In Kenya, Financial Inclusion Shifts from Access to Advanced Use

New data shows mobile money is increasingly becoming a gateway to more advanced financial services in Kenya

M-PESA mobile money and Equity agent, Nairobi, Kenya

> Posted by Beatrice Cheronoh and Nadia van de Walle, Research Associate and Senior Research Manager, InterMedia

Financial access in Kenya is already very high, especially when compared to other countries in Africa and Asia. In this setting, the momentum around expanding access has plateaued, but a new narrative is taking hold – around deepening engagement with financial services, more active use, and use of a wider range of more advanced services. Although there was no increase in the share of the population that holds a registered financial account, the 2016 Financial Inclusion Insights (FII) data shows that financial engagement is becoming more meaningful for those customers who are already included.

More specifically, in 2016 almost 7 in 10 Kenyan adults held a registered account with a formal financial institution. Mobile money continued to lead in terms of access and account registration (Figure 1). In fact, approximately 97 percent of those who had a financial account in 2016 had a mobile money account – sometimes in addition to a bank and/or microfinance account. While growth in the number of registered users plateaued, advanced use of a registered account increased in 2016 (Figure 2). Such advanced usage includes saving, borrowing, paying bills, and other activities beyond person-to-person (P2P) transfers and cash deposits and withdrawals. Savings was the most common advanced use case for both bank and mobile money accounts, followed by bill pay and receiving wages. These findings show that mobile money services can fill a range of needs beyond P2P payments.

Figure 1 (click to enlarge)

Figure 2 (click to enlarge)

As the FII team examined these high-level numbers and dug deeper into the 2016 data, we identified several other important takeaways regarding the evolution of financial inclusion in Kenya:

Mobile money continues to lead other services at providing financial access and use cases, and is increasingly becoming a gateway to more advanced services, such as savings and credit, provided by banks that are linked to mobile money accounts on the backend. In 2016, mobile money access among adult Kenyans was 81 percent while bank access was only 31 percent. Similarly, 67 percent of adults were registered mobile money account holders while only 28 percent held accounts registered directly with a bank. Easy accessibility to mobile money points-of-service (PoS) relative to banking PoS locations has likely contributed to the success of mobile money. Almost 62 percent of Kenyans surveyed said they live within a kilometer of mobile money agents, while only 31 percent and 14 percent of Kenyan adults were within a kilometer of a banking agent and a bank branch, respectively.

The landscape of providers and products is changing rapidly as banks make inroads towards attracting and retaining users through innovative mobile money platforms and partnerships. Over the last few years, banks in Kenya have resorted to innovative ways of expanding mobile-enabled financial services, including through two different models: partnerships with mobile network operators (MNOs), and running a Mobile Virtual Network Operator (MVNO), which allows them to offer all of their financial services through a mobile platform. These new models allowed services such as Equitel and KCB M-Pesa to attract active registered mobile money account users who have historically used other mobile money products, such as M-PESA and M-Shwari, and can now use those provided by their banks.

Mobile money adds value to users’ financial lives by providing a convenient credit resource and savings utility. Our annual survey found that use cases for mobile money ran the gamut from facilitating payments, particularly P2P, to supporting borrowing and saving activities. In fact, approximately eight in ten Kenyan adults were savers in 2016, and out of which 54 percent used mobile money as a mode of saving. Similarly, more than six in ten adults had borrowed money, and 26 percent of which used mobile money as a loan source, compared to only 12 percent for banks.

Despite these clear advantages and use cases, FII data indicates that some aspects of mobile money user experience could still be improved. In 2016, mobile money users’ most commonly cited challenges included service downtime and mobile money agents’ lack of cash flow.

Even with these developments, Kenyans continue to express a demand for greater access to credit and historically underserved populations continue to be excluded from formal financial services. Overall, levels of financial inclusion are lower among women, rural populations, and those living below the poverty line compared to their male, urban, and richer counterparts. The largest gap in active registered financial accounts (amounting to 27 percentage points) was between those above and those below the poverty line. This gap could in part be due to the fact that these populations have lower levels of mobile phone ownership and financial capabilities. For instance, FII data shows an almost 20 percent difference in advanced mobile phone use between those above and below the poverty line (90 percent versus 73 percent, respectively).

These gaps in Kenyans’ engagement with formal financial services could be reduced by programs that focus on providing Kenyans with identity cards. The number of Kenyan adults who held the necessary ID to open a financial account dropped from 91 percent in 2013 to 78 percent in 2016. Tellingly, not having the required state ID was the main reason cited in the FII Survey by men and women for not registering a mobile money account and the second most common reason for not registering a bank account. In April 2016, the government announced a plan to employ 1,200 additional registration clerks to help Kenyans acquire identity cards before the 2017 general election. It remains to be seen what effect targeting this barrier will have on the 2017 FII data.

Boosting financial literacy is necessary to ensure that newly financially included Kenyans are prepared to use financial services successfully. FII found that only 17 percent of Kenya’s adult population was financially literate in 2016. As financial products proliferate and become more complex, it is especially important that users and potential users have the skills they need to navigate their options and use services in a way that provides welfare benefits, rather than exposes them to consumer protection risks. It is worrisome for instance that according to the FII data almost one in five borrowers in Kenya did not know their interest rates, or the cost of their loans.

Even as Kenya continues to progress towards improved financial inclusion, driven by mobile money and deepening engagement with advanced services, more must be done to ensure these advances are truly inclusive and result in meaningful outcomes for all Kenyans. The FII team looks forward to seeing how programs targeting barriers, such as financial literacy and phone ownership, and how innovative partnerships between banks and MNOs may continue to impact the data in the coming years.

What recommendations for accelerating financial inclusion in Kenya do you derive from InterMedia’s Data Fiinder? We’d love to hear from you.

For more information regarding the FII team’s research in Kenya, read the 2016 Kenya Annual Report here, or contact Beatrice Cheronoh, Research Associate, Financial Inclusion Insights.

Financial Inclusion Insights is a research program funded by the Bill & Melinda Gates Foundation and designed to build meaningful knowledge about how the financial landscape is changing across eight countries (Bangladesh, India, Indonesia, Kenya, Nigeria, Pakistan, Tanzania and Uganda).

Featured image credit: WorldRemit Comms via Flickr Creative Commons

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