Extending financial services in Kenya – three personal stories

Innovations for Poverty Action and the Bill & Melinda Gates Foundation have a call for proposals out on innovative digital financial services.

In some ways, the financial lives of the poor are more complicated and mentally taxing than those of more well-off households. While the wealthy can often absorb a small miscalculation, for the poor it can be catastrophic. Add to that irregular or unpredictable income, and financial decisions quickly become difficult to manage. Well-designed products that help individuals successfully navigate the difficulties of daily financial life may be able generate new demand for financial products. 

I have three personal stories:

  1. The cost of ATM usage in Kenya: I am charged KES 33 on every withdrawal when I use my bank’s ATM and KES 77 when I use the ATM of another bank. That hurts. What’s more expensive is the distance to my home from the nearest ATM. Given Nairobi’s specific security situation, I wouldn’t walk the distance to my house with KEs 20,000 in my pocket. So I take a taxi that costs me KES 200 – 300. So the effective cost of withdrawing cash is KES 230, often higher = 1 – 1.5%. Sure, I could take a matatu or a boda-boda – both of which offer various other kinds of risks I will need to factor in. What can make this cheaper?
  2. Is Mpesa better? Every time I use online banking to transfer funds to my Mpesa account, I get charged KES 66. So it might actually be cheaper to withdraw cash from an ATM and walk to an Mpesa station and deposit the cash, except for the convenience of online banking. On the payments side, Mpesa is near-perfect when paying bills and other business establishments. But when transfering small sums of money (say, KES 500) to someone else’s phone, the charges can amount to over 10%. Hardly a good deal. When using Mpesa, what I am really paying for is convenience and security. But is it really a poor-friendly product?
  3. Consumption smoothing in Kenya as evidenced by the night-life buzz: The pay-day weekend and the weekend after are hectic – streets are crowded, bars are full. Relatively, the third weekend is pretty silent and the fourth weekend is dead. Nothing novel here, except a market gap for a smart savings product for my friends who can be nudged to plan better.

I look forward to research findings that make my life easier!

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