How Kenya’s Digital Financial Inclusion Industry Is Failing Women Entrepreneurs

Mshwari & Mpesa is only half the story. The rest of it is happening offline, in cash and trust networks

Don’t get me wrong, the efforts by the Kenyan financial inclusion industry have not gone unnoticed. Without naming specifics, the industry’s greatest feat by far is building a wide accessible network for formal financial services.

But access is only one item on a long list. It doesn’t matter how many bank accounts you give to the poor. Heck, even throw in a bitcoin cryptocurrency bank account – 2 mobile banks, 5 traditional bank accounts and 2 cryptocurrency bank accounts. Access means nothing when you can’t put money in people’s pockets. I speak for all when I say Kenyan people want to be empowered, they want more pesa in their pockets period. And that’s ok!

So when I criticize the industry, I mean well.

If you’ve been up and about in Kenya, you will appreciate how pesa will almost always positively correlate to some sort of biashara opportunity and even more likely one in the informal sector

My assertion is there is an overall failure by Kenya’s financial inclusion industry to look beyond the digital personas of the people of East Africa’s informal economy. Whereas, much of their lives unravel offline in cash, trust and biashara networks.

Nakuru’s Biashara Women Poke Holes At Mobile Financial Services Lending

Milcah Mulu-Mutuku and Castro Ngumbi Gichuki ran a focus group in 2016 as part of a study on the impact of mobile money and informal table banking groups on women biashara entrepreneurs in Nakuru, Kenya.

They found out that many of their participants couldn’t make sense of Kenya’s much touted data driven mobile financial services lending.

“Many participants expressed a desire to understand how Safaricom calculates the points that determine the amount of credit they can access through the M-Shwari micro-credit product.”

For those not familiar, Mshwari is a mobile phone bank account hosted on a SIM card, where mobile money savings earn an interest per month coupled with an on-demand access to a loan facility. Loans are graded on a score arrived at by one of many digital metrics.

However, our sample of women admitted they only turned to credit from the mobile ‘bank’ service for personal reasons. When it came to their bigger financing needs for biashara-business, they turned to their sophisticated analogue chama informal savings group. Up to $700 in cash in one cited instance of credit for business from mama’s informal table banking service.

The Shortcoming of Digital Financial Services in Kenya and East Africa

The trouble is, how much mama biashara can take out as a loan on Mshwari is based on an algorithm that only considers her digital data to arrive at a loan amount. It is all network specific proprietary data related to time spent on a cellular network: Mpesa payment data, airtime and e-money balance and spending pattern.

But the reality is offline, where mama’s relationships and trust network grow and scale her business needs; the same network she turns to when she needs an injection of capital for her trade. It is the people around her who can best relate to her business struggles on a day to day basis that truly see the potential of he biashara and crucially, her ability to pay back.

This is the dichotomy of the current financial inclusion industry in Kenya. After setting up all the digital plumbing to move money around, it turns out digital data doesn’t count for much because most of what is valuable is offline biashara.

While on a 6 months research group on East Africa informal cross border trade project for TMEA, I found out women informal traders in Busia, Malaba and Namanga were part of at least 3 informal savings groups, and that chamas provided the bulk of support for traders

Today, when I look at the telcos, banks and fintech startups, I wonder whether they genuinely have no idea what goes on beyond her time spent on snapchat or are, well… I am not sure why. All they seem to be after is the same digital data everyone else has access to, which as we’ve seen, is not a sufficient.

  • Number of phone calls
  • Mpesa, mshwaris balances
  • Wallet spend ins and out
  • Utility payments
  • CRB data

That’s it!

The fate of our dear mama entrepreneurs, and CFOs of East African households boils down to digital data that is not even relevant to growing their economic capacity, that is their trade.

Little is known about her business mostly in cash.

At everyday’s end, mama biashara makes cash contributions to her informal table banking chama meeting while venting out to her fellow mamas about how business has taken a dip. Can digital data capture this shared moment with a trusted mama, on how business is slow in January, or how the kids have to go to school and there isn’t enough pesa?

They can’t.

While the telcos lends her 3,000 ($30) to pay for extra food for the kids coz they’re out of school, the chama is lending her 70,000 ($700) to add a new set of fast-moving inventory. They know her best.

How is the digital M-swhari mobile financial service metric helping our dear mama?

Mshwari & Mpesa is half the story. The rest of it is happening offline, in cash and trust networks

After all the self appraisal and chest thumping of digital transformation, the Fintechers of Nairobi have now bowed down to offline biashara, the very system they attempt to dislodge. Banks and financial institutions admit their biggest competitors are informal savings groups, since as far back as 2012.

Milcah’s and Castro’s paper later describes the failures of 2 mobile micro savings products offered by the largest Telcos and Bank by customer base – Safaricom and Equity bank. Their 2 products failed abysmally, with only 28% of the women reportedly having used the product.

“Though 54.9% of the respondents reported knowledge of it, only 28% used the service. Many reported that the service was not necessary since their groups held frequent meetings where members pay their dues as others borrow. These meetings are also necessary for bonding purposes, planning on group investments, and as a source of support in case a member is in any kind of difficulty, both at personal and business levels.”

FinTechers in Nairobi, mostly clueless, including FSD Kenya, the self appointed ‘Financial Inclusion King maker,’ have no way to capture valuable data in the deep layers of biashara trust networks, cash trades at the sokos and the saving, lending, investment and credit data held by informal savings groups.

Yet this offline data gives the best credit score of women entrepreneurs.

In Conclusion

I question the industry’s motives.  Is it to push consumer credit at all costs? Or much needed socio-economic development that empowers people and the economy while still turning a profit? If yes, do we need more of the later or the former?

All the fancy Mpesa mobile money digital revolution stories are great and all, but they are only half the story. The rest of it is happening offline, in cash and trust networks.

If we are going to develop Africa, we have to be smarter about how we approach FinTech in the specific context of East Africa’s informal sector. To me, that means putting aside our western informed models of credit, to embracing the informal sector biashara and how we can boost the sector’s business.









Author: Michael Kimani

Consultant, Entrepreneur, Researcher, Writer, Digital Assets Investor and Trader,

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