The Use of Technology to Promote Voluntary Savings. Kenya s Experience

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1 A Dynamic and Secure Retirement Benefits Sector The Use of Technology to Promote Voluntary Saings Kenya s Experience Nzomo Mutuku Chief Executie Office Retirement Benefits Authority October 4, 2018 Mexico City, Mexico CONSAR

2 Agenda About Kenya and RBA Diagnosis Barriers Promoting Voluntary Saings through ICT Challenges Conclusion 2

3 About Kenya Size (Km 2) 580,367 1,984,000 Population (m) GDP (US$ PPP) Economy Agriculture Industry Serices

4 About RBA The Retirement Benefits sector in Kenya is coered under the Retirement Benefits Act No. 3 of The Act also established the Retirement Benefits Authority (RBA), which is the retirement benefits regulatory body under the National Treasury. RBA began its operations in October 2000 with the gazettement of RBA Regulations & commencement of the Act Receied is ISO 9001:2015 certification 4

5 Rba s Mandate, Vision & Mission Vision: A dynamic and secure retirement benefits sector ADVISE REGULATE & SUPERVISE Establishment and Management of retirement benefits schemes PROTECT Interests of scheme members and sponsors DEVELOP & PROMOTE The Retirement benefits industry The Cabinet Secretary to The National Treasury on national policy relating to the industry IMPLEMENT All goernment policy relating to the industry Mission: To deelop, safeguard and delier alue to the retirement benefits sector through excellence in serice deliery 5

6 IOPS Membership RBA has been a member of IOPS almost from inception RBA is the immediate past President of IOPS for two terms ending April 2017 RBA has benefited from many of IOPS actiities including standards, principles, Risk Based Superision and shared experiences from member jurisdictions and contributed also to the knowledge base through its own experiences. The same applies to the area of use of ICT in pensions 6

Diagnosis - Structure of the Retirement Benefits Sector Priate Occupational Employer Based ( Voluntary) Members >500,000 DB & DC Non Contributory/Pay As You Go (PAYG) Ciil Serice Pension Scheme

7 Diagnosis - Structure of the Retirement Benefits Sector Priate Occupational Employer Based ( Voluntary) Members >500,000 DB & DC Non Contributory/Pay As You Go (PAYG) Ciil Serice Pension Scheme Members ->550,000 Asset Public Serice Superannuation Act DC Pension System Indiidual Contributory Open Schemes Members -200,000 DC Mandatory National Social Security Fund Members >2.1m DC NSSF Act 2013 Pension & Proident 7

8 Diagnosis - Employment & Pension Coerage in Kenya 18,000,000 16,000,000 Total Employment 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000, Employment 11,475,200 12,782,000 13,524,800 14,316,700 15,163,600 15,996,500 Pension Coerage 1,651,589 2,446,195 2,544,197 2,596,678 2,758,666 2,810,664 Uncoered 9,823,611 10,335,805 10,980,603 11,720,022 12,404,934 13,185,836 8

9 Barriers Structure of Employment in Kenya EMPLOYMENT IN KENYA, 000s SHARE OF EMPLOYMENT, % Formal Sector Informal Sector Formal Sector Informal Sector 9

10 Barriers Characteristics of Informal Sector Informal Sector workers; Generally earn low and irregular incomes Change jobs & economic actiities frequently thereby experiencing high labor mobility No monthly payroll to facilitate predetermined monthly contributions towards their retirement benefits. Exclusion from the formal financial system and lack of physical access to financial serices 10

11 Promoting Voluntary Saings through ICT - I Gien the low pension coerage [20%] of the total work force coered in registered existing retirement plans, new initiaties to extend pension coerage became profound. (RBA), working together with other stakeholders in the industry, has had to come up with initiaties to expand pension coerage, especially to the informal sector. The existing pension gap in the country require considerable measures to encourage supplementary personal pension saings Some of the measures include encouraging IPPs [36] where indiiduals can sae oluntarily especially using mobile platforms 11

12 Promoting Voluntary Saings through ICT - II MOBILE MONEY IS KEY TO FINACCESS USE OF DIFFERENT FORMS OF FINANCIAL SERVICES IN KENYA, % Bank Insurance Mobile Money Microfinance Credit Union Informal Men 12 Women

13 Promoting Voluntary Saings through ICT - III Birth of Mbao Pension Plan; The Blue MSME Jua Kali Indiidual Retirement Benefits Scheme popularly known as the Mbao Pension Plan which targets the larger working population (85%) in the informal (Jua Kali) sector was conceptualized and officially launched in June 2011 and gained immense popularly among the population working in the informal sector and the self employed. Target workers in the informal sector who run micro, small and medium enterprises (MSMEs) It is a oluntary defined contribution proident fund. It began as a successful Corporate Social Inestment (CSI) initiatie. 13

14 Promoting Voluntary Saings through ICT - IV MBAO SME Indiidual Pension Scheme is one of 36 Independent Indiidual Pension Plans (IPPs) regulated by the RBA. Mbao is a colloquial term for twenty (20) shillings which is the minimum amount members are encouraged to contribute on a daily basis Mbao Pension Scheme, was the world s first wholly mobile phone based pension scheme and specifically targets workers in the informal sector Mbao uses the mobile money transfer serices offered by the two leading mobile phone networks in Kenya, namely, Safaricom and Airtel which allows real time transfers 24 hours a day from anywhere within 14 the network coerage

15 Promoting Voluntary Saings through ICT - V Like other IPPS Mbao has independent serice proiders including Corporate Trustee, Administrator, Custodian and Fund Manager Mbao model by allowing oluntary contributions by informal sector workers through the mobile phone oercomes the challenges informal sector workers face: irregular income, exclusion from the formal financial system and lack of physical access to financial serices Mbao scheme is the largest IPP in terms of members with oer 100,000 members but is relatiely small in terms of assets due to low leel of contributions. 15

16 Promoting Voluntary Saings through ICT - VI The contributions are reflected instantly on the members phones as receipted by the Fund and are able to check contribution balances. Mbao Pension Plan has helped address 3 things; Problem of low incomes - Kshs.20 per day is affordable to most people working in the informal sector. Seasonality/irregularity of incomes - in the sector for they can make bulk contributions to coer periods of no income high labor mobility - in the sector because by using mobile phones to make contributions, they can do it from anywhere any time, day or night. Mbao membership stands at oer 100,000 members with a fund alue of Kshs. 140 million by June It is currently the largest IPP by membership 16

In Summary Enable Informal Sector workers sae for

pension products Mobile Phone Based (Mpesa)

INDIVIDUAL RETIRMENT BENEFITS SCHEME Regulated by

17 In Summary Enable Informal Sector workers sae for retirement by deelopment and promoting innoatie pension products Mobile Phone Based (Mpesa) Founded by Informal Sector Workers Groups MBAO INDIVIDUAL RETIRMENT BENEFITS SCHEME Regulated by RBA Independent Serice proiders Assets US$ 1.5m Members 100,000 17

18 Challenges Facing Mbao Competing priorities of members such as medical and emergencies One size fits all approach yet informal sector ery dierse High leel of withdrawals from scheme Inconsistency and lack of sustainability of contributionscontributions taper off after time Competing saings ehicles perceied to offer alue addition Credit IT platform not robust designed for formal sector scheme Questionable economic iability perception as a Corporate Social Responsibility Need for sustained marketing 18 campaigns which is ery costly

19 Proposed Solutions Implement sub micro-pension schemes targeted at sub sectors of the informal sector Bundle pension with other financial serices such as insurance and credit Implement a Specialized Micro-Pension Administration System Strengthen Goernance and capacity building to the Sponsor, Trustee Integration of financial literacy in school curriculum and publicity campaign to promote old age saings by low income informal sector workers Matching contribution by the Goernment? Auto-enrolment? 19

20 Conclusion Informality of employment is an established feature of working patterns on the African continent and in many other deeloping countries Informality makes the roll - out of centralized programs challenging, particularly those that require an actie decision of citizens to participate, een more when such participation inoles a financial contribution with pay - off only in the distant future. Substantial effort is therefore required to understand the needs and aspirations of informal sector workers before deploying a system for oluntary pension saings based on our experience. 20

21 Asante 21

Session Name: Pension and Savings for the Poor: Arrangements for Old Age Support Case Study: Kenya, Mbao Pension Plan Presenter: Ms.

Session Name: Pension and Savings for the Poor: Arrangements for Old Age Support Case Study: Kenya, Mbao Pension Plan Presenter: Ms. Patricia Odera, Senior Communications Officer, Retirement Benefits Authority