Lipa Na Mpesa As An SME Growth Engine

[vc_row][vc_column width=”2/3″][vc_column_text]A tweep (citizen of #KenyansOnTwitter county) recently drew my attention to a July 2nd 2017 Bloomberg article titled “MYbank deepens push for business banks won’t touch.” MYbank is an online lender that is 30% owned by Ant Financial, Alibaba’s financial affiliate.In case you missed it, Chinese billionaire Jack Ma’s Alibaba Group is the number one global retailer with its monolith ecommerce platform. The article quotes MYbank’s President Huang Hao, who is looking to win as many as possible of China’s 70 million to 80 million small businesses as customers, most of which have no access to bank loans as they lack collateral. “We are like capillaries reaching every part of the society. It could be a small restaurant, a breakfast stand, no other financial institution would have served them before.” By 2016 MYbank’s outstanding loan portfolio was US$ 4.9 billion with a non-performing loan ratio of about 1%. The article further quotes Huang as saying that the bank’s technology, which runs loan applications through more than 3,000 computerized risk control strategies, has kept delinquencies in check.

Huang’s description of MYbank as being like capillaries is eerily reflected by Safaricom’s Lipa Na Mpesa mobile payment platform. From large hotels to food kiosks, from barbershops to Uber taxis, from petrol stations to supermarkets, everywhere you turn, Lipa Na Mpesa (LNM) is now a viable option for payment of goods and services. The product has successfully straddled the small, medium and large business spectrum as a reliable cashless payment option with lower merchant transaction charges (in the range of 0.5% compared to 2% and above for debit/credit card services). According to Safaricom’s FY 2016 annual report, there were 43,603 LNM active 30 days+ merchants on its network. The FY2017 results announcement reflects that the number of merchants is now just over 50,000.

Cash flow is the lifeblood of a business, as any long suffering entrepreneur will tell you. LNM offers real time settlement of payments made on its platform working with 19 banks. What this means is that the business owner will receive the cash generated from revenues straight into its bank account on a real time basis which essentially makes it an attractive revenue collection tool for the entrepreneur weary of sticky fingers at the cashier’s till or even stickier encounters with gun toting customers. The game changer in the peculiar Kenyan economic space is the obvious intersection between the real time mobile payments being collected at the till and the potential to leverage on these cash flows for working capital expansion. 50,000 merchants are fairly low in a country with hundreds of thousands of businesses primarily using cash as the mode of payment. But this is where it gets interesting.

According to the FY2016 Safaricom annual report, the LNM payments in the month of March 2016 alone were Kshs 20.2 billion or an average of about Kshs 459,000 per one of the 43,603 merchants. Bear with me for a minute. Assuming these were SMEs, imagine the relief of being able to borrow from a financial institution, without any collateral, and using the real time unassailable revenue collection history from this payment platform. Imagine even further, that the repayments can simply be deducted at source and calculated as a percentage of historical daily takings.Then before the settlement of each day’s revenue collections, the financial institution collects a daily repayment, thereby reducing the loan amortization amounts into bite sized, easy to swallow chunks unlike the monthly hernia-inducing ubiquitous loan repayments.

Your generic bank will not be interested in this model. It’s simply “too much admin” to start configuring their systems to undertake daily as opposed to monthly loan amortizations and to try and guesstimate an SME’s potential risk of default on a loan without collateral using only mobile payment history as the risk variable. But a modern fintech can build the risk algorithms required to do this well. There is also the dual opportunity for Safaricom to grow its LNM merchant base into hitherto unchartered territory, using collateral free business loan products in addition to helping to formalize the large number of informal businesses operating in Kenya. The fintech space is where this innovation has already started happening here in Kenya, but it will only make economic sense if it is done on a large scale. Partnering with Safaricom will be key to this growth.

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Twitter:Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

Can You Learn To Unlearn

“The illiterate of the 21st century will not be those who cannot read or write, but those who cannot learn, unlearn and relearn.” Alvin Toffler, Futurist

I recently attended a talk by a South African futurist, Craig Wing, who began his talk with the quote above. Learn, unlearn and relearn. Craig walked the audience through technological megatrends that should keep every single corporate leader’s nose glued to their smartphone. To begin with, a 2014 study of the average life span of American companies on the S&P 500 Index by Standard and Poor’s yielded interesting results. In 1955 the average life span of an American company on the index was 61 years. In 2016 the average life span was 21 years and by 2027, projections based on current data estimate that the average life span would be 14 years. There is no better evidence of how this happens than outgoing Nokia CEO Stephen Elop’s quote in 2013 following the takeover of the company by Microsoft: “We didn’t do anything wrong, but somehow we lost.” The seemingly defeatist statement understated the myopic nature of the firm as it cruise controlled itself from relevance while Apple and Samsung were flat footing the accelerator in the smartphone space.

Another industry at a confluence of shifting consumer preferences and channel disruption is the retail industry. Singles Day in China falls on November 11th every year, or, more aptly 11.11 as the digit one purportedly looks like a solitary individual. The festival is a product of Chinese social culture amongst the youth to celebrate the fact that they are proud of being single. It has evolved into the biggest online shopping day in the world and a wonderful thumb up the nose to the more insular Valentine’s Day culture. Alibaba, the Chinese largest online shopping portal has registered phenomenal growth on this day alone. Sales in 2013 were US$ 5.8 billion, $9.3 billion the year after [when Facebook’s annual revenues were US$ 12.5 billion], $14.3billion in 2015 and tripling the 2013 numbers to a whopping $17.8billion in 2016. I forgot to mention one notable point: These were sales taking place within 24 hours, translating into processing numbers of 175,000 orders per second and 120,000 payments per second on their own payment platform Alipay. In the digital payments world this is the great grandmother of server challenges!

A pivotal part of Alibaba’s strategy is vertical integration, essentially ensuring a transaction gestates from an online conception into a physical delivery. Consequently 1.7 million couriers from 4,000 different retailers shipped 657 million packages out of 5,000 warehouses as a result of Singles Day 2016.
A Forbes magazine article covering the spectacular sales summarized the phenomena thus: A day in China is now bigger than a year’s online sales in Brazil.
Here’s the clincher: 82% of those sales were on smart phones!

The average life span of companies is shrinking largely due to the colossal analogue thinking that straddles boardrooms. Our “normal” as we know it no longer holds true, not when we can drive across Kenya from Mombasa to Busia carrying nothing but a toothbrush, an empty wallet and a mobile money filled phone while never lacking food, fuel and shelter.With the youth bulge that all African economies are facing, the current and future customer for a Kenyan business is more likely to be under 35 years of age, and doing most of their utility payments, banking, social interaction and entertainment off a smart phone. They are the ones who will ensure that Kenyan companies’ life spans shrink unless the corporate thinkers unlearn their current ways and relearn the rapidly shifting customer preferences. The unlearning is not only limited to customer preferences though, a highly differentiated approach will have to be taken towards the employee value proposition too. Employees are no longer in it for life, that’s been left to the KANU stalwarts. Keeping youthful talent is less a question of how much you pay, and more a debate of whether your company has a cause they believe in. Because the minute the values are diametrically opposed to what management actually does, many of these young folk walk. The question to ask yourself this week is, can you learn to unlearn?