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 pretenses 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 withdrawals. And because most are small neighborhood 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 that 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 numbers, full names, and locations 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 criticized 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 speaks 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 organization, 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 ethnocentric approach to making appointments has unsurprisingly not gone down well and partly accounts for the lackluster performance of staff since Ndegwa became CEO.
Safaricom and its M-Pesa service are facing these organizational 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.