How to Get an M-Pesa Refund

and other Safaricom tales

M-Pesa mistake: I interacted with two products over the weekend from Safaricom: One is of course MPesa from Safaricom (Kenya’s largest mobile company), the money transfer system that has been the talk of the remittance and mobile banking world; but what should be a Kenyan success story, is a Vodafone (UK ) tested, developed, and rolled out here as a Safaricom licensee. There was quite a bit of discussion of that at the mobile for change summit on Saturday in Nairobi, but that’s for another day.

My M-Pesa tale is one that many of the 6 million registered users have probably experienced. You go to a pharmacy/cyber café/supermarket and pay a Safaricom agent your money to load you phone up with funds (up to Kshs. 35,000 or ~$450) and zap it off to pay for anything – grandma’s medicine, farm inputs, auto spare parts, satellite TV, etc. the list of MPesa uses is growing

You then wait for a few seconds and get a confirmation message of the transfer, only to discover that you have sent the money to the wrong recipient! Somewhere in Kenya, there was a lady with an unexpected month-end bonus from an anonymous donor. Common rare courtesy calls for one to refund the money, but #$%* did not answer my calls.

It appeared that I would not be able to persuade her to refund my money and so I wrote it off as money lost. I went back to the same agent, and paid money again and sent it off to my aunt, this time with the correct number.

I was till mad and went on to @Twitter ranting and raving that I had sent the wrong person my money and that #$%* had probably gone on a celebration spree as some idiot had sent her a weekend bonus. But on twitter my prayers were answered - by @69MB (who’s traveling in Tanzania) and @Ngeny who sent tweets back, that I could halt that transfer unless #$%* had already withdrawn the money.

Next, I rushed and called the dreaded (always busy) customer service line at Safaricom (#100) to try and get my money back. After a dozen attempts I got through and was asked to call another line at Safaricom (#234). This one was even busier, but I eventually got through to a gentleman, and I explained the error I made. He asked several questions - my name, intended recipients number, amount sent, number wrongly sent to, my birth date etc. I had all the answers and was every relieved when he said that my money would be refunded within 72 hours. EDIT (uhusiano add that there is an Mpesa Customer Care dedicated line 0722002200)

Oh and about a ½ hour after I finished with Safaricom #$%* tried to call me, perhaps she had raced to agent to withdraw her booty only to be told that the transfer had been held up. I was courteous enough not to answer her call and yell at her

So I now have my money back (still in my phone) and I’ve learnt, thanks to Twitter, and Safaricom, that it’s possible to get an M-Pesa refund

EDIT official advice from Safaricom

If you send money to the wrong number:
- Call Line 234 immediately and provide them with the number that has erroneously received the cash.
- Funds sent to a wrong number will be reversed only if still available in the wrong recipients account.
- If successful, you will receive an SMS indicating that a reversal has been done

Micro air-time loan : The other Safaricom product I tried to use was Okoa Jahazi (rescue a sailor in Swahili? – someone correct me) (Okoa Jahazi literary means save/rescue a ship/boat/dhow in Swahili) which works on the premise that you may be stranded somewhere and need to maker an emergency call but don’t have money or are not in a place where you can buy an airtime voucher to complete the call.

Okoa Jahazi is a 50 shilling ($0.65) airtime voucher, almost a micro-loan, which you can request from Safaricom by typing a simple code. It’s not free and will be deducted the next time you purchase a similar voucher. It also attracts a 10% levy, so you get just 45 shillings.

I requested the voucher, as an experiment and made some calls. I then bought a replacement 50 shilling voucher which paid off the micro-loan from Safaricom. But I had a bit of difficulty after that; I could not call a rival network (Zain, Orange) or browse the internet, using the borrowed airtime – it was strictly for making calls to other Safaricom users. So I had to buy another voucher, to get my credit up and out of my micro-debt. This comes when you don’t read the fine print. Anyway it’s a useful service, but one that should only be used for emergencies.

Summary: So we have two products form Safaricom. One I have used several times, and will probably use again, one that I hope I will not have to use again (emergency only). The rules are quite clear, but few read the fine print of the offers made by service companies. It makes sense that the micro-loan is restricted to minimal emergency functions, but it would also be nice of Safaricom to inform their (6 million) MPesa users that it is possible to get refunds from M-pesa. If I was not on @Twitter I’d have lost a lot of money

Apple’s Big Man

Apple CEO and founder Steve Jobs is back to work and Mac users around the world and apples shareholders can exhale and look forward to more years of revolutionary products. But what does it mean when a CEO is so intricately tied to his brand and has no clear succession strategy?

His mysterious five month absence from work is rather similar to that of the President Omar Bongo who, however, did not return to rule Gabon.

Hundreds of family heads, company founders, business leaders, patricians, and presidents consider themselves immortal and, like Apple, rarely entertain discussions on health or succession.

Blind Item: There are three gentlemen in Kenya who fit the equal of Steve Jobs - leaders so closely inter-wined with their brand and with no defined succession plan: one is a center of power, one is a leading revenue generator, one is a fast banker; two have disclosed medical problems, two have had recent aircraft mishaps, and two have no defined successors. All three are integral to their brand and it is important that their partners and shareholders define real succession strategies.

Finally, now that the real Steve Jobs is back to work we can resume reading communiqués from the other Steve Jobs.

Kutwa Tuesday: Corporate Mysteries

and other Bank Twits

Twitter is a micro-blogging tool that is really nifty for doing mini-posts, forwards and other remarks that (are on any subject) and are maybe not worthy of a full blog post. Here’s a summary of my week on Twitter where there was some interesting discussions, but so far yet to unravel mysteries at Kenya airways, Safaricom and Athi river mining? and some replies

June 15: nairobbery Reading about a Nairobi scam where people actually throw themselves on the windscreens of slow moving cars and later ask for compensation
Kenya central bank study shows popularity of MPesa; users rate it cheap, fast, reliable & accessible http://tinyurl.com/nozxe3

June 16: Media mystery: what happened to the Bamburi vs. Athi story? there were many reporters there but was story buried? http://tinyurl.com/n2k5o8 replies @nakeel It’s called the power of advertising and who pays your bills..

June 17: Economist says Africa's next country South Sudan "will fail before it has even been born" http://tinyurl.com/kwlw9w
DT Dobie advertising that a Mercedes E200 kompressor is 1796cc and therefore compliant with new Kenya Government rules for Ministers cars
Anti-corruption initiatives falter around Africa http://www.nytimes.com/
Racial Discrimination at World Bank?http://bit.ly/fNXUy
CNBC TV show President Obama killed a fly during an interview. Take it away FOX
Is the Kenya rugby safari sevens tourney over-priced at 1,500 ($19) per season ticket? http://tinyurl.com/m9yhmb
Two new independent (non stockbroker) directors at Nairobi Stock Exchange - NSE Board http://tinyurl.com/n8qqvx

June18 KPLC is going to increase the birth rate in kenya if they keep failing to supply electricity.

June 19: Kenya and Uganda Catholic churches in a race to hell with simultaneous abuse scandals; media coverage in UG is NSFW http://www.redpepper.ug
Michela Wrong to visit the World Bank http://bit.ly/LpJHy

June 20 Discovering the mysterys of white cap, EABLs no.2 that survives recessions without any advertising
replies @coldtusker I didn't say it 'failed' but IMHO its core consumer base isn't GenX but my mzee's generation. What happened to WC lite? White Cap's demographics are skewed to stable, older, wealthier, 'old dogs' market. It has failed among the 'younger' drinkers. @Fintradecapital thats really true. Its drinkers r consistent.
I use nivea creams, but all their posters and adverts scream i am soooò not their target customer!
replies @uhusiano is cos they are all jungus? @coldtusker Are you thinking of doing a chaz bono? re: nivea - not their target market... LOL... @devonwhittle I'm also a Nivea customer, but their "skin whitening" products and ads worry me – @karuoro I use Nivea shower gel but prefer Vaseline lotion..find nivea lotions too..sticky (don't know if that makes sense) @Ethnicsupplies I've never liked the smell @Shiko_Msa we the target customers that is. feel welcome. Even though they dont welcome we do.
Stomping through kilelewshwa - many apartment complexes have 'to let' signs

june 21 Safaricom selling cheap internet ready phones including nokia 1680 for $38 replies @alykhansatchu I was reading that @ thinking 13m Subs converts to 2m x $1.00 a day internet
@coldtusker also former Kenya Airways director is CEO air uganda. Seems KQ is now finishing school for sub-saharan airline bosses. replies @coldtusker Hugh Fraser (ex-KQ now CEO of Air Uganda) was in the very important Commercial Director post @ coldtusker Neil Canty (former CFO-KQ) went to Gulf Air though he has left them for another gig. Africa again?

R/T @airlineroute KLM to operate MD11s on Nairobi-amsterdam for Kenya Airways from july to september! What will the 777s be doing?

Unexpected dividend cheque from stanbic uganda ~$15 in the mail today #migingo
replies @PinkM How do you cash your Stanbic UG cheques?I haven't cashed for 2 years now. Thanks.Will try that. I wish it was possible to bank at CFC Stanbic even for CFC a/c holders

Kenya retain rugby revens title, but Is that DJ CK on pitch with team at #safarisevens? He's kenya's top gate crasher replies @kenyanpundit hehehe, DJ CK was EVERYWHERE at the WEF in Capetown @kachwanya you just made me remember almost similar incident sometime back during Orange launch..yeah he somehow did that

June 22 Kenya' anti-aid author envious of @dambisamoyo http://bit.ly/mBdFg
replies @kainvestor Many African anti-aid champions see sinister agendas in the success of @dambisamoyo. She wasn't the 1st to write against aid >>>
Safaricom shares pick up after managers visit Europe & US fund investment firms http://tinyurl.com/lewfyn #safaricom #investorrelations
Family Bank 25th anniversary
President @mwaikibaki encourages banks to use mobile phones to reach beyond the 22% 'banked' kenyans
Have more twitter followers than feedburner subsribers; what does that mean?
people who vandalised the Kenya Railways Kibera railway, may also have got paid to fix it after http://tinyurl.com/c9ykra

June 23 Any well wishers to donate a PC or laptop to Mamamikes who were recently robbed? http://www.mamamikes.com/bl...
59% of small business owners rely on credit cards for working capital! scary http://preview.tinyurl.com/

Urban Inflation Index – June 2009

Tracking changes in the three months since the March 09 index and to approximately a year ago with the July 08 index

It’s going to be a tough year given the financial results that we have seen so far. Safaricom had reduced profits, while Zain and surprisingly Kenya Airways also recorded losses for the financial year. And while most banks have growth of 30 – 40%, GTV went bust.

The arrival of the submarines/fibre cable are expected to bring down the cost of communications sometime in the future, but at the same time it is expected that the Kshs. 109 billion ($1.4 billion) to be raised from local financial markets in the next few months to finance the services, programs, and deficit of the Government of Kenya will in the process also push up interest and borrowing costs for individual and businesses.

Gotten cheaper

Fuel: A Litre of Petrol fuel (at local petrol station) is now Kshs 72.5 (~$4.18 gallon) down 3% from 75 in March 2009. A year ago, petrol was retailing at over 100 shillings per litre.

Staple Food: Maize flour which is used to make Ugali that is eaten by a majority of Kenyans daily. A 2 kg. Unga pack at Uchumi today costs Kshs. 92, down from 96 in March. However this is still much higher than the Kshs. 73 a year ago and a high food prices remain a sore point for many consumers – both urban and rural.

Communications: While phone calls through leading mobile company Safaricom are largely unchanged at about 8 shillings per minute (~$0.10), calls are cheaper at Orange and Zain, but probably from subsidizing consumers to lure them away from Safaricom. What has gotten cheaper is the cost of data. A Safaricom modem now costs Kshs. 4,000 ($51) and has been dropping periodically since it was introduced in 2007. Safaricom has also several ongoing promotions for laptops, blackberry’s and data-enabled phones as it competes with the likes of Access Kenya, Orange who sell the I-Phone, and Zuku from Wananchi who last month slashed in ½ the price of unlimited broadband.

Foreign Exchange: 1 US$ equals Kshs. 77.94 having appreciated from 80.07 three months ago. It was 67.4 a year ago, but few expect it to edge downwards for the next few months.

Unchanged

Entertainment: A bottle of Tusker beer (at local pub) is Kshs. 130 ($1.60) unchanged from three months ago, and also priced the same as last July. While prices have not changed, beer sales may on shifting sands. Former Trade Minister and member of parliament Mukhisa Kituyi was interviewed a few weeks ago on TV and he made some remarks on how the economy is impacting the mwananchi (ordinary man) – he said before someone would go and watch a soccer match on TV in a sports pub and have 4 beers, today that same person will nurse a single beer for the duration of the match (was he talking about himself?)

More Expensive

Electricity: my bill last month is Kshs. 2,100 ($27) up from 1,800 three months ago (comprising fuel cost of 436c/kwh, and forex adjustment of 63c/kwh – it was lower 649c/kwh last July). The expectation is that with drying rivers and water dams, electricity generation and consumptions costs (Kenya is still hydro or diesel fuel dependent) will become more expensive. In his Budget Speech last week, Kenya’s Finance minister proposed to remove taxes on generators and other power production equipment, perhaps in anticipation that more companies may be buying these soon. Already, blackouts (announced and unannounced) are becoming more common either from transmission failure or vandalism (some brave people steal wires or fuel from transformers!)

Of concern also is the quality of electricity supplied. In the last week, my microwave and kettle have been knocked out, while a neighbour lost both water heating boilers in her house. The inconsistent electricity supply also knocked out my TV a few months ago and I’m scared of charging my laptop except late at night when i expect supply to be stable!

Other food item: Sugar (2 kg. Mumias pack) is Kshs. 175, up from 165 three months ago, and a year ago it was 145 (now costs 21% more than a year ago).

Mobile phones lower the cost of business

Money Transfer Within Kenya Part 3

A comment from @alykhansatchu on Money transfer lead to an update of the first post about money transfer from about 3 ½ years ago before the advent of mobile money transfers.

At that time, the cost of sending 10,000 shillings (then about $136) within Kenya was Kshs. 1,700 ($23) with Western Union and 1,850 ($25) with Moneygram - working out to a remittance cost of about 17% - 19% for an instant money transfer. This was mostly done at a few commercial bank branches, some foreign exchange bureaus, and at post offices around the country within banking hours.

90% savings: A lot has happened in the last few years mainly in the form of the arrival of money transfers via mobile phones by MPesa from Safaricom and more recently Zap from Zain.

A recent post last week noted that Western Union in Kenya have just lowered transfer costs to flat rates of 2% i.e. almost 88% cheaper than what they were at the time.

In the last few years, millions of Kenyans have moved on to mobile phones for money transfer and I can’t recall anyone who uses banks for these transactions. Mobile phone have maximums of about $430 (35,000 shillings) for money transfers, but this is more than enough to cater for most remittances, including the emergencies that necessitate instant transfers.

And mobiles are still cheaper; the 2% western union charge to transfer 10,000 shillings works out to about 200 shillings. A transfer of the same amount by Zap costs 75 shillings (0.75%) and 105 shillings (1.05%) by M-Pesa (after combining sender and receiver fees)

International remittance to get cheaper?: Zain hope to link Zap to allow transfers to customers of Zain in different African countries. And Safaricom are setting up a link for transfers from the United Kingdom to Kenya. When these are established, we should also see the cost of internal remittances, whose sometime high cost is a cause for complaint for many Africans in the Diaspora, also drop significantly.

Athi River Mining Board evicts Bamburi Cement as Director

Excerpts from the 2009 Athi River Mining annual general meeting (AGM)

Athi River Mining, Kenya’s 3rd largest cement company held its annual general meeting (AGM) on June 11 2009 at the Grand Laico Regency Hotel. It was mainly presided over by the Chairman Mr. Palle Rune and Managing Director Pradeep Paunrana.

After the finance director gave a review of 2008 performance – sales of 4.6 billion ($58 million) and a profit of 503 million ($6.3 million) (but had an error column labeled 2009 numbers and skipped over the net current assts position instead focusing on global credit rating A1 rating of the company)), the MD took over and outlined his plans for the company going forward along with a talk on the state of the cement business in East Africa.

ARM Outlook
- ARM had no cement growth in 2008 because they are at full capacity, and same with fertilizer. fertilizer sales rose sharply to almost 1 billion shillings, but that was because the price of fertilizer shot up in Keya. It is mainly sold o tea farmers, cheaper than fertilizer imported by KTDA and gives better yield. Silicate sold mainly export markets Mozambique, Malawi, SA
- 26% of ARM sales were from exports, but were hampered by strong shilling
- Project to haves sales of 6 billion in 2010 rising to 13.4 billion by 2012
- Currently produce 1,000 tons per day for the Kenya market that has 5,000 tones per day production capacity. With new plant in Tanzania, ARM will go to 2,000 tons per day from January 2010 - the new plant in Tanzania will be largest plant in east Africa
- improved production efficiency: now have the best margins in cement production in Kenya, ahead of Bamburi and a distant EAPC.
- improved energy efficiency in cement production - East Africa. Saved 16% (about25m) in 2008 and expect to save about 50 million in 2009 – they have achieved international benchmarks
- building their own clinker plant in Tanzania, locally produced clinker cheaper than imported clinker by about 1/3

Cement in EA
- Cement a growth business, and there’s great demand in this part of Africa for building work, and in the future for roads
- Cement grows at 2x GDP in east Africa , and has been at about 15% p.a. for last few years
- Comparing cement companies across region shows a variation in pre-tax profit margins ranging from 36% at PPC (SAfrica) and Tanga (Tanzania), while in Kenya Bamburi was 18%, ARM 17% and EAPC -13%
- Egypt became a new importer of cement in 2008

Shareholder Q&A
- borrowing costs are high and growing, why? high borrowing for expansion- they chose that route instead of the equity one. which will probably strenthen Bamburi's position
- acquired minority shares in Tanzania subsidiary, but did not get Kenya shareholder approval, why not? Chairman said they’d never get anything done if they had to bring such things to a vote
- Why not sell cement in south Sudan and Rwanda? Wont go for those markets, they are focused now on the highly profitable Tanzania market, and less profitable S. Sudan market is better served by rivals (tororo and hima)
- when will shareholders visit new Kaloleni plant as promised by the board? perhaps AGM next year will be held there, but its open year round for any shareholder to visit
- why is ARM cement and fertilizer not seen in retail shops around the country ? MD explained that virtually all their product was sold to repeat customers – e.g. contractors who took the cement at factory to building sites, and same with tea farmers

Hot Button moment: director elections
Three directors were up for re-election – Bamburi Cement, Michael Gondwe and the deputy chairman H. Paunrana, none of whom were present or reprsented.

Bamburi Cement, a rival and Kenya’s largest cement producer own almost 14% of company, and are second largest shareholder in company. Bamburi had not sent a representative, and their reserved seat at the board dais was empty
- The Chairman recommend that shareholders <vote against the re-election of Bamburi. He said it was clear that Bamburi does not want ARM to grow or produce more cement. They have been trying to sabotage ARM in international circles. I noticed in the minutes of last years meeting, for the vote to split the company management, Bamburi had requested a poll vote be taken. Chairman summed it up by saying that the board was not comfortable disusing ARM company business in the presence of a Bamburi representative
- One Shareholder queried if company had obtained legal advice to which chairman answered yes the board had even got two opinions
- Another shareholder feared that if Bamburi were voted out and then dumped their shares, it would affect other investor; the deputy MD replied that snares would be snapped up quickly and said Bamburi rights as a shareholder and director were separate unrelated matters
- Another shareholder asked about an ongoing land dispute between ARM and Bamburi for limestone deposits; CEO summed it up as follows: ARM scouted and located a deposit of limestone. Signed a least for 540 acres with Kitui town council. Bamburi tried to get this overturned, and the former Local Govt. Minister Musikari Kombo had tried to broker a sharing arrangement. Bamburi got high court injunction and ARM and Kitui council have now gone to court of appeal, a process that may take years. Courts and government tried to broker a settlement, but two companies are too far apart
- After the arguments shareholders present unanimously voted against the re-election of Bamburi as a director of the company.
- The two other directors, though absent, were re-elected unanimously. Mr. Gondwe of PTA, the company’s bankers had given his apologies as he was involved with other bank business on that day, while Mzee (old man) Paunrana, though over 70 was described by other directors as being a key guide in day to day management of company (not just a honorary deputy chair)

Goodies: T-shirt, tote-bad, keychain, lunchbox from the Laico

Delta, Zain and KQ Tweet Around

and other Bank Twits
Twitter is a micro-blogging tool that is really nifty for doing mini-posts, forwards and other remarks that (are on any subject) and are maybe not worthy of a full blog post. Here’s a summary of the last few days on Twitter:

May 29
- @MauriYambo Kenya Co-op Bank directors shareholding Stinks http://bit.ly/EvI2d
- KTN’s Larry…. Madowo @larrymadowo on Twitter
- After a few drinks I discover I may be related to @kafai and @gishungwa! #TIA

May 30
- Morning traffic jams in Nairobi Kileleshwa. Spy some Apts being built into the river & fear that one day, river will rise & reclaim its banks
- Government of Kenya shot itself in foot with punitive alcohol tax. Spirit brewers going belly up, Uhuru should correct

May 31
- Happy birthday young @intelligensia

Jun 1
- @mwaikibaki will launch Kenya’s fibre optic cable this month
- @mwaikibaki says Kenya census starts august 24. Ends with his famous phrase, calls hecklers #pumbavu
- Cadbury seems to have discontinued my fave choc wafer, while alvaro is on sale - buy 5, get 1 free!

June 2
- Some Nairobi buildings were designed by Mario bros - with secret floors, VIP lifts, hidden entrances, hostile guards to negotiate
- Santander Bank may sponsor Ferrari next year - does that also make Alonso their new driver? http://tinyurl.com/mgukmu
- Does patient capitalist Jacqueline Novogratz @jnovogratz have the answer to the role of aid in development? http://tinyurl.com/q9llxb
- The African Union wants to set up an African Central Bank http://bit.ly/QcMav
- @TerryanneC Delta Airlines maiden flight earlier scheduled for tomorrow from Atlanta to Kenya postponed indefinitely
- If I had to subscribe to one magazine for life, it would be the Economist

June 3
- @coldtusker -even without airport CEO, artur, 1jet1 - US may want more than one airport checkpoint to filter passengers, so non-stop no go
- @mamboleo ranneberger welcomed delta in the news and was to officiate today. Mwakwere has been in US for a week waiting to fly
- @MIMImagazine new Sade album this year http://bit.ly/Ywv14
- What's wrong with Kenya airport Security? http://tinyurl.com/qmmem2
- Want to speak like Kenyan kids? - try the Sheng dictionary http://www.sheng.co.ke/kamu...
- Got an accurate shares statement by e-mail from CDSC Kenya - so my stockbroker is still honest

June 4
- Should companies care about what’s written about them online? http://bit.ly/oiYFw
- Former ministers and MP's mentioned in parliament as masterminds of some collapsed Kenya pyramid
- Michuki and Ruto top a NTV viewer poll of best performing ministers in Kenya. Ok... #Kenya

June 5
- @alykhansatchu "In September 2008, all hell broke loose, it fell like the Titanic" - Titus Naikuni Kenya Airways CEO
- @coldtusker Kenya Airways losing 4 billion after Zain's 7 billion loss, there's a lot of blood!

June 6
- Nairobi city council asking 100 shillings ($1.25) to photocopy each 100 words of new laws that will punish residents #FAIL
- Follow George Ayittey @ayittey for a harsh dose of Afro-reality
- JKIA arrival lounge - musician Jua Cali and Uganda leader Kizza Besige arrive unnoticed

June 7
- Button-Brawn wins turkey GP. Kenyan crowds are ABB - Anyone but Button
- @karuoro does XYZ fail for taking shots at politicos who are too funny to be imitated or is it the poor voices?

June 8
- Reading Africa confidential to see which way Gabon goes: Lady Senate president should succeed, but Bongo Jnr. is minister of defence
- Weekendgossip: Delta planned Nairobi route before they mergered with Northwest - who are KLM partners. KLM have invested for many years in Kenya Airways so does it make sense for Delta to fly to Nairobi?

June 9
- Why would Wanjiku Mugane quit the EABL Board? http://bit.ly/u6a6V
- R/T @kainvestor @kachwanya Zain looks to close $12bn deal to sell Africa unit - report: http://tinyurl.com/m4wofy
- Soldiers are not allowed with guns in the room (and other hotel rules) http://bit.ly/BCAV8
- Time to do the tax return thing - 3 out of 4 years waiting for a tax refund

June 10
- How the Lakers won Game 2: I wish Bill Simmons watched Soccer and F1 because there are more conspiracies than NBA http://tinyurl.com/ma2gax
- The folks at DNA Kenya have published a Promiscuity Index Report: Ave No. of Steady Mistresses! Ave No. of kids per steady Mistress! Ave No. of 1 night stands since wedding! #DNAKenya http://www.dnakenya.com
spot the difference

Pyramid Schemes in East Africa

Back in October 2006, I wrote two posts about pyramid schemes that had mushroomed and would eventually ‘burn’ thousands of investors in Kenya.

And the last year has revealed bigger pyramid scams in the form of Bernie Madoff and Alan Stanford, and just yesterday in the Kenya Parliament, some political leaders were un-masked as some of the master minds behind some of the collapsed Kenyan schemes.

Image of pyramid investors from another business daily newspaper article on pyramids

So what was the genesis of the schemes and how they ended? And more important, can they happen again?

Pyramids Rise
- Early investors reaped, and told others about their success - i.e. doubling, tripling or even greater returns in a few months span
- Some schemes were promoted by churches (who received tithes in return)
- Pyramids opened new offices and hired new staff all around the country
- New pyramids opened up cloning existing ones, but promoting a slightly different product/concept
- People took loans to invest in pyramids
- Peoples sold land/ shares / other assets to invest in pyramids
- Pyramid investors cut across all sectors from rural farmers to bank managers

Pyramids Peak
- Early investors reaped, but were greedy and ploughed back as much as they won
- Pyramids grew so big they overwhelmed their managers – some stopped accepting new depositors (but not new deposits which were essential to the chain)
- Banks complained they were losing deposits at a time when interest rates were very low
- With IPO's few and far between, stockbrokers complained they were losing investors during a bull market period

Pyramids Fall
- Banks put the squeeze on pyramid schemes, by freezing these recipient accounts with the funds in them
- Pyramids without cash, tried to switch to different banks and accounts to process their funds
- Banks warned other banks and the Central Bank issued some cautionary notices on schemes
- Some pyramids tried to convert into cooperative societies
- Some schemes bad-mouthed other pyramid schemes as unstable
- When locked out of banks, pyramids moved to safe houses in residential areas where they continued to receive/pay cash
- media coverage kicked in; some angry investors complained on TV about lost money and brought media crews to the safe houses showing other angry investors
- Deposits dried up, and investors demanded their cash.
- Pyramid schemes all collapsed largely at the same time in 2007

Sifting the rubble

Could they have been prevented?
- They were unregulated: Neither the central bank, capital markets or co-operative sector regulator had over-sight over the schemes. Parliament was focused on micro-finance and anti money-laundering regulation bills.
- KYC: Schemes relied on the banking system to move around the money; and if banks applied true know your customer (KYC) principles, they’d have smelled a rat - with hundreds of people queuing in their halls to deposit funds into a single customers account

Unanswered questions
- What happens to the millions of shillings frozen in bank accounts?
- What happened to employees of these schemes? And if rogue stockbrokers were partly brought crash down by thefts from within (internal fraud /‘robbers robbing robbers’) could this also have happened at some schemes?
- Legal grey area still exists. Have any promoters being charged in court? Can any investors sue promoters for losses? The Cooperatives Ministry Task Force is looking at how to compensate investors - but is this justifiable?
- Can schemes rise again? History teaches us that pyramid/ponzi schemes will happen again and again. Maybe using the mobile money transfers, or next time there’s an election. The Business Daily mentions they may have spread to neighbouring countries

Delta Denied Permission to Fly Direct to Nairobi

Delta are postponing their arrival to Kenya again and Liberia as well. It’s been a long wait for Delta to come to Kenya, with the resultant direct flight to US and what’s a few more months? That Liberia was included in the statement that cited insecurity matters kind of cushions the blow.

And what are some of the insecurities that maybe caused the department oh homeland security to put a pause on the route? Shashank has a nice post on security at JKIA - -i.e. the Jomo Kenyatta International Airport – in Nairobi
That the situation in neighboring Somalia is escalating again, probably makes US security officials want to put as much distance between the US and East Africa – and by having more than one airport e.g. Amsterdam, Dubai, London filtering passengers from East Africa is a safer way than having them walk into Atlanta directly from Nairobi.

2009 still looks like a good year for investments to Kenya and Delta will be more than welcome when they do land. The competition will be welcome here, and I like that Delta has a corporate blog that will perhaps rub off on some of our local airlines with PR woes.

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excerpts from the Official Statement

Delta Africa cancellations from Delta Corporate Communications

ATLANTA, June 2, 2009 – Delta Air Lines (NYSE: DAL) has been notified by the Department of Homeland Security (DHS) that the Transportation Security Administration will require more time to approve Delta’s planned direct flights to Nairobi, Kenya and Monrovia, Liberia. Delta in response issued the following statement:

“Delta regrets any inconvenience to our customers caused by the postponement of our new direct service to Kenya and Liberia. The airline is proactively contacting customers to reaccommodate them on long-established connecting flights offered by our joint venture partners Air France-KLM and other SkyTeam member airlines, which carry Americans to these destinations in Africa through their European hubs.

“Delta appreciates DHS Secretary Janet Napolitano’s continued focus on finalizing approvals for Delta’s direct service to Africa as quickly as possible. Delta in October 2008 notified the U.S. government of its plans to offer new service to Kenya and Liberia. However, Delta was informed only yesterday by DHS that it would require additional time to approve these new flights.

“Africa continues to be an important region for Delta. Delta is the only airline offering scheduled service between the United States and Africa, currently serving six destinations in five countries: Accra, Ghana; Cairo, Egypt; Johannesburg and Cape Town, South Africa; Lagos, Nigeria; and Dakar, Senegal. This week Delta upgraded its service between Atlanta and Johannesburg, South Africa, to a nonstop flight operated with a Boeing 777-200LR aircraft featuring 180-degree full flat seats in its BusinessElite cabin.”