Friday, February 8, 2013

A lot of hope and some hiccups with M-Shwari

By guest bloggers John Gitau and Ignacio Mas 
In December 2012, Kenyan mobile operator Safaricom and its partner bank, the Commercial Bank of Africa (CBA), issued a new banking product, M-Shwari (Swahili words: shwari, meaning ‘calm’ or ‘cool’). M-Shwari was established to serve as a separate interest-earning non-transactional savings account operated through M-PESA, the successful mobile-phone based money transfer system in East Africa (see here for further details). The dramatic take-up of M-Shwari among M-PESA customers is testament to Safaricom’s strong brand and its nose for nailing customer pain points. For most people, its seductive appeal comes from the possibility of instant credit. Outsiders might feel like the 7.5% fee on a month-long loan is on the higher side. However, most Kenyans know that’s lower than the available informal alternatives and some short-term bank loans too.
For heavy M-PESA users, M-Shwari also represents an effective doubling of the M-PESA balance ceiling; you can now transact much more without having to visit an M-PESA agent to cash in or out. Safaricom wants most people to see their M-Shwari account as a modern mobile piggybank. We are curious to see whether people see M-Shwari as a less liquid version of M-PESA, one over which they can exercise more self-discipline. The sobering reality everywhere is that the bulk of electronic accounts held by the informal majority, including M-PESA accounts themselves, have meager balances. Should we expect M-Shwari accounts to be any different? Only time will tell.
We are happy to see such innovation at the heart of the M-PESA proposition. But we do have some regrets about how M-Shwari works. They relate to some concrete aspects of usability, transparency on loan terms, and competitive positioning within the M-PESA menu.
The two of us decided to give M-Shwari a trial run. Applying for a loan was quick and easy, we did it right from our mobile phones, and got an answer within minutes. One of us was immediately rejected. One can handle being turned down for a small loan, but it was dispiriting to get a text message with the opening sentence: “Failed.” Then the message continued: “Your M-Shwari loan request was unsuccessful.” It wasn’t clear if there was a technical failure or if the loan was rejected for creditworthiness reasons, and in fact some people we talked to applied again only to get the same rejection message. The message then concluded with: “For more information please contact M-PESA Customer Care,” without providing a phone number.
The other one of us got approved for a loan, and the SMS confirmation announced “Confirmed. Your M-Shwari loan request is approved.” A follow-up text message (why not the same?) provided the details: “Dear customer. Kindly note you have an outstanding loan balance of KSH 2,150 due 26/2/2013.” That’s the loan amount of KES 2,000 ($25) plus a 7.5% fee, due in 30 days.
Fantastic news, except that if you make the mistake of saving money into your M-Shwari account while you have an outstanding loan with Safaricom/CBA, they will freeze the amount of new savings up to the value of what you owe them. If you intended to park that money there for only a few days you won’t be able to access it until you repay the loan. Safaricom/CBA have just, in effect, repaid themselves out of your new savings.
The impression in the market is that loans are for 30 days, whereas the reality is that if you save into M-Shwari the day after getting the loan, you will have received an overnight loan at 7.5% (to be precise: less the couple of decimal points of interest you would earn on the frozen savings over the month). But before we cried foul, we checked and discovered that this practice of freezing savings even during the first month of the loan is in fact consistent with the fine print in M-Shwari’s Terms and Conditions. But still, there’s a gap between how the product works and how it’s generally understood to work. That’s not good. By creating an incentive to suspend savings activity while you have a loan, Safaricom and CBA are subordinating the savings function to the lending service even though Safaricom markets M-Shwari first and foremost as a savings product.
The final point to note is the positioning of M-Shwari within the (updated) M-PESA menu. It shines by itself, below “airtime” and above “payment services” – a new grouping for bill and merchant payments. The fact that M-Shwari has its own line item and not grouped under a “banking services” provides yet more evidence that Safaricom’s approach is to design and promote its own services rather than to aggregate third-party services. Interestingly, for those with a ‘legacy’ M-KESHO account, the ill-fated joint offering of Safaricom and Equity Bank, the M-KESHO item on the menu is below “payment services,” two positions down relative to its proprietary version, M-Shwari. No pretense of equivalent treatment there.
M-Shwari has raised great expectations in the market, and that makes it even more important that it fulfills people’s expectations in terms of loan terms, usability and customer choice. 
John Gitau is a financial education consultant/trainer and CEO of the Kenya Financial Education Centre. Ignacio Mas is an independent consultant on technology-enabled models for financial inclusion.


  1. This comment has been removed by a blog administrator.

  2. Thanks for experimenting John and Ignacio. However, unlike you I am not surprised about the frozen savings. I actually think many Kenyans would expect it - they are used to exactly the same kind of approach on their SACCO and MF accounts. My view is savings balances are not seen as flows but stocks which you leverage to get a loan along the line of "if you have some of my resources then I am entitled to some of yours". I think what is critical is what that leverage proportion is. If this isn't adequately high then Kenyans will not be interested. Since the algorithm of the combination of savings, airtime and data use is deliberately opaque and people will only learn it through repeatedly trying I think disappointment might indeed set in quickly! Did you try the feature of being able to check your credit worthiness before you applied?

  3. Hi Susan. What is odd is that the freezing is over new savings that you do after you get the loan, not on the prior savings balance. That's pretty confusing, no?

    Though I'd heard you can find out what your creditworthiness is, I didn't discover how you do that.