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Sunday, December 14, 2008

M-Pesa Panic: Who is Afraid of Michael Joseph?

It seems that ordinary Kenyans are constantly on a collision course with the rich and corrupt in this country. Even as the MPs refusal to pay taxes and the media bill fiasco rages there is more trouble brewing in the horizon with the M-Pesa controversy. Truly bado mapabano.

Michael Joseph CEO Safaricom: Is this man such a serious threat to the rich and powerful in Kenya?

I know business is terribly boring to many of you my dear readers, but kindly bear with me for a few minutes and I will explain in simple terms what every Kenyan must know.

Acting Finance Minister has ordered an audit of Safaricom’s M-Pesa and has expressed fears that the popular service could be used for money laundering saying that the relevant experts and government bureaucrats should investigate the matter urgently. The timing of the statement was not lost on keen observers because Safaricom’s parent company, Vodafone had just finalized a mega deal with Western Union that will allow direct transfer of funds to M-Pesa subscribers in Kenya on their phones.

Let us not waste time with many words. What Michuki is saying is RUBBISH!!! Pure and simple. And there are many reasons for this. Firstly saying that somebody would use M-Pesa to launder cash is like saying that thugs will use 5 rounds revolvers to outgun the flying squad’s automatic AK-47s and Israeli Uzis. M-Pesa has a limit of Kshs 35,000 for every individual transaction. For money laundering to work well, one needs huge transactions to clean money and that is why the Nakumatt Supermarkets route for money launders worked like a dream. Just think about it, how many transactions of Kshs 35,000 would one need to "clean" a mere billion shillings? Mind boggling isn’t it? Then there are a couple of other safeguards that Safaricom have put in place that I will not go into just now.

Want to know what money laundering means in simple terms and the Nakumatt money laundering story?

So now that we have established that Michuki is talking rubbish, let us try and figure out exactly what is really happening here.

We know for a fact that the Finance Minister has close contacts of many years in the local Banking industry, some sources even claim has substantial interests. It is clear that the pressure on Michuki to talk as he is talking is coming from mainstream banks. So the next question is how does a money transfer service mainly for ordinary folk like M-Pesa threaten the banking industry?

First of all I want to remind you that the remittance of Money back home by Kenyans in the diaspora has been the main foreign exchange earner for Kenya for a number of years now (but the government only started talking about it recently). All that money until now has been paid through the banks. You can imagine how much mainstream banks are earning from it in terms of commissions when people go to them to cash in funds from Western Union. Indeed that is one of the very few big profit areas remaining for banks these days. One of the reason is that big banks like Barclays and Standard Chartered have not been able to figure out yet how to attract back the small man in large enough numbers to make a difference. Well there is also the little matter of numerous Kenyans who were chased away (and abusive language was used) by these banks when they closed numerous “small accounts” as they were drunk with Treasury Bill interest profits. The banks said that these small customers were not viable and were a waste of time. Which was probably true at the time because widespread use of ATMs had not yet penetrated this market. My point is that too many Kenyans still have bitter memories of these big banks.

Then the big customers they were relying on when they chased away “small accounts” are dwindling in number, besides they are too few to go round the numerous banks we have in Kenya all scrambling for them. (Did you know that Kenya has the highest number of banks in sub-Saharan Africa at 46? Higher than Nigeria and South Africa?). Not to mention the global economic melt down that has hit some local banks very hard.

Secondly Zain have announced that plans are at an advanced stage to launch cell phone banking in Kenya. M-Pesa is strictly a money transfer service and it has already proved to be devastating to banks, now imagine what the effect of a full cell-phone banking service would be? And to make matters worse, this comes at a time when banks have been hit hard by the Equity Bank phenomenon. As you read this we have a total about 4 to 5 million account holders in Kenya. Out of those over 2.5 million (and rapidly growing) are with Equity Bank. The big banks have tried everything, including spreading malicious lies that Equity is in financial trouble or is headed for collapse. It has not worked. They have also poached staff in hoards from Equity, but they have still not been able to replicate the Equity Bank magic. Well I have some free advice for them. The executives who make key decisions at these banks need to move from Westlands and Kilimani and live somewhere like Dandora or Eastlands for a month to even begin to understand the ordinary Kenyan, the very person they are trying to attract as a client.

The bottom line is that M-Pesa is a very convenient service for many poor and middle class Kenyans and they have responded by using it in such huge volumes. The service is a vital lifeline for many ordinary wananchi now.

Contrast that with the real money launderers of Kenya who are Mr Michuki’s colleagues in the crowded grand coalition cabinet. Remember the still unresolved Anglo-Leasing scam? Remember the leaked Kroll report which detailed billion of shillings being laundered abroad, some of it from Nigeria’s former dictator Sani Abacha coming to Kenya on transit abroad? Ironically the worst crimes in Kenya’s financial sector have been committed by the so called big banks. Citibank for instance is the main bank that has been used by the likes of Gideon Moi to transfer huge sums of stolen public funds overseas, according to the Kroll report and other impeccable sources.

So what is Michuki really up to? Is the idea to shut down M-pesa so that the big banks benefit? Or perhaps to introduce new regulations to ensure that all the cash passes directly through banks who will charge hefty commissions of course?

See also: Is Michael Joseph A Business Genius Or What?

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Anonymous said...

Chris, like kalonzo you are a Judas! Why are you hurting "us" we you a so called "my dear readers?"
We are concerned by your betrayal. First it was criticisms towards Raila and failure to see he is the only good politician we have in Kenya and now here you are talking about Equity bank like it belongs to your father.
Chris you are lost!!

MainaT said...
This comment has been removed by the author.
Phil said...

Chris, despite all the company's shortcomings and involvement in local politics, as well dubious shareholding; we are all proud of Safaricom's success with M-PESA.

Personally, I do not see anything wrong with the Finance minister ordering an audit of the M-PESA. Mark you, with over four million m-pesa account holders, you can imagine the large volume of public funds they hold at any given time; calculated at just 1000/- bob per M-PESA account holder works out to a staggering 4,000,000,000/-...thats right Chris, four billion Kenyan shillingi! These kind of numbers, in public funds, must attract the attention of any right thinking finance minister. I dont understand how CCK will regulate money transfer business considering Safaricom are taking deposits from the public and yet they are licenced under the Communications Act....not the Banking Act.

Obviously, parliament needs to do some homework on updating our laws because rapid development in technology makes nonsense of our current banking and communications laws.

Already criminal gangs (some of them deathrow inmates operating inside prison walls) are raking in huge amounts of money through M-PESA. Many other conmen operating from downtown Nairobi are also fleecing the public through M-PESA.

Michuki is right and I only hope the intention is to streamline and present a paper in parliament that will help in legislating laws that work in tandem with current realities.

Anonymous said...

M-PESA should be encouraged, not destroyed. When people like Michuki talk about, 'regulation' you should understand what he means. Anyway, revolutionaries such as myself are waiting for this government to continue drawing the wrath of its people. With the closure of M-PESA, discontent will rise to new levels. Ngoja muone.

Chris said...

Hi Phil,

Thanx for ur warm Jamuhuri day greetings which I received here jana.

Thanx also for the update about the arrested patriots.

Well I just wanted to make a small comment about what you have just said.

Actually M-pesa DOES NOT receive deposits from the public. Just like Western Union does NOT receive deposits from the public. This is strictly a money transfer service. In fact if you receive cash on Mpesa and fail to withdraw it within a certain period, it is automatically transferred back to the sender.

So I guess this issue of being licensed to take deposits does not come in.


Phil said...

Chris, I beg to differ. What is you understanding of 'receiving a deposit'?

Thousands of mama mboga, matatu crew, jua kali artisans and hawkers do indeed use M-PESA as a savings account at a bank. They leave their money in m-pesa for weeks or months before making the big withdrawal at given intervals.

Because of the convenience of doing you banking without having to go and queue at an ATM or banking hall, and m-pesa agents are spread all over the place, those people whose daily turnover is just a few hundred or thousand Kenya shillings do indeed prefer to DEPOSIT their money with m-pesa. Apart from easy accessibility, it also provides security.

When all is said and done, Western Union is quite different from Safaricom's m-pesa. When doing a money transfer with Western Union or even our local Postapay, you fill out a form which shows details of sender and beneficiary. M-pesa is strictly a deposit - there is no preconditions for identifying the transfer beneficiary and m-pesa does not determine the period during which one must make the transfer or withdraw it yourself.m-pesa and western union is like comparing day/night.The latter pays its beneficiary at government licenced banking halls whereas the former has all manner of informal businesses acting as its payment agents.

If this does not define banking for you what does?

If m-pesa were to collapse Kenyan style (we've been through pyramid schemes), it is the same public which will turn to blaming the government for not safe-guarding their money. SO I guess ordering a CBK supervised audit does not amount to threating to close down the service does it?

Which law regulates m-pesa...Is it the communications act or the banking act or the micro-finance act?

sereast said...

My two cents, am not in Kenya and have never used M-PESA to send money in person but my associated do.

Its no doubt its a novel concept, but its well ahead of our archaic laws. You see, this thing has nothing to do with Zain. I think Zain have thirs called sokotele but it works more along the lines of a deposits holding and not a transfer like M-PESA. The only qualm I have with all these is the lack of a legal framework to work in and that is the short coming of our laws.

You see, in any forward thinking country, if such a novel concept came up, the government will immediately look into it and hold a bipartisan or tri-partisan meeting with a view to regulate it in the interest of both the business and the people.

Money laundering allegations are a laughable excuse. What Michuki should have said is that they need to get farmilliar with its working inorder to introduce an appropriate piece of legislation to regulate it. Sometimes Michuki runs his mouth.

Phil raised a question of money moving and the recipients or senders not being known. Its a legitimate claim and one that any mobile provider in Kenya will encounter. They simply don't have an idea who owns those SIM cards. The SIM cards should all be registered to known people then a SIM card that was used to transfer money or receive will be traced to an owner. So in that case people using M-PESA for con schemes will be reduced, plus why send money to people you have no idea about?

Anonymous said...

I hate chris.

Anonymous said...

Biashara mbaya maisha mbaya
Joseph may just be a humble "kenyan" genius in disguise albeit one who was imported from other shores&naturalised ala the fake "General Mathenge" but that is where the similarities if any at all end

Joseph may inadvertently be raising political temperatures because the money transfer service in the hands of ordinary folks is one ingredient in the recipie for a not too distant revolution that will change Kenya. by giving people the right tools needed to empower themselves Joseph is innocently fanning the flames by equipping the small and middle class man to unshackle themselves from the clutches of economic and POLITICAL poverty

Between remittances of Money from Kenyans in the diaspora and the introduction of money transfer/mobile phone banking what can't the men/women of Kibera, Kahawa, Eastleigh, Kawangware, Dandora and "Isich" Eastleigh not do for themselves that they would want a Govt that doesn't listen to them to do?

Whatever Michuki is up to you can be sure he is one step behind the massive surge thats begun-the poor are finding their voice now that they have the means and money to back them up

E-CHANGE said...

oops thats me@8:25 forgot to put my name!

Biashara mbaya maisha mbaya
Joseph may just be a humble "kenyan" genius in disguise albeit one who was imported from other shores&naturalised ala the fake "General Mathenge" but that is where the similarities if any at all end

Joseph may inadvertently be raising political temperatures because the money transfer service in the hands of ordinary folks is one ingredient in the recipie for a not too distant revolution that will change Kenya. by giving people the right tools needed to empower themselves Joseph is innocently fanning the flames by equipping the small and middle class man to unshackle themselves from the clutches of economic and POLITICAL poverty

Between remittances of Money from Kenyans in the diaspora and the introduction of money transfer/mobile phone banking what can't the men/women of Kibera, Kahawa, Eastleigh, Kawangware, Dandora and "Isich" Eastleigh not do for themselves that they would want a Govt that doesn't listen to them to do?

Whatever Michuki is up to you can be sure he is one step behind the massive surge thats begun-the poor are finding their voice now that they have the means and money to back them up

Taabu said...

You concern are both founded and far-fetched. Founded because M-Pesa serves the majority of kawaida Kenyan folks and closing it threatens their own survival. Far-fetched because COLLOSAL amounts of money is involved and without adequate safe-guards fropm financing crime.

The truth is Michael Joseph saw a legal loophole and seize the opportunity. Safaricom is under CCK and extending it into a quasi bank introduces numerous complications. The truth is WU is no M-Pesa. Even chicken theieves buy SIM cards and throw them away at will ith no trace of address. WU demands identity and address.
M-Pesa may have been successfull locally but cross-border money transfer is a CRIMINAL minefieled.

Bottomline? A failed state with failed institutions leaves smart businessmen profitting from pyramid-scheme like scams. Soon M-Pesa will see the shitb hit the fan and it will be another BCCI and Trade bank.

Meanwhile Michuki's concern are legit but the intension is to to secure his status as among the few Kenyan GATE KEEPERS. Ole wetu.

Sayra said...

I agree with Phil that m-pesa needs to be regulated and a decision made on where to place the service either in the banking or micro-finance act.

M-pesa is very similar to what is generally referred to as sms-banking ... infact its just a brand name of sms-banking where you can withdraw ur cash, buy airtime, pay bills or buy goods. Now that you can even withdraw your money from pesapoint ATMs (its just a matter of time before the service becomes Visa compliant where you can withdraw ur cash from any Visa ATM), it becomes very necessary to regulate the service.

Safcom states very well that m-pesa allows you to deposit money, withdraw money, transfer (send) money or buy safaricom prepaid airtime. That is a bank. Its also states that m-pesa is available to everyone - even if you do not have a bank account or a bank card. In this service the only thing that protects your money is the PIN number, and the provider will do nothing else to protect you from fraudsters ... unlike in banks they must comply with security measures such as been answerable not just to the customer but also to the laws of the land when the customer is fraudulently attacked.

With the huge amounts of cash been transfered and used daily for purchases from m-pesa the least the government can do is save guard its citizens from fraudsters who (are on the increase) are quick to fill-in the loopholes knowing very well they will get away with it since there is no law to protect the customers.

That said, m-pesa is a service that the public should safeguard with all they have got, its very efficient and easy way to use your cash more so for the 70% of the unbanked kenyans. Let this not be a means for the government to try and protect the international banks by trying to cripple a service that is clearly meant to serve the people.

Phil said...

Blogger Chris said In fact if you receive cash on Mpesa and fail to withdraw it within a certain period, it is automatically transferred back to the sender.

This applies to non-registered users only. For those 4million registered users, if you receive money from another user, it is immediately credited into your account with no deadlines of withdrawing or making a purchase.

Anonymous said...

with the kind of ignorance you guys have shown about this service its easy to discern that none of you have used m-pesa. Every time you deposit or withdraw from m-pesa you must give your ID. To register and start using the service you must fill a form with all your details. Every m-pesa customer is known to safaricom. Get your facts right. Stop your shallow arguments without facts.

Anonymous said...

Does a pesa point atm also ask your for ID card?

Anonymous said...


Here is an excerpt from the dailes about your demigod. Apparently you are the only ones that see anything in the 'empty suit.'

....On the flipside, a Cabinet colleague describes Kalonzo as "an -undecided leader who is nowhere and everywhere at the same time". The minister claims that while the VP pretends to favour the reforms, he has "unleashed members of his party to consistently shred the Bill to pieces".

But fully aware of the public mood that is heavily for pro-reforms, the battle has shifted from undermining to taking over control of the process. Essentially, the battle is now about claiming credit for the reform process.

On this front, Kalonzo’s ODM-Kenya has staged a sustained push. The VP’s vocal allies, led by Defence Assistant Minister David Musila and Nominated MP Mohammed Affey....

b-carotene said...

This post addresses an important topic, but sadly its framing slips and falls back to the usual KK lowest common denominator, i.e. that Michuki MUST be colluding with his clique of associates in the banking sector. While such a prospect might captivate those with an appetite for cheap intrigue (and even if banks are exerting pressure over the ‘unfair’ competition), I think its unproductive to speculate on the man’s motives. I find it more constructive to thing through the intrinsic issues that an unregulated/informal financial transfer raises, especially if the volumes are as large as perceived.

The advantages that m-pesa transfers offer are self-evident and have been mentioned by prior contributors. They are expeditious (thanks to the technology), relatively low cost (cos of lack of regulation) and convenient (can be delivered to remote areas easily). Such flexibility make informal transfers very attractive (as against formal banking institutions), and especially accessible to poorer /lower income segments of society. But there are perils associated with informality: money laundering, terrorism financing, accessible channels for corrupt transfers etc. However, formal banking/finance systems are not necessarily immune to such abuses, only they are regulated and thus required to monitor, keep and provide records upon request as part of the regulatory process.

The negatives of the unregulated sector are reinforced by their very advantages-- the speed and cheapness of transfers, spatial extent of transfers, including global transfers, and the volumes thought to be moving through the system. There are good reasons for government to want to regulate such informal transfers

So which way forward for liver-juggling Michuki and safaricom’s m-pesa? For a man well-reputed for his pragmatism, this is one issue that Michuki positively must exercise this attribute (with some imagination) in order to balance between protecting the consumer at the level of access without undermining safaricom’s incentives to provide the service at the same (or better) standard, while at the same time creating an environment where the perils are accordingly monitored and checked and benefits to the low income consumer not compromised.

Strict government regulation is not necessarily the ONLY way to resolve the primary problem here, which to my mind has more to do with tracking the origins and targets of transfers than with anything else. In a situation where more has to do with perceptions than with hard data on the relative legitimacy of transfers (or even the exact volumes and their origins), the law of unforeseen consequences may militate against imposing regulation as such regulation may risk damage to those dependent on m-pesa, many of who can barely access formal banking services for the transactions costs.

It might just be better to encourage safaricom to undertake consumer protection measures, to undertake record keeping of contact information of agents and to provide regular reports of transfers to whomever they need to (CBK and the Finance) or else face being regulated under existing legislation.

While the formal banking industry may detest such an option, I see no harm in having different systems for ‘different’ service providers—indeed such diversity may well serve to sustain the incomes and livelihoods of a vulnerable section of society in these difficult financial times. I suspect that greater harm to society might be done by attempting to formalize m-pesa. Nonetheless, the principle of co-responsibility for monitoring and the content of monitoring is cross cutting, and this does not preclude safaricom from exploring synergies with whichever system it wishes in the formal sector. In the end, there is still a strong case for more and better information on the workings of the m-pesa, its strengths and weaknesses, to help policy design.

Ps: Chris—please inform on the “safeguards that Safaricom have put in place”—which you left out in your attempt at cheap intrigue.

Anonymous said...

Finally, ECK staff see the merit in telling truth.....

Published on 13/12/2008
By Juma Kwayera - eastandard

Haya, confession time. May the illegitimate sloth at SH continue enjoying the 'loot'

Anonymous said...

President Bush incident in Iraq

Taabu said...

Spot on. You have articulated the issue so well save for the signature of slaying the messanger (Chris) to annouce your arrival. Cannot deny you the points, na kazi iendelee.

Anonymous said...

Phil is a MORON! he lives in kibera hoping if raila becomes the president he will move into a nice rent free home somewhere in an upmarket area.
He never goes to work, he lives by the little money he earns as ODM foot soilder. the rest of money he spend on matumbo at Kenyatta market.

phil's mistress

Anonymous said...

Dear Kumekucha,

I would like to repost this article followed by a link to your blog for publication on mine (

Hence this comment to ask your permission to do so.

Looking forward to hearing from you.

Kind regards,


Anonymous said...

As far as I can see this is just another ploy of killing a flourishing innovation, and why? because Safaricom has already gone public and there is nothing to benefit in the shortrun with its current price at the stock Market.

So either they kill the innovation only for it to pop up with another name and being run by a company owned by well connected individuals or benefit in awarding the tender for the partnering of Safaricom with the so called bank.

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