Managing the Risks of Mobile Money: The Banking Agent Reform in Kenya - A Scenario-Based Policy Analysis

Abstract

Kenya is about to embark on an important reform to expand banking to millions of poor households by enabling third-party retail agents as a low-cost distribution alternative to branches. However, this initiative risks being undermined by the mobile network operator (MNO) Safaricom, which dominates the agent market. Safaricom may opt to foreclose competition to defend its entrenched position in the critical downstream mobile money transfer market.

This study uses econometric market segmentation models to demonstrate the merits of the planned reform. It then describes the strategic motivation of key players in the banking and MNO markets, and uses stylized scenarios to illustrate the channels and potential impact of anti-competitive behavior. To prevent these adverse outcomes, it proposes to refine the reform design, and complement the current policy with measures that change the incentives to exercise market power.

Keywords: Kenya, mobile money, branchless banking, banking agent reform, scenario analysis, financial inclusion, competition policy

JEL Classification: D21, D43, D85, G21, G28, K21, L13, L42, L96, O33