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Fintech is Growing Fast in Kenya, Attracting New Interest from Chinese Investors

By Chen Liang, A China House Fellow
Editor’s Note: This article was provided to the China Africa Project through a partnership with China House, an independent organization that provides international educational opportunities for Chinese high school and university students to explore Chinese engagement in Africa and other developing regions. This article was only lightly edited and does not reflect the views or opinions of The China Africa Project.
It is a Sunday morning, Sarojini is shopping in the City Garden Market where residents of Kenya go for cheap and fresh vegetables and fruits in Nairobi. Instead of reaching for cash to pay for the goods, she takes out her phone, clicks a few buttons and completes her purchase. Indeed, mobile money is pervading common Kenyan life: wherever cash is accepted, M-Pesa, the most popular mobile money in Kenya, is as well. Sarojini, 60, born in New Zealand, has adapted to M-Pesa and has been utilizing its various functions, including mobile transfer and borrowing.

A passerby in a Nairobi market helps a pair of visitors on how to use M-Pesa

In Kenya, mobile network operators act as banks; aside from an account for air time balance, mobile users can choose to open a separate account for mobile banking. People can transfer funds to other individuals throughphone numbers and pay merchants through assigned identifiers. Like other bank accounts, people can receive interest and apply for loans through mobile banking.
After M-Pesa was launched by Kenya’s biggest mobile network operator Safaricom in 2007, a diverse array of financial technology innovations started to sprout, making Kenya the hub of Fintech in Africa. How does Fintech serve Kenyan people and what are its foreign influence?
I went to Kenya and interviewed typical Kenyan companies focusing on different areas of financial technology, including online payment, bank integration with mobile money, international money transfer, peer to peer lending and crowdfunding.

“Kenyans are welcome to new technologies and creations especially young people,” Mr. Duan, Chinese account manager for United Bank for Africa

Kilimall, an online shopping platform based in Changsha, China and Nairobi, Kenya is currently inventing its own payment method Lipapay, in order to avoid the high commission charge posed by M-Pesa. According to storage manager Jacky from Kilimall, Lipapay has become the backing technology of trading between large companies, such as EcoBank. Suspicious online payment activities are being monitored by the tech team in China. He concluded that Lipapay is secure, fast, affordable, and trustworthy. Currently, Lipapay’s transfer ability is limited to corporations, but it will be available to customers in the upcoming update to Kilimall.
Besides online payment, Kilimall is solving delivery problems, as well, after learning from the delivery operating experience in China. In Kenya, local delivery is extraordinarily expensive because of its relatively underdeveloped infrastructure. Instead of delivery to each customer’s address, Kilimall utilizes summary statistics from online shopping activity to partner with a few local businesses to serve as pickup centers which are called “Cainiaoyizhan” in China. But instead of building new pickup centers like Chinese delivery companies do, Kilimall has chosen to partner with local businesses. Compared to doorstep delivery, picking up at the centers costs no additional delivery fee for customers, while it increases delivery efficiency.

Visiting a Kilimall warehouse in Nairobi

“Kenyans are welcome to new technologies and creations especially young people,” Mr. Duan said, sharing his findings gained from ten years of working experience in Kenya. He is the Chinese account manager for United Bank for Africa. To reach people from remote areas where ATM machines are not easy to find and satisfy young people’s demand, banks are making progress in Fintech as well. Duan introduced the semi artificial intelligence product for UBA, “Leo,” a bot for social media platforms such as Facebook. “Leo” accepts commands in private messages, gives corresponding instructions and offers help.
When asked about how will he spend his weekend, driver Peter Alex thought for a second and grinned: “I go to bars with my girlfriend, sometimes I spend thousands of shillings there.” Peter is not the only case. FlexPay’s CEO Richard shared that he wanted to buy a laptop at a shop when he was in university. He didn’t have the money to pay for it at one time, so the shop owner suggested a plan for him to collect the laptop after saving money every month in the shop. The shop was quite far, why not save money through an online platform? Richard wondered. Thus, he established Flexpay, combining this payment method with online payment technology to help people save money for an expensive commodity they desire. Customers use his platform to save money and then collect the products at a discounted price. His business was successful: Kenya-based merchants, including the dominant supermarket chain Tuskys, generally see a 11% increase in more expensive goods after cooperating with Flexpay.
Visiting the offices of Flexpay in Nairobi

For people who need loans instantly, however, the country lacks a national credit score system for financial institutions. As a result, a new loan company, Pezesha, emerged to calculate if a person is trustworthy and seeks to increase its loans. It utilizes machine learning to identify different patterns in different users’ M-Pesa payment history and predict if a person is likely to default. With this measure, Pezesha enjoys a significantly lower default rate, lower fraud rate, and lower interest rates. Moreover, people can become lenders for Pezesha to conduct small investments. Many borrowers have converted into lenders after their initial success in business.
Noticing the huge gap in the financial connection between Kenya and the rest of the world, local Fintech companies have developed creative alternatives. LelapaFund does such a task: it gathers funding from outside of Africa to invest in African companies through an online platform. It performs a thorough check on the profile of a company and decides if it would invest in a company, which makes the connection between small startups and foreign investors more convenient and reliable.
Founded in 2013, BitPesa aims to make business easier in Africa. BitPesa is doing international money transfer by selling a type of currency for Bitcoin and purchasing another type of currency for Bitcoin the next moment. Though the business started with only 20 employees in Nairobi, it soon expanded into other countries such as Nigeria. Unfortunately, in 2015, the Kenyan government banned BitPesa from using financial institutions because of the concern on network currency. At that point, however, BitPesa could sustain itself as it had significant business in other countries: the company sits on theglobal blockchain counsel and on the digital currency counsel of Nigeria.
Now, even though it no longer operates in Kenya, its headquarter is still located in Nairobi and employing local workers. According to the Senior Marketing Manager of BitPesa, “Nairobi just features a better environment for tech companies compared to other locations in Africa, such as Lagos.”
When BitPesa was blocked, another company was affected as well: Lipisha, an online payment gateway that unifies tons of mobile monies from different African countries and bank payments. Lipisha aimed to bring convenience for small and medium online shops so that Africans can pay across countries more easily.
Its concept began with the Mama Mikes shop, which allows sending money easily between Kenya and the United States. The founder also envisioned mobile payment in 2007 and called for a convenient cross-currency payment method in 2009. Lipisha was formally established in 2011 and has integrated about 40 payment methods since then. Nowadays, Lipisha not only has small and medium businesses as customers but also offers enterprise service for large businesses.
The advanced Fintech idea from the foreign world are being put into practice in Kenya. Kilimall learnt its payment technology and delivery mode from China; BitPesa uses the global product of Bitcoin; Lipisha learned from Mama Mikes from the US; Pezesha dominates with machine learning, a subset of artificial intelligence. But we can see startups are making adjustments to suit the local situation and serve not only big businesses but also poor people from rural areas.
Foreign investment empowers Kenyan Fintech development as well. Kilimall is exclusively funded by Chinese investors; BitPesa is mainly funded by western capital; LelapaFunds mostly receive western investment; Pezesha and FlexPay are supported by Google LaunchPad; only Lepisha is mainly local, with a small fraction of outside investment. Among all these companies, all non-Chinese companies welcome the idea of more Chinese investment, while the only Chinese company Kilimall did not comment about western investments.
With foreign interactions, Kenyan financial technology will grow better and fulfill the desire of Kenyan people. The CEO of Lipisha Martin Kasomo shared his experience of being invited to China for a fintech trip several years ago by Mr. Ma, the founder of Alibaba. He said: “What I learned from that trip was to look at Africa as one single market like China, which supported my idea of Lipisha.”
Chen Liang is an 18 year student from China who now lives in Los Angeles and will begin university this fall in the United States.