Millions of Kenyans using M-Pesa and other mobile money services might be surprised to learn they could be earning interest on their depos...
Millions of Kenyans using M-Pesa and other mobile money services might be surprised to learn they could be earning interest on their deposits. However, a 2014 law prevents this, setting Kenya apart from other African countries like Tanzania and Uganda where mobile money thrives.
E-Money Regulations
Before 2014, Vodafone, the parent company of Safaricom, controlled M-Pesa Holding Company, managing the billions of shillings in Kenyan accounts and retaining any profits.
However, the introduction of the National Payment System Regulations in 2014 changed this. The Act prohibited mobile money service providers like Safaricom from profiting from interest on customer deposits.
The 2014 Act introduced an important clause: “An e-money issuer shall not earn interest or any other financial return from the E-Money holder or customer.”
So, where does the interest go?
The law stipulates that, “Any income generated from placement of these trust funds shall be donated to a public charitable organization for use for public charitable purposes.”
Currently, Safaricom channels customer deposit interest to social causes via its charity, the M-Pesa Foundation.
Safaricom M-Pesa Savings
Safaricom offers interest-earning savings through some M-Pesa products, but regular M-Pesa savings don’t earn interest. According to the IMF, Kenyan mobile money users do not earn interest on their accounts.
This leaves Kenyans holding money in M-Pesa and other mobile money accounts for longer periods vulnerable to inflation, unlike users in other countries.
Contrastingly, in other African countries like Uganda, Tanzania, Nigeria, and Ghana, mobile money customers can earn interest on their balances. This is true as per the recent IMF report.
In these countries, laws require mobile money operators to set up trust bank accounts that work like regular ones, earning interest.
While a 2008 amendment allowed Vodafone to decide how to use interest earned before 2014, it’s unclear if any went to M-Pesa users. Additionally, M-Pesa was not initially designed to earn interest.
Vodafone controlled M-Pesa till May 2023 when it signed an agreement to sell it to Safaricom at a token price of $1, or Ksh 137 at the time.
In March 2023, M-Pesa had 32.11 million users, and by the end of September 2023, these users held Sh. 273.9 billion in deposits. Last December, mobile money users stood at 38 million.
These statistics are unsurprising considering M-Pesa offers convenience beyond basic services. Users can buy airtime for themselves or others and settle utility bills or subscriptions directly from their phones.
However, understanding associated costs is crucial. While small transactions between users are free, larger ones incur charges.
Withdrawal fees from M-Pesa operators vary based on method and location, ranging from small fees for quick withdrawals to higher fees for larger amounts.
By Vivian K.
The post WHY KENYANS DO NOT EARN INTEREST ON MPESA BALANCES appeared first on BNN.
