Global Spotlight: Kenya

As a continent filled with still developing economies, Africa is rarely mentioned in the conversation of B2B payments innovation. But in Kenya, recent progress in the space not only reveals who the nation is looking to in order to implement its own policies but shows how Kenya can itself be a model of innovation and policy for other jurisdictions around the globe. First, however, the nation will have to grapple with the challenges of modern payments systems.

Procurement

Kenya is one of many nations around the globe now turning to e-invoicing mandates to streamline and improve the government procurement process. For the nation, implementing such a mandate was as much an effort to improve transparency within the government contract business as it was to save money. While the program was first launched in 2005, officials revamped the venture less than one year ago.

But Kenya caught the world’s attention last month for its uniquely aggressive implementation process. President Uhuru Kenyatta reportedly sent warnings to government agencies that if they do not comply to the e-procurement mandate, they risk termination. All procurement practices not conducted through the government’s e-portal, the Integrated Financial Management Information System (IFMIS), would be subject to an investigation.

While strict, President Kenyatta’s stance to implement digital procurement practices was perhaps necessary. Earlier this year, he slammed government officials for their “outright theft and blatant breaches of ethical standards” regarding procurement practices. E-invoicing and the digital procurement platform aims to reduce government corruption, according to reports.

The IFMIS once again caught headlines with reports that procurement and accounting fraud led to nearly one-third of revenue disappearing — more than $1 million. Worse, the State House revealed last week that for two days during the month of May, hackers allegedly broke into the procurement system, gaining access to sensitive data and authorizing unlawful payments, reports said. Officials assured that no funds had been lost because the breach was detected quickly before any payments were transferred.

The revelations have caused a new round of political controversy over the IFMIS, and officials have vowed to investigate the matter. But the security breach highlights the importance of data protection for all government- and business-owned digital procurement platforms. According to researchers at the University of Nairobi, the IFMIS is subject to security failures in part because of a lack of technical training in the platform and a rushed implementation of the program — both critical for the successful launch of any e-invoicing and procurement venture.

Cross-Border Payments

Just as Kenya’s ongoing trials in the digital procurement space can serve as a lesson to other nations, the country’s role in proposed pan-Africa payments and commerce programs will similarly be closely watched by other jurisdictions looking to implement similar cross-border economic ventures, including the ASEAN nations and the EU.

A new trade deal among the eastern side of Africa was announced June 9. The Tripartite Free Trade Area pact, reports said, culminated after five years of discussion on the topic. The plan is complex but focuses on easing the burden of moving goods across borders. Reports said products can be subject to high customs fees and require several documents, reducing Africa’s intra-African trade to just 12 percent (compared to as high as 70 percent across Europe).

Key to this plan will be a strong cross-border payments system as a spike in transaction volume is expected with the pact. Kenya is one of the key signatories of an African Union plan to establish a single currency, but not for a few decades. Until then, Kenya is a key market for cross-border payments service providers. Vodafone M-Pesa, for example, launched a partnership with MTN Mobile Money in April to begin cross-border payments services in several nations, including Kenya.

Supporting SMEs

The Tripartite Free Trade Area pact will also be critical to the growth of SMEs more easily able to do business with the rest of the continent. But they will need the money to do so.

On Thursday (June 25), the Kenya Bankers Association reportedly reelected chairman Joshua Oigara, who has already spearheaded an array of programs to get Kenya up to speed with payments technology. One of those programs, the Sustainable Finance Initiative, aimed at boosting banks’ responsible financing practices. Following his reelection, Oigara said more than $1.9 billion has already been lent to SMEs in recent years, more than some of its neighbors.

“Banks are transforming enterprises through their lending activity and value-added services,” he said. “This is a tremendous feat that is leaps and bounds beyond the investment our counterparts in more developed markets such as South Africa and Nigeria are directing to fuel SMEs.”

Part of the nation’s SME funding strategy includes new divisions within the National Bank of Kenya geared solely towards business lending, including SME, corporate and treasury lending units.

Still, some argue that even with boosted SME lending efforts, small businesses are forced to rely on financing that is too expensive. Alternative lending has yet to take off in the nation, as well as in the rest of the continent, but the private sector has initiated its own efforts to strengthen the financial position of Kenya’s startup community.

Kenya-based company Uhasibu, founded in 2011, is providing SMEs with a digital accounting system to more adequately manage invoices, cash flow, payroll and other finances. The self-funded startup aims to help SMEs in Kenya, still largely dependent on cash, to migrate to digital operations. “Some of the features we have included, like petty cash management, are very Kenyan ways of doing business, because a lot of Kenyan businesses run from petty cash,” said Uhasibu Sales and Marketing Manager Angela Nzioki in an interview with Disrupt Africa earlier this month.

The platform supports all East African currencies, according to reports, to facilitate cross-border payments between businesses. While the startup is still seeking funding, the impending Tripartite Free Trade Area pact may offer a boost in demand to Kenyan businesses that are beginning to eye buyers and sellers outside their border.

As Kenya grapples with modern business payments tools like digital procurement systems and mobile payments, the nation will surely be looking for outside examples around the globe of economies that have already succeeded in these spaces. Of course, there are sure to be speed bumps, especially as Kenya prepares for even more drastic measures like cross-border commerce and payments systems. But as these plans move forward, it may very well turn out that Kenya becomes the model for even the most sophisticated economies looking to implement similarly challenging B2B payments ventures.