in the 21st Century

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4 Kenya’s Financial Transformation in the 21st Century a demonstration model, leading to new regulation in 2010 that opened the way for bank agents. Mobile money services leveraged a new mass-market platform created by the rapid expansion of mobile phone coverage and airtime agents, as well as a supportive regulatory environment (Heyer and Mas, 2010). From modest beginnings in March 2007, 63% of Kenyan adults now have a mobile money account (InterMedia, 2015). Perhaps for the first time, mobile money represented a direct response to a demand-side need, fuelled by the country’s migrant labour economy. The initial service offer enabled people to transfer digital value across space in real time, galvanising domestic remittances with evident impacts on resilience to shocks, and emerging impacts on livelihood security and growth (Jack and Suri, forthcoming; Jack et al., 2013; Suri et al., 2012). Mobile money has also created a bridge to the formal sector for some (though not all) groups who previously relied entirely on informal institutions for their economic and financial needs. Developing an innovative pseudo-panel from FinAccess data (2009-2013), Alev Gürbüz and William Jack (Chapter 4) illustrate the formalising effects of mobile money on the financial portfolios of underserved populations. Between 2009 and 2013, populations with a lower likelihood of formal uptake – urban poor, rural populations, women and less educated populations – saw a very substantial increase in formalisation (driven both by mobile money usage and uptake of other formal products). More recently, M-PESA has also created direct access to formal banking. Following the launch in 2012 of M-Shwari – a partnership between the telecommunications giant, Safaricom, and the Commercial Bank of Africa (CBA) – over 10 million adults have opened a formal savings accounts with M-Shwari, of which about 50,000 are accessing loans each day. This has created a demonstration effect in the market, with competitors such as KCB M-PESA and Equitel now emerging in the new mobile banking space. However, despite the expansion of financial infrastructure over the past ten years, access is still skewed. While 93% of the richest are formally included, 55% of the poorest are completely excluded from formal and informal financial services (FinAccess, 2013). Usage remains shallow, and the value proposition of finance for poverty and growth is still questionable. The drive and innovation that pushed out the access frontier may have exhausted early wins as formal institutions, motivated by easier-to-reach and more lucrative markets, fail to overcome the infrastructure and wealth constraints at the margins. Giorgia Barboni (Chapter 2) finds that proximity is still a constraint for the poorest, with those in the wealthiest population band living, on average, less than 1 kilometre from the closest financial services provider, while the poorest live
Introduction 5 more than 5 kilometres from any financial access point. She analyses the factors behind geographical outreach. Banks clearly follow wealthier, easyto-reach markets, with radial models of expansion around prominent urban hubs. Agents (bank and mobile money) are more dispersed, but tend to be concentrated near primary and, to some extent, secondary roads, leaving large swathes of the country untouched (for example, Marsabit, Tana and Isiolo). This is partly related to lack of network in these areas, but it also underlines the tendency for agents to focus on denser population areas with reasonable access to infrastructure. The promise of bank agents in driving outreach also appears to be more limited than was originally hoped. A survey of agent networks (Khan et al., 2015) found that bank agents are mainly delivering to already included populations, rather than pushing out the access frontier. The survey report hints at the incentive structures around agency models that prioritise denser areas and existing customers rather than investing in deepening outreach to new and harder-to-reach consumers. From a demand-side perspective, Tara Bedi and Michael King (Chapter 3) analyse demographic drivers of usage and uptake, finding that wealth and income are strongly correlated with use of bank accounts. Three quarters of non-banked individuals cite lack of income or banks being ‘too expensive’ as major constraints, pointing to price as a continued barrier to uptake. Bedi and King also analyse patterns of lending, showing that these are skewed towards salaried populations rather than informal clients. FinAccess data show that bank account users mostly access their accounts once a month – linked to the withdrawal of salaries – while mobile and informal accounts are used daily and weekly, indicating a higher level of importance in people’s daily lives and a stronger connection with informal income flows (CBK and FSD Kenya, 2013). The failure of banks to reach out beyond their core markets is partly due to a failure of communication, which is underscored by a general perception of lack of transparency in the banking sector (for example, 19% of bank users from the FinAccess 2013 survey claim to have experienced unexpected charges from banks). 3 Similarly, transaction data hint at the continuing effect of high transactions costs on mobile money usage, with the FSD Financial Diaries study finding that 83% of transactions over 1,000 shillings are still in cash. What are the signs that financial providers will overcome the hurdles of price and innovation to reach the next frontier of financial sector deepening? The leading banks and mobile operators are making considerable profits on their existing business models, with little incentive to move out of their comfort zones. In their analysis of the banking sector, Upadhyaya and Johnson find 3 The Kenya Financial Diaries report (Zollmann, 2014) also documents the perceived lack of transparency of banks. More tangible evidence of this is emerging from recent FSD mystery shopping data.
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CHAPTER 2 The Geography of Financia
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CHAPTER 3 Formal Financial Inclusio
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The Digitisation of Financial Servi
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Is Kenya’s Digital Revolution Inf
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CHAPTER 6 Measurement of Financial
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CHAPTER 7 Financial Capability and
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