One of the leading ways of payments for Kenyans today is mobile money and M-PESA tops the list.
However, what many may not realise is that they could potentially be earning interest on their deposits.
So, why does Kenya stand out as the exception among its African counterparts when it comes to mobile money and interest accrual?
A report from the International Monetary Fund (IMF) highlighted how mobile money customers in these countries can earn interest on their balances, akin to traditional bank accounts.
Before delving into the current state of affairs, it's essential to understand the historical context.
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Initially, Vodafone, the parent company of Safaricom, held control over M-Pesa Holding Company, managing the substantial sums held in Kenyan M-Pesa accounts. Vodafone had the liberty to invest these funds and retain any resulting profits.
Governments in Africa require companies operating mobile money services to open accounts with banks, where they hold customers' money, which earns interest.
However, everything changed with the implementation of the National Payment System Regulations in 2014.
This legislative move introduced a clause that prohibited e-money issuers, like Safaricom, from earning interest or any other financial return from their customers' deposits.
"Interest distribution is not allowed, and as stated in the 2014 National Payment System, any income generated from placements of these trust funds shall be donated to a public charitable organisation for the use for public charitable purposes," the IMF report notes with regards to Kenya.
Interestingly, this was not always the intended trajectory. A significant amendment to the trust deed governing M-Pesa Holding in 2008 granted Vodafone discretion in using the interest earned, even for purposes beyond charitable endeavors.
So where does the interest earned on M-Pesa go?
The M-Pesa Foundation, Safaricom's philanthropic arm, now receives interest earnings from customers' deposits to support various social causes.
Additionally, M-Pesa was not initially designed as an interest-bearing account, so the concept of earning interest might not have been widely promoted.
Why lending from M-Pesa is prohibited ?
Lending by EMIs is prohibited. However, EMIs can work with commercial banks and provide banking services including lending to customers.
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For example, M-Shwari, launched by Commercial Bank of Africa and Safaricom, offers M-Pesa users with loans and saving products.
These loans and savings are underwritten under the balance sheet of Commercial Bank of Africa and thus under the bank’s assets and liabilities.