The growth of mobile phone technology is opening access to financial services for in Kenya. Data indicates that most of the Kenyan population relies on financial technology (fintech) companies to access financial services. This represents a previously unbanked population who can now manage their money more efficiently. Analysis and data from Asoko Insight helps to understand the market’s fundamentals and performance.
Financial technology solutions
Kenya is among the fastest growing economies south of the Sahara. In fact, the country possesses one of the most dynamic financial sectors on the continent. Specifically, the launch of M-Pesa put the country on the world map as the frontrunner in mobile money solutions. The solution facilitates B2B and P2P payments over a mobile phone platform via a local service provider.
The success of M-Pesa led to a plethora of fintech start-ups in the country and has since rippled out, spreading as far as Europe and the US. The rise of fintech has had a significant impact on the financial services landscape; today, the solution reaches many more Kenyans than traditional financial institutions.
The fintech sector has seen exponential growth in the past two years. Available data indicates that fintech companies are the leading creditors to low-income segments of the Kenyan population. Any Kenyan with a smartphone can access a fintech loan in just a matter of seconds, creating a strong link between growth in telecommunications providers’ data services and take up of mobile money offerings.
Banking regulation aids fintech disruption
However, an Asoko analysis observes that recent fintech growth has also been largely influenced by the regulatory environment for traditional lenders, which since 2016 has tightened conditions for credit access. The 2016 Banking Act caps the interest banks can charge for commercial loans at 4 percentage points above Central Bank Rate (CBR), the rate at which the Central Bank offers loans to commercial banks.
Intended to make credit more affordable, the cap has instead acted to curtail bank lending, particularly to high-risk creditors who make up a substantial proportion of would-be customers. This in turn has increased the flow of customers to fintech lenders, which are designed with the needs of “unbankable” populations in mind.
At the same time, increased competition from the fintech sector has led the banks to launch their own fintech solutions. Almost all of the top-tier commercial banks now have a fintech arm to cater for previously inaccessible client groups.
Provision of fintech solutions also brings a unique set of challenges. Operating over the internet makes fintech particularly vulnerable to technological glitches and cybercrime. Current research indicates that most of the fintech companies do not have proper defences in place to protect their services and their users against a data breach. Upcoming regulation offers the opportunity to address these needs.
Despite the challenges, fintech providers have changed the way financial services are accessed in Kenya and represent a market to watch as new opportunities for further disruption and innovation arise.