Digital Banking for Social Entrepreneurs in Kenya

The transformation of digital banking in Kenya has the remarkable ability to redefine the very essence of social entrepreneurship and inclusive development. Mobile money providers and the other related services like KCB M-Pesa savings, credit, and transaction insurances offer social entrepreneurs the ability to finance and sustain ventures in services like agriculture, boarding, education, etc. By decreasing entry barriers, social development initiatives transform the formerly money deprived and unbanked communities for the better through the remarkable positivity of low cost and safe digital banking services. Payment for a farmer’s produce, as an example, is now possible through mobile banking as intermediate service providers are removed. Digital banking intricacies shift the financing of social services to the bank and provide mobile banking business opportunities. Digital banking provides services like cross subsidization of support and health services, educational support, payment for solar systems, and others as Centre for mobile banking driven business opportunities.

Introduction

As the world grapples with unique and complex social issues, social entrepreneurship has emerged as a novel yet practical response (Yunus Moingeon, & Lehmann-Ortega, 2010). Insinuations in which the state is unable to provide critical functions and the mainstream profit-oriented businesses are likely to bypass the economically vulnerable, social enterprises are a hybrid solution, integrating a market driving focus with a social objective (Prahalad, 2005). They are uniquely positioned to address persistent social, economic, and environmental challenges such as poverty, unemployment, inadequate access to healthcare and education, food insecurity, and the growing impacts of climate change (Sen, 1999).

In developing countries, social entrepreneurs have the potential to change local economies; however, many are impeded by lack of credit, savings, poorly constructed payment systems, inadequate insurance, and unreliable payment systems (Beck, Demirgüç-Kunt, & Levine, 2007). These issues are worst in remote locations where high costs, formal banks, and low-income people avoiding expensive services make formal banking systems unavailable (Allen et al., 2016). Financial exclusion prevents entrepreneurs from fully developing their businesses and businesses from deepening socio-economic and structural inequities against financially fragile or excluded people (vulnerable people).

1. 0 Social Entrepreneurship in Kenya 

Social entrepreneurship developed as a strategic response to the interface of social, economic, and environmental challenges (Oxford Research Encyclopedia, 2021). It comprises the social value creation objective integrated with or substituting the financial profit objective (Weyrauch & Herstatt, 2017).  Unlike the social profit enterprises that focus on maximizing the shareholder profit as the principal objective, social enterprises seek to achieve the shareholder profit objective while addressing social challenges.

Profit-driven businesses and socially driven ventures have different motivations and ways to evaluate their performance (Nicholls, 2006). Unlike social enterprises, which weight effectiveness based on social, environmental, and economic value, traditional businesses focus on revenue, profit, and market share (Battilana & Lee, 2014). Take the case of an agribusiness: while a profit-driven agribusiness would focus on maximizing yield and profit, an agriculture social enterprise would centre on transforming smallholder farmer income, advocating for more sustainable farming, and improving food security in neglected areas of the world (Schwab Foundation for Social Entrepreneurship, 2018).

2.0 The Rise of Digital Banking

in Kenya Digital banking in Kenya is developing a strong foundation and represents one of the fastest digital transformations of any developing economy. This phenomenon has been brought about by the intersection of innovation and recognition of the need for financial inclusion (Mbiti & Weil, 2011). In the past, Kenya's financial system consisted of traditional banks, microfinance institutions, and SACCOs. These providers of banking services utilized a branch network and the account-based banking system (Kimenyi & Ndung’u, 2019). While financial institutions targeted and served the population with capital, they had limited reach in the rural areas, resulting in a large part of the population remaining unbanked (Jack & Suri, 2014).

The introduction of M-Pesa in 2007 revolutionized the digital finance industry in Kenya and the world and was a significant step in the ongoing expansion of financial inclusion (Jack & Suri, 2011). M-Pesa permitted all users with basic mobile phones, and thus no access to a bank, to pay for services, and deposit, withdraw, and transfer money, all without a bank (Mbiti & Weil, 2011). Especially in remote areas, financial services became safe, affordable, and accessible to unbanked individuals, many of whom had been excluded from the financial system (Kimenyi & Ndung’u, 2019). Mobile lending platforms such as M-Shwari, developed with Safaricom and NCBA as partners, and KCB M-Pesa took the M-Pesa model a step further.

3.0 Financial Inclusion in the Kenyan Context 

In Kenya, the challenge of Financial Inclusion has evolved into something far more complicated than the mere attainment of basic banking facilities. Financial Inclusion incorporates micro-financial services, collection and payment digital systems, savings accounts, and insurance services (Mbiti & Weil, 2016). Financial Inclusion seeks the integration of people and enterprises, particularly in low and surplus economies with economically weak and impoverished disproportionate area settlements, in the all-encompassing, tiered financial, economically empowering ownership, and resilient, development system. (Suri & Jack, 2016).

In Kenya, social enterprises have benefited from financial inclusion. New opportunities have come within reach for mission-driven enterprises, which have been equipped with the resources necessary to procure and manage operational funds and expand their reach (Ledgerwood 2013). Access to credit and microloans allowed social entrepreneurs to fill some traditional financing gaps and fund operational expansions and socially innovative investments to tackle social challenges (Jack and Suri 2014). Financial services have also promoted economic participation and the establishment of self-sustaining enterprises for women entrepreneurs, who have then engaged in community-oriented entrepreneurial activities (Demirgüç-Kunt et al. 2018).

4.0 Innovative Digital Banking

Business Models in Digital Banking  In the case of social sector digital banking in Kenya, innovations in marketing have unlocked new market and sustainable revenue opportunities (Jack & Suri, 2014). The PAYG model is a good case in point considering the innovations in the renewable energy sector with MKOPA and Sun King (Kiva, 2019). These institutions provide household solar energy system and allow customers to service the solar-powered systems using mobile money. The model substantially makes financing clean and sustainable energy less costly to households and social enterprises that focus on water and hygiene sanitation services that are flexible, necessary, and infrastructure critical for social-economic development. (M-KOPA, 2022).

The integration of social enterprise crowdfunding with social impact investing (Gikandi & Bloor, 2019). Social entrepreneurs can engage and forge relationships with a multitude of 'ordinary' constituents, which allows them to fundraise for their mission-driven ideas (Mbiti & Weil, 2011). For example, social enterprises are participants in impact investing partnerships, like those with Renew Capital and Impact Hub Nairobi, where funders can financially back enterprises that fuel positive social and environmental change while earning market returns (KPMG, 2020). 19).

5.0 Challenges of Digital Banking for Social Enterprises

Social enterprises in Kenya are faced with unique opportunities with the rapid adoption of digital banking within their operations.  Continued achievement of the expected growth from the new opportunities provided will depend on the balancing of philanthropic and profit opportunities with the new digital systems (Mbogo, 2010; Gichuki and Kihoro, 2019). Proactive steps that involve the incorporation of strong end-to-end encryption, multi-factor authentication, and the conducting security audits are vital to alleviate the risks (KPMG, 2020; Kimani, 2021). These protective safeguards should be enacted to preserve the social enterprises, and the trust digital platforms provide beneficiaries, donors, and investors (Mbogo, 2010; Owino & Were, 2022).

A subsequent challenge includes the overly expensive the cost of digital lending. Even while M-Shwari, Tala, and KCB M-Pesa have increased credit access, social enterprises still deal with exorbitant interest rates, predatory lending practices, and repayment terms that are too short and are incompatible with mission-driven operations (Kimenyi & Ndung’u, 2019; Kimani, 2021). These enterprises are less likely to reinvest profits into social programs Return on social investment would be limited and the overall social venture would be negatively affected in terms of profitability and sustainability (Gichuki & Kihoro, 2019; KPMG, 2020).

6.0 Building a Sustainable Digital Finance Ecosystem

The building of a digital finance ecosystem in Kenya can be achieved through the integration of various technological and non-technological means. All digital finance services must be available to social enterprises and underserved populations.  Building and integrating advanced means to combat cybercrime and fraud is at the foundation of this problem. With mobile money services and digital loans becoming ubiquitous and part of integrated financial services, the risks of hacking, phishing, identity theft, and other fraud crimes will soar.  As is recorded, the risks and problems of fraud fascinating in integrated digital services is a studied problem.

The creation of digital and financial literacy systems world-wide would form reliable and all-encompassing inclusion frameworks. Those who do not know of the existence of digital instruments, or do not possess the skills or confidence to operate such instruments, will consider tools, no matter how sophisticated, to be of no value. Community training initiated at the level of the Swahili was mentioned in the literature and local vernacular forms, is likely to help in bridging the literacy divide and help rural dwellers and other vernacular speakers acquire the skills to access and utilize the financial services offered through the Internet.

 In conclusion of the research agenda

To achieve the vision of Kenya as the best example of digital banking for social entrepreneurship purposes, the alignment of policies, innovations in technology, and the building of capacities, must be synchronized. Formulation of social entrepreneurial ecosystems that expand innovative socio-economic opportunities with holistically transformative sustainable development for underserved populations will be facilitated by affordability and accessibility of financial technologies that are safe to use, digital partnership initiatives, digital literacy promotion, and regulatory adjustments. Kenya can showcase the considerable social impact, increase economic rate participation, and empower entrepreneurial communities’ resiliency to be sustained by the ability and usage of cash, that socio-entrepreneurship ecosystems can provide when appropriate digital financial services that are affordable and accessible are made available.

References

Available on request.