on day 120. The late repayment will remain on the credit bureau for five years, but once the balance is cleared, the status will change to paid.

9. CBA reports non-performing loans of 2% ​over 90 days. 

For an unsecured loan offered remotely over the mobile channel, non-performing loans of 2% is rather impressive. Although it started out higher at launch, refinements in the credit scoring, new data based on use of M-Shwari savings and repayments, and better understanding about implications of being reported to the credit reference bureau have helped bring down non-performing loans.

10. Half of all M-Shwari customers do not have any other bank account.

According to Financial Inclusion Insights, 54% of M-Shwari accounts were held by customers without any other bank account, an important development for financial inclusion in Kenya.  M-Shwari represents the next frontier of digital financial services as it demonstrates that mobile money infrastructure can be leveraged to offer higher value financial products at scale.  Although many other products have been offered leveraging the Bill Pay functionality (including M-Kesho, a bank account jointly launched by Safaricom and Equity Bank) none have yet achieved the same scale as M-Shwari. The KCB-M-PESA account launched in March 2015 as a joint initiative of KCB and Safaricom is the newest entrant and we’ll be eagerly tracking the continuing success of M-Shwari along with the new entrants coming to market at a rapid pace.

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