Kenyan telecoms giant Safaricom sued for $2.4bn by M-Pesa users
Safaricom, the Kenyan telecommunications giant, is facing a lawsuit filed by three individuals claiming that the company is operating its M-Pesa arm and overdraft service, Fuliza, illegally. The petitioners, Gichuki Waigwa, Lucy Nzola, and Godfrey Okutoyi, allege that Safaricom is using the money from non-borrowing M-Pesa account holders to fund Fuliza loans, and accruing interest from the service without sharing it with all M-Pesa account holders. They also claim that Safaricom is operating M-Pesa as a banking service without the necessary licenses.
The lawsuit, which has been filed before the anti-corruption high court, has far-reaching implications, as M-Pesa is one of Safaricom’s most successful ventures. The mobile money transfer and microfinance service, which was launched in Kenya in 2007, has since expanded to other countries in Africa, Asia, and Europe. M-Pesa has transformed the way money is transferred and transacted in Kenya, where a significant proportion of the population is unbanked. According to the Central Bank of Kenya, M-Pesa had over 37 million active users and facilitated over Kshs 11 trillion ($100 billion) worth of transactions in the first quarter of 2021.
Fuliza, which is provided by Safaricom in partnership with two Kenyan banks, KCB and CBA, is an overdraft service that allows M-Pesa users to complete their transactions even when they do not have enough funds in their M-Pesa accounts. The service has been a huge success since its launch in 2019, with Safaricom reporting that Fuliza disbursed over Kshs 245 billion ($2.2 billion) in loans in the first half of 2021 alone.
The petitioners allege that Safaricom’s use of non-borrowing M-Pesa account holders’ funds to fund Fuliza loans is illegal, and that the interest accrued from the service should be shared with all M-Pesa account holders. They also claim that Safaricom is operating M-Pesa as a banking service without the necessary licenses. The petitioners, who allege to be acting on behalf of all M-Pesa users, are seeking Kshs 305 billion ($2.4 billion) in damages for fraudulent misrepresentation and non-disclosure of information.
Safaricom has not yet responded to the lawsuit, but the company has previously defended its business practices. In a statement released in 2020, Safaricom’s CEO, Peter Ndegwa, said that Fuliza was “fully compliant with all regulations and guidelines”, and that the service was a “lifeline” for many of its customers.
The lawsuit against Safaricom highlights the challenges of regulating digital financial services, which have grown rapidly in recent years, particularly in emerging markets. While these services have the potential to promote financial inclusion and drive economic growth, they also raise concerns about consumer protection and systemic risks. Regulators in many countries are grappling with how to strike the right balance between innovation and regulation in the digital finance sector.
The outcome of the lawsuit against Safaricom could have significant implications for the future of M-Pesa and other mobile money services in Kenya and beyond. If the court rules in favor of the petitioners, it could force Safaricom to change its business practices and pay out a significant sum in damages. It could also prompt regulators to take a closer look at how digital financial services are being operated in Kenya and other markets, and to consider whether new regulations are needed to protect consumers and ensure financial stability.
