Tag: Peter Ndegwa

In March last year, Safaricom Ethiopia tweeted out an interesting claim: that 50% of Kenya’s GDP is processed through their M-Pesa ecosystem. This was no idle claim, either: Safaricom’s mobile money platform has transformed the way business is done in Kenya and around the developing world. Within Kenya and the region, its integration into the economy has been massively disruptive and transformative. Before M-Pesa, millions of Kenyans were unbanked, with the banks totally uninterested in doing any business with the average Kenyan. In one illuminating incident, several large banks colluded to close their upcountry branches in unison, claiming the locals did not have the amount of business that could justify keeping the branches open.

All this changed, of course, when M-Pesa launched, and the unprecedented revolution that the mobile money service has midwifed is one that has seen Kenya’s mobile technology and financial services rocket to the top of the world. The previously unbanked now have a bank account on their mobile phones, and the previously stuff banks have been forced to eat humble pie as nimbler competitors integrated with M-Pesa and the copycat money transfer services it spawned. Virtually every business in Kenya today that has any type of payment system offers an M-Pesa payment option. And while the West is currently debating the merits and challenges of digital currencies, Kenya and most of East Africa has already cut back significantly on the need for physical money: the majority of transactions in the country today involve M-Pesa or other mobile money exchanges, with few people ever bothering to actually handle physical cash.

Safaricom was able to move so fast with M-Pesa because Kenyan regulators allowed it room to grow without burdening it with onerous compliance requirements. The pent-up demand for such financial services was massive, and even with the odd hiccup along the way, the service was effective in a cannot-fail position, as Kenyans killed the proverbial two birds with the same stone: the same Kenyans who were unbanked had also been denied affordable telecommunications services, so mobile phone services had been snapped up by everyone in the country, creating a ready market for when M-Pesa came along. The resultant growth of the service was probably unprecedented anywhere in the world, and in the process the regulators went to sleep and allowed M-Pesa to grow into a behemoth that now threatens to overwhelm its host. The risks posed by M-Pesa in its current form have been growing for a while, but it seems the mother company, Safaricom, is either too big to regulate or too powerful for the regulators to attempt to rein in. And it is getting worse.

M-Pesa’s ubiquity carries with it significant risks to those who handle the cash used in the transactions: the mobile money agents. Initially, crime via M-Pesa was mainly about people particularly prisoners using false pretences to receive money meant for other recipients. But this is easy to clamp down on, as Safaricom quickly made M-Pesa transfers reversible, and the need to register sim cards made identification of such thieves easy. The thieves adapted and moved up the food chain, targeting the mobile money agents instead. Agents handle large amounts of physical cash from deposits and for withdrawals. And because most are small neighbourhood businesses with little or no physical security, they quickly became sitting ducks for violent robberies, which have been growing in frequency and ferocity.

Away from the cash element, M-Pesa introduced previously non-existent privacy risks, and these have been most in evidence in Kenya’s notoriously competitive political space. It is easy to use M-Pesa to identify a person, a facility which lends itself to criminal use for identity theft and fraud. At M-Pesa agent outlets, customer data is generally kept in unsecured manual ledgers that can be accessed easily, and there have been cases where this data has been used for criminal activities such as fraud. In other cases, this data has been used to fraudulently register unwitting users as members of political parties, and it cannot have escaped Kenya’s notorious election fixers that this data which includes National ID Card numbers, phone number, full names and location can easily be used to fraudulently register voters and thus obtain voting cards illegally. In January 2022, two senior employees of Safaricom were arrested in a sting operation when they attempted to sell Safaricom users’ mobile gambling data to leading sports betting firm. And there have been persistent claims that Safaricom pocks sides in the country’s closely-fought political battles: in last year’s election, it was claimed that Safaricom backed then-president Uhuru Kenyatta and his chosen candidate, Raila Odinga. These claims are premised on the alleged political preferences of the current Safaricom CEO, Peter Ndegwa, who is said to be close to former president Uhuru Kenyatta, and is also alleged to have largely done Kenyatta’s bidding during the 2022 presidential elections.

Ndegwa’s reign at Safaricom has been heavily criticised for its evident shortcomings. Under his leadership, and despite Safaricom enjoying a massive first-mover advantage in both telecom and mobile money services, the company’s stock valuation has lost over KES 810 billion (over US$ 6.5 billion). This is a decline of over 48%, which is an anomaly given the overall market performance during the same period saw a general decline of just 16%, attributable to the challenges faced during the Covid pandemic and the electoral period. It will not have escaped notice that this poor performance – which is reflected in a similarly-declining after-tax performance started after Ndegwa took charge of the giant telco.

Briefings from within the company indicate that Safaricom is at sea under Ndegwa. Staff speak of an environment of fear and a chief executive who trusts no one but his handpicked lackeys, all of whom are new to the company and were allegedly brought in to do his bidding. The resultant low-trust working environment has seen many experienced senior employees leave the organisation, with their roles filled by even more Ndegwa allies. Curiously, it appears all senior female employees that Ndegwa found at Safaricom have either left the company or moved to other parts of it, away from direct dealings with the CEO including Chief of Strategy Deborah Malowa, Chief of Enterprise Rita Okuthe, Customer Care Director Janet Atika, and newly minted MTN Uganda CEO, Sylvia Mulinge.

More worryingly for the company, there are credible accusations of ethnic chauvinism in Ndegwa’s appointments at Safaricom. His senior appointments including his main fixer, Nicholas Macharia, as well as James Kiama, Agnes Kinga, Stanley Njoroge, and so on all are from Ndegwa’s Kikuyu community. Within Safaricom, this openly ethno-centric approach to making appointments has unsurprisingly not gone down well, and partly accounts for the lacklustre performance of staff since Ndegwa became CEO.

Safaricom and its M-Pesa service are facing these organisational and financial challenges just as M-Pesa becomes the literal lifeblood of Kenya’s economy. When M-Pesa has a downtime, the effect on the economy is instant and very noticeable. M-Pesa is now critical to every sector in Kenya, and is having previously unforeseen effects not just on the commercial sector in the country, but also on the cultural setup of the country. Before M-Pesa, access to financial services in Kenya was heavily male-dominated, since banks needed security to provide credit to customers, and in most of Kenya such security was typically employment payslips or land title deeds both of which were overwhelmingly male domains. However, M-Pesa overturned all this. Rural women can, thanks to M-Pesa, access banking and credit services that were previously out of reach for them, and they are responsible for a revolution in micro-enterprises that have seen new businesses and trading models pop up all over rural Kenya. As a result, these rural women are increasingly moving into breadwinner roles within their families, massively upending the cultural status quo and reforming Kenya’s very conservative rural cultural setup.

But the growth and ubiquity of M-Pesa is also having negative consequences, particularly in the urban areas. Household debt is growing, as M-Pesa’s easy loan and credit facilities like M-Shwari and Fuliza tempt unwary consumers into debt situations not unlike those of credit card customers among the middle classes. The generally low levels of financial and credit literacy in the country are, when combined with such easy access to credit, likely to lead to significant socio-economic challenges for the country.

M-Pesa long ago outgrew Kenya and is now integrated into the wider economic fabric of East and Central Africa. But as the service continues to grow it has now spread its wings to Ethiopia, Eastern Africa’s largest economy it will need careful tending to keep it both nimble and profitable. When M-Pesa sneezes, Kenya catches a cold. The service and its mother company, Safaricom, are as close as one can get to an institution that is, in Kenyan terms, “too big to fail”. It is at this critical point in its development that M-Pesa and by extension Safaricom is in need of careful regulation and far sighted leadership. The regulatory authorities in Kenya have so far been on the money where mobile services are concerned. It is Safaricom’s company leadership that is worrying and, if company insider reports are to be believed, there may be a case for the powers that be to push for a change in the leadership of the giant company and for future company leadership to be subjected to the sort of scrutiny that a government minister would be. The status quo, with the company losing billions in market valuation thanks to shoddy leadership, is clearly untenable.

Source: Nairobi Law Monthly.

#TheFutureofMoney is obscure if making profit outweighs service delivery.

While perusing through my twitter timeline, I came across a tweet  that juggled up my mind to think critically, deeply and analytically into the new Mpesa ‘supa’ app that safaricom launched and the motive behind the launch, the risk assesment as the consumer of their service and  in the long run you’ll agree with me that the #TheFutureofMoney they’re aiming at, is obscure for the consumer, the economy at large and it’s all about ‘them’ and not ‘us’.

One of the my many other conclusive thoughts after my analysis and research is that It’s time Mpesa and Safaricom depart ways to become to independent entities – companies and with different management.

For years since entry of the telco safaricom into the Kenyan market, it has through its management strategically thrived through and now have monopolised and dominated the market through tremendous innovations which has been massive and thumbs up for their innovations. But marinated with abuse – and to control the monopoly which’s against the laws and regulation of the Communication Authority (CA), CBK- this led to introduction of Mobile money Interoperability promotion which was stamped by CBK in April 2018. Mobile money Interoperability was aimed to promote inclusion.

First, Mobile money Interoperability is the interaction between mobile money providers for a range of products, primarily money transfer which includes depositing and withdrawing cash either domestically or across geographic regions. And a good simple example is ATMs where a customer can withdraw cash from any VISA branded ATM if one holds a VISA branded card or MasterCard for MasterCard branded cards.

It’s this interoperability that has made mobile money transfer possible across 3 major telecom providers in Kenya possible, that now one can send money via Safaricom’s mpesa to Airtel money to Telkom Kenya’s T-kash.

The Central Bank of Kenya (CBK) laid out principles for interoperability, which included cost levels, efficiency, and security.

Costs:  price for transfer of money across networks would not be higher than those of transferring money within the network, and no interchange fees will be applied. Of which has been breached and isn’t the current status as the cost is higher when carrying out transactions to another network.

Security: the mobile money operators were tasked to ensure that the interfaces between them were as secure as possible to avoid any losses for both customers and the networks.

Efficiency:  no undue delay would occur when transferring money across networks. This principle was aimed at ensuring no foul play that eventually frustrates customers into transferring money within the network while discouraging transfers across networks.

Safaricom is licensed under National Payment Systems (NPS) whose regulations state that the Mobile Network Operators (MNOs) should use payment systems that are capable of being interoperable with other payment systems. A regulation which Safaricom has luckily conserved, hence the Mpesa business app, new Supa Mpesa app launched recently.

Since the introduction and adaptation of the interoperability system in Kenya, the value addition to the consumers, Kenya’s economy has been great and in equal measure has plunged the economy into massive loss due to failure of market dominance regulation that has favored Safaricom in that it is either Safaricom or Safaricom and when their system fails and stalls for hours and of which has become frequent – you go down into losses with them together.

Safaricom operating both Network service and Mobile money service whose system seems integrated that when one sinks, both sink together is a risk to the future of Money transfer in Kenya, risk to the economy, risk to the future of interoperability in Kenya and risk to the National security as it solely controls double the annual financial budget of Kenya.

It’s shouldn’t be a choice for Mpesa and Safaricom network provider to be split into two different companies operated differently, it should happen. And so is Airtel money from Airtel, T-kash from Telkom and Equitel from Equity Bank. This will level the playing field for the game.

The best interoperable payments platform would be one that includes all players- Banks and Mobile Money Operators (MMOs), this will level the field for all.

Tanzania is set to launch this merger (TIPS) in July with same aim and its being done through the Central Bank.

Tanzania Instant Payments System(TIPS) is a national interoperable payments system being developed by the Bank of Tanzania to facilitate real-time payments across all financial service providers in the country thereby enhancing financial inclusion by promoting the use of electronic payments and transactions.

Tanzanians will be able to send money instantly to people in their mobile contact list without having to go through the need to search for their phone numbers.

TIPS will operate in such a way that all digital payment systems, including mobile money operators (Airtel Money, Tigo, M-Pesa, HaloPesa, Ezy Pesa and T-Pesa) will be under a single platform so much so that anyone wishing to send money will only require to have the name of the person in his/her contact list before sending.

Orange and MTN have an interoperable mobile wallet called Mowali. Unfortunately this was never launched here in Kenya when Telkom was under Orange. In favor of Safaricom, CA didn’t green light Mowali despite their bid.

But in this world which’s a vicious circle, today Safaricom is trying its luck to enter into Ethiopia’s market with the dominance mentality of which Ethiopia’s Prime Minister at first halted their bid in favor of local network providers. If they succeed in their bid, they might not survive for so long if they continue playing the Kenyan cards.

Communication Authority (CA) who is the regulator has been laying low on Safaricom’s dominance abuse in Kenya and has failed to take action according Monopoly and Dominance regulation which many times and again the teleco provider has exploited.

In 2015 when new laws to regulate the competitive market were put in place, the guilty victim Safaricom’s then CEO Late Bob Collymore argued that the laws were meant to punish success and ever since, seems these laws got CA officials maybe into the telco provider’s payroll to remain maim.

The regulations proposed that the authority would have the power to declare any entity that holds more than 50% of the market dominant. Of which Safaricom then owned 67.3% and 70% currently.

Consumers ought to be the beneficiaries in as guaranteed under Article 46 of the Constitution, which states that:

“Consumers have the right:

a) to goods and services of reasonable quality

b) To the protection of their health, safety and economic interests.”

So, the solution is simple. Let’s have KIPS (Kenya Instant Payment System). All payments transactions cleared and settled by the Central Bank of Kenya on one platform to tame Safaricom’s dominance, to increase efficiency to protect consumers right to reasonable quality and protection of consumers safety and economic interest of which is to uproot poverty.

A language that irritates  Safaricom Plc. It doesn’t want to listen to financial inclusion, equal economic growth for all.

#TheFutureofMoney in Kenya with financial inclusion, equal economic growth is only through KIPS, leveled playing field and worthy men of Integrity in CA.

Consistent system failures of Safaricom plunges the economy into losses and poverty.

There’s no need for double tragedies of both network failure and money transfer failure at ago as it’s been experienced on several occasions in the country when the solution is a wide open visible light at the end of the tunnel.