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This research report was prepared by the Research Department of Old Mutual Securities Limited. Old Mutual Securities Limited is a securities trading company licensed by the Capital Markets Authority (Kenya) for the purpose of facilitating trade on the Nairobi Securities Exchange.

Here are our views on the news making headlines today for Kenya:
KCB signs M-Pesa loans deal to drive mobile banking. M-Pesa users to have access to loans of between KES 50 and KES1 million repayable for between one and six months. KCB M-Pesa borrowers will repay the loans at interest rates of four, nine and 12 per cent over periods of one, three and six months respectively.

Our View: This is a great innovation for KCB if it will replicate the success of CBA’s Mshwari which recently announced that had signed up its tenth million customer, making it Kenya’s biggest bank by customer numbers. In the last one year KCB has seen its customer transactions with M-Pesa triple to KES 125 billion, while the volume of transactions has grown from 10,000 a day to 100,000. The management has indicated that it expects about 20% to 30% of their business to come from this platform. In FY 2014, we note the impressive growth (+28.7%y/y) on NFI to KES 22.0b, accounting for 37.9% of the total income. This contribution looks healthy amid the rising competition within the sector. Moreover, with the bank’s anticipated growth in both the agency and mobile banking, we believe this remains the key driver on NFI where we forecast a 4yr CAGR of 8.8% to FY17e.This might also turn out to be a great competitive tool where both Safaricom and KCB will use this to gain a competitive edge against their rival Equity bank

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