Digital transformation, one of the enablers for inclusive and effective multilateralism for a sustainable urban, has seen Kenya trailblaze and lead other Africa Countries during this year’s second session of the United Nations Habitat Assembly, currently ongoing in Nairobi, Kenya, under the theme of ‘A sustainable urban future through inclusive and effective multilateralism: achieving the sustainable development goals in times of global crises’. As we venture further into this brave new world of technology, I’d like to share areas Kenya is focusing on to ensure that digitalization’s benefits reach everyone, thereby promoting prosperity and local finance.
The advent of digital technologies brings enormous potential to create efficient systems and processes and to spur economic growth. Yet, it is also accompanied by challenges related to security, surveillance, misinformation, and inequalities. Without concerted efforts to address these issues, the “digital divide” chasm risks leaving behind countries, cities, and marginalized groups such as women, young people, older persons, and persons with disabilities.
To leverage digital transformation effectively, it is imperative to ensure universal access to digital services. However, this should be more than just a token effort; digital connectivity must be purposeful and contribute to tangible benefits.
Kenya is promoting financial inclusion through digital financial services as one of the key steps toward this objective. Kenya leads the world in adopting mobile money services (M-Pesa), which enable sending and receiving money through mobile-based accounts, with at least 65% of Kenya’s GDP flowing through mobile money. The amount transacted is equivalent to 65 percent of the country’s gross domestic product (GDP) of Sh12 trillion. According to the Central Bank of Kenya, in 2020, mobile money agents recorded a Kes1.1 trillion or 15 percent growth from the Kes6.8 trillion handled in 2021.
Transactions worth Sh7.9 trillion ($20.3 billion) were conducted via phone agents last year (2022), indicating the entrenchment of mobile money in Kenyans’ daily lives. Mobile money accounts have doubled in five years, from 36 million in October 2017 to 73.1 million at the end of last year, signifying the service’s popularity among Kenyans. Mobile money usage has played the biggest role in increasing financial inclusion over the years, which now stands at 84 percent from 26.7 percent in 2006. The country is one of the world’s leaders in mobile money services, and a platform like M-Pesa has since evolved from a basic SIM card-based money transfer application into a fully-fledged financial service, offering loans and savings in conjunction with local banks, plus merchant payments.
All the leading banks in Kenya have adopted online banking, with banks like Equity now reporting 94% of all their transactions are done digitally. Through partnerships with banks, Safaricom, the leading telecommunication company, has launched innovative products like M-shwari and Fuliza. M-Shwari is a savings and loan service that enables M-PESA customers to;. Save as little as Kshs. 1, and access credit from Kshs. 1,000 up to Kes. 1 Million. On the other hand, Fuliza is a continuous overdraft service that allows Safaricom’s M-PESA customers to complete their M-PESA transactions even when they do not have enough funds in their M-PESA account. Data from Safaricom in 2022 indicated Kenyans borrowed Kes. 1.8 Billion (USD 12,978,723) every day from Fuliza.
In line with his promise during campaigns last year, his Excellency President William Ruto launched a digital product, Hustler Fund, available on feature phones and smartphones. The core objective of Hustler Fund is to offer holistic financial solutions targeting people at the bottom of the pyramid. Twenty million Kenyans have signed up for Hustler loan services, borrowing more than Kes. 20 Billion (USD 144,208,040) and saving Kes. 1.4 Billion (USD 10,094,562). The Government’sGovernment’s initiative to offer financial services to the unbanked and underbanked populations has created economic growth opportunities and lifted families out of poverty.
In November 2013, H.e President Uhuru Kenyatta directed that all payments to Government be digitized. The eCitizen portal, www.ecitizen.go.ke was subsequently developed as a payment gateway and integrated with electronic payment platforms, including mobile telephone money payment services. eCitizen facilitates an open (eKYC), digitized financial system, powering a digitally driven and inclusive economy. Simultaneously, Counties and other Government parastatals have taken the lead in migrating cash to digital payments for government services and transactions such as tax collections, payment for services such as renewal of driving licenses, passports, business permits, and much more. This change has enhanced transparency, reduced corruption, and stimulated local economic activity, thereby contributing to the overall prosperity of Kenya’s Digital economy.
However, Kenya still has much to do in building a robust digital infrastructure in rural areas. From expanding broadband internet access to providing public WiFi networks and establishing data centers, these investments form the foundation for a thriving digital economy. Even though all 47 counties in Kenya have fiber-based connectivity, last-mile links to rural parts of sub-counties remain inadequate. The 2019 census report also showed that rural internet access was 13.7% compared to urban Internet access, which was 42.5% – more than thrice that in rural areas. I commend great initiatives from private-sector players, liquid intelligent technologies, and other development partners like the World Bank in conjunction with ICT Authority for their role in widening access to ICT infrastructure and connectivity in Kenya. Kenya digital economy acceleration project (KDEAP) is a new World Bank credit to the Government of Kenya, approved in March 2023. The program is in two phases. The first phase has a focus on the education sector and its investing USD 390 million in three areas;
1. Education Sector
2. Government services
3. Digital Skills
The world bank will support the Government in building 100,000kms of new fiber optic cable (digital superhighway)
The second phase will be launched in 2026 and will focus on the health sector. World Bank has pledged to invest USD 180 Million.
However, infrastructure alone is insufficient; our efforts must also be aimed at empowering people with the necessary digital skills and sustainability i.e, through ensuring last mile electricity is available and affordable and payment of bills for continued internet access internet and maintenance of hardware i.e, computers. Kenya’s ICT authority and private sector players should introduce training programs and embed digital skills in education curricula, allowing more individuals to participate effectively in the digital economy and contribute to its growth.
For local finance to prosper, our Kenyan Governments must also actively support digital entrepreneurship. They can create a fertile ground for local economic growth and job creation by providing funding and training for digital startups and creating regulations that encourage innovation. The Finance Bill 2023 is retrogressive, and Kenyan lawmakers should listen to citizen views and reject proposals that will deter the innovation of FinTechs in the country, make credit access costly for about 8 million citizens who cannot access traditional or conventional forms of credit, and disrupt consistency in tax collection. The 20% excise duty tax is discriminatory since other financial institutions are only required to pay the tax on ‘other fees’
The President’s willingness to drop the proposed 15% withholding tax on digital creators is a welcome move. The Government should move further and devise tax incentives such as removing taxes on equipment used by digital creators and scrapping excise duty on the internet. This young industry holds great promise to provide decent incomes for our youths, a majority of who are jobless and, therefore, should be nurtured.
The Government’s bid to levy VAT Tax on insurance premium payout will hurt the attractiveness of insurance in a market where penetration is below three percent. Charging VAT on insurance payouts is contrary to what VAT is levied on since insurance compensation cannot be deemed to be a supply of goods and services. This also goes against the insurance principle of indemnity, which compensates you for any damage, loss, or injury caused only to the extent of the loss incurred.
As we move towards a more digital world, it is essential to prioritize data privacy and security regulations. Kenya has done well in ensuring the safe and responsible use of digital technologies is paramount to maintaining public confidence in these systems and promoting their widespread adoption through the Gazzetement of Data Protection Act 2019 and the subsequent setup of the Office of the Data Protection Commissioner.
The ODPC has done well in its various initiatives, awareness creation aimed at ensuring members of the public are aware of how the law supports them to exercise their data protection rights, registration of data controllers/processors, and in recent times sanctions and fines against companies breaching the data protection act.
Governments worldwide must work together to optimize digital technologies, ensuring they serve as a vehicle for prosperity and local finance, not as an agent of inequality. In the grand chessboard of digitalization, we are responsible for ensuring that everyone benefits, leaving no one behind.
Duncun Motanya
Chairperson – FinTech Association of Kenya