This article is a critical analysis of Mshwari after a good friend of mine brought to my attention the exorbitant charges levied by Mshwari. These revelations are only possible when the Mshwari ‘facilitation rates’ are looked at from an annual basis as opposed to a sugar-coated monthly basis. This is what my friend did. For example, one blogger is also quick to point out the figures as follows.
“The high loan interest rate, 7.5% per month, that is 90% per year on a flat rate which is equal to 139% interest rate on a reducing balance…The highest loan rate in the market today is 27% per annum on a reducing balance.”
Let us now assume that market equilibrium exists in which the consumer only pays for what the product is worth. You would then have to look at the consumer’s needs and in this case, predicament.
Mshwari targets low-income earners. This means that average savings may not go past the 50k mark while average loan withdrawals may not even surpass the 5k mark. The consumer uses this money to finance needs such as food, transport, communication that are a necessity for them.
Without this facility, these needs would still exist since they are short-term needs. Compare this with the needs of an average middle-income consumer who saves. The capacity to find alternative solutions to immediate problems exists. The later consumer can afford/opt for a facility with better terms. In other words, the low-income earner pays for what he can afford.
The straight thinking low-income earner possesses a desire to save but in little amounts at a secure facility. The key words here are savings and secure facility. You want to save but where do you save? This is the dilemma. A low-income earner has no possible secure facility that is generally available.
Well, that is until the emergence of mobile banking but without the banking part. The banking part is still a bit prohibitive for the low-income earner. Now low-income earners can just send the cash straight from wherever they earned it e.g. the market, farm etc. Mobile-money transfer systems are also easy to use and that helps. Higher income earners have many alternative facilities readily available and these facilities are as secure as it gets. Again, the low-income earner pays for what he can afford.
A low-income earner’s ability to repay the loan depreciates with each passing second. Think about it. If you take out a loan to buy food then your life is somehow imbalanced even though you are trying to get on your feet. The more time that elapses without you paying up this kind of loan then the more things may actually take a turn for the worst. I do believe that a majority of these consumers do not earn salaries and are subject to erratic inflows of income.
In this respect, there is a sincere need for the providers of the facility to make sure that loan repayment is as fast as possible. The cumulative interest is punitive, true but practical as well. Please note that an Mshwari account closes after six months of continuous default and as such, the cumulative interest owed ceases to accumulate (in my opinion). It is important to note that banks charge less punitive rates on higher income earners because of better income security in both the short-term and the long-term. Again, low-income earners in this case pay for what they can afford.
Now, paying for what you can afford does not necessarily mean you pay less. This is especially clear when looked at objectively, such as on an annual analysis as opposed to a ‘sugar coated’ monthly analysis. For example, BlueBand margarine is actually more expensive when you buy it in smaller quantities than when you buy it in larger quantities. Manufacturers will attribute this to factors such as packaging but rent seeking is a more plausible reason. In fact, when you look at it, low-income earners have to pay more for owning less. This is the price of poverty, the price of capitalism.
Other savings facilities exist. The fact that certain consumers prefer this one may be an indicator to the existence of a market equilibrium. In other words, the telecom company and the banker are providing a product at a price that these consumers are willing to pay for. There is no violation of market principles but there is an unveiling of just how much poverty can cost even for those trying to get out of it.
You may also want to read the following article. Please click on the link below to find out more.
You can find the particular blog whose figures I have quoted above by following this link at http://tuwakenya.appspot.com/post_read/110/Mshwari%20Inside%20Out,%20Everything%20you%20need%20to%20know