During a quarterly media roundtable discussion in March organized by EFG Hermes, a financial services corporation, one thing stood out – Governments need to do more of engaging financial services players, like Safaricom, to lower costs, especially for B2B customers as less of dabbling on digital currencies, the so-called Central Bank Digital Currency (CBDC).
Experts at the roundtable argued that while CBDC, a new type of money issued by a central bank, could make transactions faster, cheaper, and even more secure, key players in the mobile financial service space such as Safaricom and Airtel will still have an upper hand because of their value add and strong ecosystem. Considering digital currencies are App-based, experts say the impact could be seriously hampered given relatively low penetration of mobile phone coverage.
Digital currencies are desirable. They could even be welcome if uptake in countries like Nigeria and Bahamas is anything to go by. Nigeria is the first African country to formally adopt CBDC, the eNaira. For Bahamas, CBDC made sense because of its big number of unbanked people. This is not the case for Kenya, where mobile money has absorbed more than three quarters of the population into the ‘banked’ cluster.
According to the Central Bank of Kenya, what inspired the introduction of the proposed CBDC was ease for cross-border transactions. The currency will be different from the popular cryptocurrency that most Kenyans continue to adopt because it will be backed by CBK regulations.
For CBDC to run sustainably, the role of government in regulating while also negotiating with service providers like Safaricom and Airtel is key.
Without reforms, players like M-Pesa and Airtel money will still hog the market. M-Pesa revenue, for example, grew 45.8% year-on-year following the return to charging of transactions at the beginning of January 2021. Its total transaction value also rose 51.5% year-on-year to Sh13.7trn as the value of transactions grew by 42% to 7.3bn.
Mobile financial services providers will still have an impact in the market with or without digital currency backed by the CBK. It will also take time for digital currency to take root in the current lending environment – banks are already struggling and the future seems uncertain.
As Moodys, the global credit agency, financial services providers highlights, banks are going to keep recording bad loans. It will take Kenya 12 to 18 months for bad loans to fall back to pre-pandemic levels. Lenders contending with recovery are not ready for digital currency.
Let’s work to level the lending playground and ensure banks are stable enough to finance new lending frontiers locally and internationally before introducing CBDC.
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