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The link between the mobile economy and the informal economy

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This article first appeared in my weekly column with the Business Daily on September 11, 2016


The growth in the use of mobile phones in Kenya and indeed Africa has created a mobile economy that is estimated to have generated 6.7 percent of GDP in Africa in 2015. According to GSMA, an association that represents the interests of mobile operators globally, mobile technologies and services contributed about USD 150 million of economic value on the continent. Closer to home, mobile subscriber penetration in East Africa hit 46 percent in 2015 and smartphone adoption is due to hit 54 percent in 2020. Kenya is well aware of how access to mobile phones has deepened financial inclusion through the provision of access to financial transactions. Indeed a study by CGAP, an organisation that seeks to promote financial inclusion, indicated that in Kenya, mobile money transfer has overtaken even informal financial groups as the most used financial service. CGAP found that even in more rural areas, 61 percent of people were registered mobile money transfer users while only 51 percent and 36 percent were using informal financial groups and banks respectively. Indeed by 2014, 58.4 percent of all Kenyan adults had a mobile account and approximately 90 percent of all senders and recipients of domestic remittances used a mobile phone.

Image result for mobile kenya

(source: http://mobileworldcapital.com/wp-content/uploads/2015/09/M-PESA.jpg)

In my view the emergence of the mobile economy and specifically mobile money, mobile banking and mobile lending intersects with the informal economy and indeed enables this section of the Kenyan economy. About 82 percent of Kenyans in employment are employed by informal businesses and organisations across the country which indicates that most Kenyans seem to derive their livelihood from the informal economy. And although the informal economy is not without its challenges, such as serious productivity problems, it is an important part of the story of Kenya’s economy.

There are three ways through which the mobile economy intersects with and enables the informal economy. The first is through facilitating financial transactions that enable informal businesses to receive payments for goods and services from clients and customers. Many informal businesses have a mobile money facility through which they can receive payments in a more secure and convenient manner than cash transactions.

Secondly, mobile money allows informal businesses to communicate with and make payments to suppliers and distributors. This allows informal businesses to manage and coordinate activity and transactions with numerous parties in their value chain across the country. It would be useful for more research to be done on this issue in order to better understand the extent to which the mobile economy has informed improvements in efficiency and productivity in informal firms and how this can be leveraged further.

Image result for mobile money kenya (source: http://ithubkenya.com/wp-content/uploads/2016/09/mobile-money-800×445.png)

Finally, the mobile economy has created an avenue through which informal business people can apply and qualify for loans through their mobile phone. Indeed, it is not unheard of in Kenya for informal businesses in large informal markets to borrow money at the beginning of the business day to purchase stock, and pay the loan off at the end of the day after the sales of the day are complete. Mobile lending offers a convenient alternative to travelling and applying for normal bank loans, particularly for businesses operating in more remote areas far away from brick and mortar banking halls. Further mobile lending may allow informal business people who may not qualify for loans from mainstream banks, to get access to mobile micro-loans thereby boosting informal business activity.

Perhaps the mobile economy, and specifically mobile money and mobile lending, intersect and enable the informal economy effectively because it accommodates informal financial behaviour. However, there is clearly a need to better understand the relationship between the mobile economy and informal economy. Of particular interest would be on how mobile tools and applications can be used to improve the productivity and profitability of informal businesses.

Anzetse Were is a development economist; anzetsew@gmail.com

Why the recalibration of the banking sector is good for Kenya

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This article first appeared in my weekly column with the Business Daily on April 17, 2016

Kenyans have been shaken by the number of bank closures over the past few months. The first was Dubai Bank in August 2015, Imperial Bank in October 2015 and more recently Chase Bank.

Kenya’s most recent story in the banking sector from a development point of view was how it expanded financial inclusion offering credit lines to a segment of the population that had previously been considered ‘unbankable’. Able to access credit from banks oriented to the low income population and SMEs, many Kenyans found themselves able to use the credit offered to improve their standards of living. However, as we are seeing, perhaps the push for financial inclusion compromised other elements required for a robust and stable banking sector from an ethics and corporate governance point of view. Did the previous push for financial inclusion lead to unintended laxity on the corporate governance element of Kenya’s banking industry?

https://i0.wp.com/www.aadhaarnews.com/wp-content/uploads/2015/12/85916322850b4ba1232345.jpg (source: http://www.aadhaarnews.com/wp-content/uploads/2015/12/85916322850b4ba1232345.jpg)

This question is precisely why the recalibration of the banking sector in Kenya is a positive development in terms of the determination the Central Bank has clearly communicated to ensure all banks adhere to all regulations, stipulations and high quality corporate governance principles. This ongoing correction while painful at the moment, will ensure the sector comes out more robust and with stronger structural integrity. In many ways the order of events has been serendipitous in that this period of realignment to better practices in corporate governance was preceded by a period of financial inclusion. Now, more than ever, one can see that it is truly the common Kenyan that was at risk when dubious practices by some banks were allowed to proceed unchecked. Indeed, because it is small businesses and, low and average income Kenyans who are being affected by the current banks under question, there is great moral impetus to ensure that Kenyans who scraped their savings together, are protected from any vagrancy in poor corporate governance. Thus it is crucial that the sector undergo scrutiny so that any existing laxity is corrected.

Bear in mind that Kenya is not unique in terms of the questions being targeted at the banking sector. The Global Financial Crisis (GFC) in 2007-08, from which the global economy has yet to recover, was informed by dubious practices in the global financial sector. Indeed, a Governor of the Central Bank of Bosnia and Herzegovina made the point that the GFC proved that the principle of responsible finance had not been sufficiently developed with banks and with clients and that the non-transparent and ambiguous lending practices put many customers at risk. Indeed the GFC catalysed a reanalysis of bank governance with a view to improve bank governance particularly in South East Europe (SEE).

(source: http://images.indianexpress.com/2015/01/financial-crisis-main.jpg)

Thus given the current point of development of Kenya’s economy and banking sector, the clear and much needed direction from the Governor of the Central Bank to ensure that the state of ethics and practices in corporate governance of the banking sector in Kenya are robust, is ahead of its time and should be applauded. And it is crucial that as this recalibration occurs, that depositors are protected, a fact of which the CBK seems keenly aware. Further, while the banking sector in Kenya is still viewed as largely stable, even the IFC acknowledges that shortcomings in bank corporate governance can destabilize the financial system and create systemic risks to the economy. Thus, the current dynamics may be the needed corrections required to ensure Kenya’s economic development is based on a solid foundation of a financial sector with integrity.

As senior counsel from the European Bank for Reconstruction and Development (EBRD) stated, banks are in a unique position to influence the corporate governance of their corporate borrowers and can become role models for other companies in implementing high standards and best practices. In this spirit, the EBRD organised a two day workshop aimed at improving the transparency and accountability of the SEE financial sector back in 2009. Perhaps Kenya should follow suit.

Anzetse Were is a development economist, anzetsew@gmail.com

 

How Kenya’s economy looks for 2016

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I sat down with CNBC Africa to talk about what to expect in Kenya’s economy this year.

Source: How Kenya’s economy looks for 2016

The Way Forward on the Eurobond

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This article first appeared in my weekly column with the Business Daily on December 21, 2015.

Since about October this year the country has been gripped by allegations that the proceeds for the Eurobond have been mismanaged. Opposition alleges that there is still KES 140 billion that has not been accounted for despite government having released a press statement detailing what they consider to be the hard facts of how the full amount of Eurobond was used. However, opposition insists that there is still something awry with this whole Eurobond issue. As I have stated in my previous column, it was absolutely essential that government ensured that Kenyans and global financial markets scrutinizing Kenya, viewed them as having handled the Eurobond proceeds with meticulous care and transparency. However, as is clear, government bungled and although serious allegations were presented in October, it is not until December that Treasury put together a coherent statement addressing the core concerns.

(source: http://apolloassetmanagement.co.ke/wp-content/uploads/2014/07/euro-bonds.jpg)

Whether one believes the proceeds of the Bond have been misused or not, the lax communication response from government means that the suspicions and allegations were allowed to gain momentum and tarnish the image of Kenyan fiscal management globally. Indeed, it can be certain that should government try to issue any more international bonds, they will be priced much higher as has been already seen in the recent CBK issue of a USD 300 million bond that was set at 11 percent; almost double what government got for the Eurobond in 2014. This issue here is that there still is not a general consensus that the Eurobond question has been answered, so beyond being treated to allegations and denials, what is the concrete way forward on this issue?

Firstly, in the press release by Treasury, government presented a list of Ministries, State Departments and other government offices to which they assert funds have been released. Clearly the most obvious action to take is to query whether indeed all government entities tabled as having received Eurobond funds did indeed receive them. If they did not receive the full funds as indicated on the Treasury statement then blame lies with the Treasury and hard questions must continue to be asked. However, if indeed proceeds have been transferred to these entities, then scrutiny should now shift from Treasury to the relevant state offices.

 

(source: http://www.businessdailyafrica.com/image/view/-/2352280/medRes/767328/-/maxw/600/-/wqpelcz/-/treasury.jpg)

Secondly, the Eurobond has to be used for development expenditure and not a cent ought to be directed to recurrent expenditure. I have already noted in past columns the propensity government has for using national budgets for recurrent expenditure; this can be a difficult habit to break. It is therefore crucial that independent parties track the use of the Eurobond and ensure that all of it is used for development.

Finally, opposition is adamant that not all of the Eurobond has been accounted for and that there is a hole of about KES 140 billion. It now time for opposition to stop making general allegations but instead present a clear and detailed statement on what they view to be the  key gaps in the government response, present evidence on any allegations of the misuse of funds, and table the key questions government has not addressed and ought to answer. This document should then be published for all Kenyans and international parties to view and of course opposition should present this statement to government. Doing so will allow all parties interested in this matter to more fully understand what outstanding concerns exist. From there any unanswered queries ought to be addressed by government a failure of which then warrants the needs for continued pressure be placed on government to explain what transpired.

Anzetse Were is a development economist; anzetsew@gmail.com

Interview with CNBC Africa on Kenya’s Fiscal and Monetary POlicies

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Kenya’s monetary management has been under scrutiny for mismanagement due to poor strategies and policies to guide spending. I joining CNBC Africa to discuss more on Kenya’s fiscal and monetary policies.

http://www.cnbcafrica.com/video/?bctid=4649814496001

The foundation of my insights are from a piece I wrote on Kenya’s fiscal and monetary policies>> https://www.academia.edu/19288762/Kenyas_Fiscal_and_Monetary_Policies_Is_government_getting_it_right

Interview with CNBC Africa on the sustainability of Kenya’s debt: Sept 11, 2015

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The proportion of external debt has become a major talking point in Kenya, especially after it crossed the psychological KSh1 trillion mark a few months ago. It has since risen to about Sh1.3 trillion. Last year, the Treasury raised the external debt ceiling to Sh2.5 trillion. Is there a cause of concern over the debt level? I join CNBC Africa for more.

http://www.cnbcafrica.com/video/?bctid=4478058633001

 

Interview with CNBC Africa on Implications of Teacher’s pay hike: Sept 4, 2015

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Following a Supreme Court ruling, Kenyan teachers are set to receive a 50-60 per cent salary increment with the bone of contention being the implementation as the government argues that it simply does not have that kind of money; this afternoon we question the mismatch between Kenya’s fiscal and monetary policy. I join CNBC Africa for more.

http://www.cnbcafrica.com/video/?bctid=4462983099001