Savings and Credit on Mobile: The Jipange KuSave Experiment

The branchless banking community loves talking about the “rails” that mobile money services are beginning to build in some countries. One would think we’ve all become train conductors with the way this word is being tossed around. But the image does conjure up some interesting thoughts. We are seeing in places like Kenya that mobile money is no longer just about the money transfers that people conduct via mobile wallets. It is also about other types of payment transactions that M-PESA and other such mobile payment services facilitate. That is, these are the “rails” on which other transactions are beginning to run. 

In a recent CGAP Brief, we profile the recent Jipange KuSave (JKS) experiment in Kenya, a lend-to-save model in which clients receive an interest-free loan into their M-PESA wallet, one-third of which is held back as savings. The speed of repayment is left completely up to the client, but once the first loan is repaid, a larger loan is offered with a portion again being held back as savings. After so many of these cycles, a client’s savings balance grows to be larger than the current outstanding loan, effectively borrowing from one’s own savings.

I could go on and on about the interesting aspects of the product design of JKS itself. But earlier this year, we featured blogs written by those who designed this project firsthand.  Gautam Ivatury and Nick Hughes shared their thoughts on the JKS pilot as a mobile-only attack on the mattress. Stuart Rutherford, whose P9 product in Bangladesh was the inspiration for JKS, wrote how product innovations such as these can provide useful services for the poor. Plus two longer reports have been written about the pilot (here and here).

Instead of focusing on the design of the product, or the business case for the provider, or the various tweaks made during the three phases of the pilot (all of which you can read more about in the Brief), I want to share two interesting insights from the clients’ responses to this mobile-enabled savings and loan product.

• Clients actually didn’t run away with the money! One concern that often comes up in discussions about the use of branchless banking technology as transaction points for financial services is the risk from decreased human interaction with clients. For example, will microfinance clients repay their loans if a loan officer doesn’t show up in their village every week to collect cash and instead they make their repayments remotely over their phones at their convenience? In the case of JKS, loans were disbursed directly into a client’s M-PESA mobile wallet and repayments were also done via M-PESA. No field collectors were used as is done with P9 in Bangladesh. Human contact wasn’t completely eliminated, however, as initial recruitments and registrations were done in person. Still there was the initial upfront risk that clients would take the first loan (around US$20) and simply disappear with the money. Interestingly, this concern proved unfounded. 10% of clients repaid their first loan within 3 weeks and had moved on to a second or third loan. Over 77% had begun repaying at least some portion of their initial loan within two months. In fact, in Phase 3 of the pilot the intensity of client interaction was actually reduced based on client feedback. Repayment reminder calls were reduced by 50%. If anything, the client seemed to be saying, “Leave me alone and let me handle this myself.”
• The mobile phone channel delivered specific value to the clients. There were at least two benefits that came from using M-PESA as the payments “rails” for JKS. The first was the quickness of loan disbursements. Clients liked how quickly their JKS loans were disbursed and the fact that they qualified for the next loan as soon as they completed the previous loan cycle. During Phase 2 of the pilot, a real-time tracking system was put in place. Once the system received notification that a client had made the final payment on an existing loan, the next loan could be disbursed into the client’s M-PESA wallet within an hour. The second benefit was privacy. Client feedback showed that they highly valued the privacy of receiving loans through their mobile phones.

These are just a couple client insights that jumped out from the pilot. As we conclude in the Brief, the JKS experiment showed that there is demand for financial services which are quite different from those currently offered by mainstream providers. The challenge is that with a product such as this one that involves the mobilization of savings, a licensed financial institution must take some degree of ownership. A start-up can’t do it alone.

Wanted: a licensed financial institution with the space and appetite for such innovation!