THE SMALL THINGS THAT MAKE A BUSINESS

On a recent visit to Mombasa I got into an altercation with a cab driver. I wondered why he didn’t have change. With incredulity written all over his face he asked back, “You don’t have M-Pesa?”

M-Pesa is the mobile money service offered by telecom giant Safaricom. It has become so successful that it controls 80 percent of the mobile money market in Kenya, drops $624m (sh2.3trillion) into Safaricom’s pocket and the value of transactions on the service last year amounted to the total GDP of Kenya or about $74b dollars.

They have created other spinoffs and not just stuck with money transfers, from offering credit to providing a payment system to starting up their own ecommerce site to offering taxi hailing services.

For me it’s an amazing case study of how monies can be mopped up and funnelled into the formal financial sector in a developing country.

But this is not a story about Safaricom, not directly at least.

This is a story about my driver, only identified as Bwanamkuu (The top boss) on the cab hailing app and what he represents in Kenya, that is different from Uganda, and why the Kenyan businessman and woman is way ahead of the curve as compared to their Ugandan counterparts.

"By preferring payment by mobile money, these small business are accumulating an independently verifiable record of their income. But given that easily eight in ten transactions in Kenya are done over mobile money, it also provides an independently verifiable record of their expenses...

This is important because the small Kenyan businessman, with a little bit of tweaking can now actually access financial services with these records.

One of the reasons small businessmen are struggling to get funding is because they have no records of their business that can allow financiers, be they lenders or investors, make an informed decision of their business. This can be the difference between getting money at 25 percent (high already) or not at all.

Think about it.

In the last two decades we have seen a proliferation of salary loans. Previously banks wouldn’t touch unsecured lending with a 100-foot pole, they only accepted property titles as collateral. But now, because they can get a record of your income, verified by your company and which they see streaming into your account monthly, they have greater confidence to lend to the salaried worker.

Now compare the Kenyan taxi driver, street vendor or service provider eg slasher, househelp, security guard and their counterparts in Uganda. They are more likely to get funding than our own would be on the strength of this deiffernce. Small on the surface of it but earth shifting when analysed properly.

If access to finance is a challenge for small businessmen around the world the adoption of these technologies will, with one swipe minimise that challenge significantly in coming years.

Already in Kenya mobile phone credit providers are reporting a spike in credit approvals between two and four am every weekday. Are these the youth borrowing for one-for-the-road? Maybe medical emergencies? Maybe delayed transactions carried over from the previous day?

None of the above.

As it turns out the market vendors borrow money at that time of the day to buy fresh produce from their suppliers before they go off to market. After they have sold their produce, normally by mid-day they repay the loan. At three am the next morning they are back to borrow again.

It is already happening but this adoption is going to revolutionarise not only individual incomes of Kenyans but the wider economy.

The challenge with economic growth are two fold. 

That often to shift the needle, you often need big ticket items – roads, railways, dams to be built and secondly, the major drivers of economies, these investments, often have little or far off linkages to the common man while they are under construction, so the growth recorded is concentrated in a few hands. Little trickle down is seen in the statistics.

Now imagine how the calculation of Kenya’s economy is going to shift dramatically to reflect these transactions, which it is reported are already as big as the Kenyan economy, and growing with no sign of reversing or even plateauing soon.

For the small businessman this is an absolute God send.

Small businessmen complain that they have no access to credit, leave alone that it maybe pricey. But that is a symptom of their lacking verifiable records that can be used to make an educated guess about how risky it is to be involved with them.

"But now the Kenyan businessman at every level, have access to credit, understands at a very visceral level what it means to maintain a good credit rating and more importantly why he needs to liberate his monies from  his socks, bras and from under their mattresses and plant them in a formal financial institution...

Kenya is leading the way on financial inclusion.

It was a useful real life experience how this is taking hold in practical terms and to get a sneak peak at our own future.