Cash-In Cash-Out Cross-Country Analysis:

KENYA
"Wavinya - Airtime Seller". Photo by Kelvin Kariithi, 2018 CGAP Photo Contest

December 2020
Since 2007, bank accounts and mobile money subscriptions have been
steadily growing alongside the growth in CICO networks.
Growth of bank accounts, mobile money subscriptions, bank agents, and mobile money agents
70 250
Mobile money subscribers and bank deposit accounts

NPS Regulations
60 NPS Act formulated
issued; agent
exclusivity 200

Number of agents (thousands)

prohibited
50
Launch of M-
Banks allowed to Shwari, mobile
offer agency credit and savings 150
40
(in millions)

banking product

Safaricom offers
30 mobile money 100
services through M-
Pesa
20
50
10

0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Deposit Account Holders in banks Mobile money subscription MNO agents Bank agents
Source: Central Bank of Kenya, Supervision reports 2007-19; Communications Authority of Kenya, Annual reports 2007-19

• Bank agent numbers did not grow as fast due to higher float requirement to serve larger transaction caps.
• The deposit accounts increased significantly on account of M-Shwari, which is a bank account from NCBA, accessed entirely through M-Pesa.

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Despite the growth of CICO points between 2007 to 2018, the rural areas are
still underserved
CICO points growth (2007-19) Mobile money agents and bank agents’ growth
(2007-19)
3,000 250,000 Agent
224,108
2,615 exclusivity
2,579 2,564 250,000
2,514 2,529 prohibited
2,417 2,459 224,108
2,500 2,306
200,000 205,745
205,745
2,130
200,000 Banks allowed 182,472
1,979 165,908
2,000
182,472 to offer agency 165,908
1,717 143,946
150,000
banking 143,946
1,541
150,000
123,703 1,523 1,518 1,505 123,703
1,443
1,500 113,130
1,342 113,130
1,325
1,272
1,161 1,501
1,063
100,000
1,012 996
100,000 76,912
887 76,912
1,000
740 50,471
39,449
50,471 50,000
39,449 23,012
50,000
500 1,528 6,104
23,012
-
6,104
1,528 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
- ATMs Branches Mobile money and bank agents -
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Mobile money agents Bank (including MFBs) agents Mobile money and bank agents

Source: Central Bank of Kenya, Supervision reports 2007-19; Communications Authority of Kenya, Annual Source: Central Bank of Kenya, Supervision reports 2007-19; Communications Authority of Kenya, Annual
reports 2007-19 reports 2007-19

• Since 2007, CICO points (especially agents) have grown quite considerably. Agents growth has outpaced all other channels.
• MSC’s work on Agents count: The true size of agent networks in leading digital finance countries shows that there are overlaps in the number of agents.
The real number of agents in Kenya is around 190,000 (applying non-exclusivity and multiple till deflators).

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CICO growth in Kenya is happening around the urban clusters, growth of
CICO in rural and remote clusters is significantly slow
Access to financial services points in Kenya • As per BCG, Kenya requires
around 15,800 new agents, with
Access based on probabilities of CICO vast majority (over 15,500) located
access assigned to each distance band of in the large sparsely populated
<1km, 1-5km, >5km derived from Fraym frontier.
CICO access layers and Intermedia 2017
Financial Inclusion Insights (FII) survey • Agents need to be spread out in the
north and western parts of Kenya
• CICO access that have extremely low number of
• <1 km agent outlets.
• 1-5 km
• The low numbers of agents in the
• >5 km north and western part are on
Zone Excluded Covering Agents needed
account of: limited economic
population land mass to provide 5km activity; lack of basic infrastructure;
access and climatic and demographic
Urban ~0 ~0 ~0 nuances.
Peri-urban/ ~0 ~1,800 ~200
dense rural
Rural Oasis ~0 ~4,600 ~100
Rural 3 mil ~313,400 ~15,500
frontier
Total 3.5 mil ~319,800 ~15,800

Source: BCG CICO Economics Research Kenya, 2019

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© CGAP 2020
31% of agents are in rural areas, CICO has reached a point in Kenya where
all underserved locations are now operationally or economically unviable
Rural CICO networks in Kenya
Note: Some of these agents are not exclusive to a single provider Size of the bubble
% share of transactions done through service
70%
signifies the
60% number of agents
for each of these
50%
providers
40% M-Pesa
providers

30%

20% Equity Bank

Coop Bank
10% Airtel
Jumia Copia
0%
KCB
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
-10% Telkom
% share of rural CICO points for each service provider
Source: Central Bank of Kenya, MSC analysis

• Our analysis shows that only about 31% of agents are in rural areas.
• Further, our analysis shows that the agent activity in rural areas are focused around: highways; tourist attractions and international borders; and
centers of economic activities, such as markets and refugee camps.
Refer to Appendix 2 for maps of major providers of CICO services in Kenya

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© CGAP 2020
CICO has reached a point in Kenya where all underserved locations are now
operationally or economically unviable
Expected viability of new agents
• Unviable, both economically and operationally • BCG’s review identified the need for
new agents including for large
• Economically unviable, operationally viable sparsely populated frontier. The
• Economically viable, operationally unviable
review, however, notes that only
about 1% of the new agents are
• Viable, both economically and operationally likely to be both economically and
operationally viable.
• No classification: excluded from analysis due to
lack of population in source data
• There is a need for supply-side
Expected viability of new agent locations
incentives for the economically
• Economic viability: sufficient latent demand in an
agent's catchment area for a non-dedicated agent to unviable agents and infrastructure
achieve profitability and sustain the business over time. investments or business model
In Kenya, economic viability defined as minimum of 500 innovations for operationally
total population within 5km of an agent location, based unviable agents.
on country-specific analysis of agent business
economics, commission structure, and DFS penetration
rates
• Operational viability: sufficient physical infrastructure
for agents to operate without significant risk to liquidity
or service outages. Agent location within 20km of a
bank branch defined as the binding operational
constraint, given this is typically the weakest
infrastructure statistic compared to other indicators (e.g.
Mobile connectivity or access to roads)
Source: BCG CICO Economics Research Kenya, 2019

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In India, government and public banks led investment into expansion of rural agent
network coverage through Pradhan Mantri Jan Dhan Yojana (PMJDY) FI program (2014
launch)…

Number of savings accounts across rural & urban bank Number of agents and branches 2010-2019
branches (M)
600,00
0

400,00
0

200,00
0

0
2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Rural Urban Urban Agent
Rural Agent Outlets
branches Branches Outlets

Agent outlets have demonstrated strong rural

penetration relative to branches
17
Source: CGAP, BCG Analysis, Microsave, Finclusion data
…which resulted in a public-sector-led expansion of CICO
networks, including in rural areas
Fully digitizing G2P payments and recruiting
non-dedicated agents drove CICO network
expansion
• In achieving wide-spread CICO expansion, the Indian
parliament fully digitized G2P payments ($80bn) to
~1.2B beneficiaries, complementing existing service
offerings such as bill payments, remittances etc
• To ensure these payments could be easily accessible
through rural agent networks, public sector banks
recruited small business owners as specialized agents
which increased the agent revenue stream
– This recruitment was led by a growing private
sector agent network manager (ANM) industry
focused on improving the viability of the expansion
Permanent subsidies aided bank branch opening
which led to ~300mn new bank accounts, 59% in
rural areas
• The Indian government subsidized public banks in
building rural branches and technological infrastructure
(e.g., unified payments interface, Adhaar payments
bridge system) to provide closer rebalancing points for
agents which prompted ~382mn people (59% of whom
live in rural areas) to open bank accounts
• Subsidies have supported number of agent outlets to
grow significantly faster than branch infrastructure
~15x agent outlets to bank branches
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In Colombia, long-term FI government program subsidized banks to establish
rural agent networks
Regular G2P payments, increased use cases and tailored products
Number of agents in rural & urban areas (K) Rura scaled demand for CICO services
lUrba • Government ensured that regular G2P payments were disbursed to ~2.5M
187/195 coverage of 13n beneficiaries via registered agents
unserved areas 6
9 9 3
Launched Banca de
las Oportunidades 6 4 • Banks partnered with business owners( supermarkets, mom and pop shops
1 2 1
program
2 etc.) to develop agent networks and improve daily transaction volumes by
1 7 1 10 increasing revenue streams
8 7 7
5 0 2 4 5
9 3
4 1 8 1 • Providers ensured financial services were specifically tailored to meet
4
customer needs( micro credits, bill payments etc.)
2008 2010 2012 2014 2016 2018
Government designed favorable contracts providing agents income
% Adults with financial products and active financial products
guarantees to scale CICO expansion
2008–2018
2015: All municipalities have • Through the Banca de las Oportunidades program (2007-2009), the
financial presence government offered competitive income guarantees($2.6M) over 2
years(100%- Year 1, 50%- Year 2) to providers
• With the main aim of extending agent networks to all marginalized and rural
areas to ensure continuous viability of these networks in these areas, this
led to CICO access coverage in 187/195 municipalities in the country
2008 210 2015 2018
G2P transfers alone are usually not enough to solve the agent rural
Adults with at least one financial Adults with active financial viability challenge, but are a strong complement to agents' bottom line
product products

Source: CGAP/MSC “CICO Analysis: Colombia” (2020) 19