Safaricom Seeks Approval for Insurance and Other Financial Products

Safaricom Seeks Approval for Insurance and Other Financial Products

Kenyan operator Safaricom is seeking regulatory approval to launch financial service products, according to a news report. The company has been testing three products—Bima (insurance), Mali (mobile savings) and a unit trust investment product—for which it has sought approval from the Capital Markets Authority (CMA), Central Bank of Kenya (CBK) and the Insurance Regulatory Authority (IRA) for commercial launch.

Safaricom CEO Peter Ndegwa says the company wants to tap into M-Pesa’s 26.7 million active customers, who transact about KES 1.5 trillion (US $13.3 billion) a month. Ndegwa says Safaricom wants to broaden M-Pesa into a financial service provider that will rival banks, insurance firms and fund managers. Mali (meaning wealth in the Kiswahili language) will offer interest rates of 10 percent on deposits capped at KES 70,000 (US $623.00) per saver based on a pilot test which began in December.

Kenyans policymakers say that the country suffers from a low national savings rate. At 10 percent, the return from Mali is nearly double the current interest rate that banks are paying on savings. Safaricom did not divulge details of the unit trust product, but it is expected to partner with a fund manager already licensed by the CMA, who will also approve the new product.

Tarifica’s Take

Safaricom achieved distinction with M-Pesa, the mobile money platform which it launched in partnership with Vodafone in 2005. By 2010, M-Pesa had become the most successful such service in the world. Primarily used in Africa, it has also been available at various times in Afghanistan, India, Romania, and Albania. The expansion of M-Pesa testifies to the need for a financial-transaction platform for those who typically do not have ready access to bank accounts and other aspects of traditional banking, and the service has greatly benefited the poor in Kenya and other developing “mobile-first” economies.

The insurance, savings, and investment products that Safaricom is now seeking to bring to market arguably bespeak a coming of age for M-Pesa—if that has not occurred already. In any case, Safaricom already has a very substantial customer base of 26.7 million customers, and it is very likely that many among them will be in the market for financial services that go beyond M-Pesa’s core business of remittances. Since M-Pesa is a trusted brand that has built up a great deal of loyalty, it makes sense that it will be in a strong position to bring more advanced financial products to market—if regulatory approval is granted.

While one may question whether relatively low-end users will produce enough demand for insurance and investment products such as unit trusts (similar to mutual funds with a terminal date), Kenya has a low savings rate, which indicates that there is room for growth. The fact that the return on the Mali mobile savings service will offer a rate twice that of banks is certainly significant, and in a country where many are unbanked, it may not be so hard for Safaricom to challenge the banks on their own turf.