M-Pesa Holding is the cash management company behind the eponymous mobile money service, so why is London-listed Vodafone, which owns 40% of Safaricom, selling it for $1?

After 15 years of owning the trust company set up to manage the deposits from users of the M-Pesa mobile money service, Vodafone, the UK telecoms group wants to sell it for a symbolic $1 or 137 Kenyan shillings. As recently as two months ago, a lawsuit filed by three Kenyans listed both Mpesa Holding Company, the trust company, and Vodafone among others as defendants.

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The 150-page lawsuit alleges that the trusteeship that formed M-Pesa Holdings violates Kenya’s law on forming trust companies. The petition argued that by offering loans through Fuliza, a digital loan product, through M-Pesa, Safaricom was engaged in banking services without a licence, since the loans were made from the deposits of other M-Pesa users. Vodafone, Safaricom, and 19 others were listed as defendants in the case. The case is still in court.

It is the same trust that Vodafone disclosed it was selling to Safaricom for $1. “On 17 April 2023, the group entered into an agreement to sell M-Pesa Holding Company Limited (MPHCL) to Safaricom Plc, an associate entity of the group, for $1 (Ksh137 at current exchange rates),” reads part of the Vodafone statement. “No material gains or loss is expected to arise on disposal. Completion of this transaction is subject to various approvals which are expected to be obtained before or during July 2023,” the statement continued.

Safaricom’s revenues took a third consecutive hit when the telco reported its annual numbers for 2022 driven by costs associated with its expansion into Ethiopia. And the acquisition of a $150 million licence to operate mobile money services in Ethiopia. So it makes sense to acquire a cashflow-generating asset like M-Pesa Holdings which according to statements from Vodafone held M-Pesa customer funds amounting to €1.226 billion (Ksh182.18 billion) as of 17 May 2023.

Local media reports say the move will be a boon for Safaricom’s cash flows in addition to providing interest income if Safaricom invests M-Pesa user deposits in short-term securities. Investing in short-term securities is exactly what Vodafone said it did with the cash it managed in M-Pesa Holding for 15 years since M-Pesa was launched. 

 “Balances included in the group’s consolidated financial statements for M-Pesa Holding on 31 March 2023 include short-term investments of $1.35 million and $1.33 million due to M-Pesa customers, recorded within Other investments and Other creditors, respectively,” Vodafone said. In total, M-Pesa Holding had short-term investments of €1.247 billion (Ksh185.3 billion) as of March 31, 2023. Vodafone however added that added that any profit generated by M-Pesa Holding’s investments is donated for use to public charitable purposes after it subtracted direct costs.

Per the National Payment System rules which guide the operation of digital payments in Kenya, trusts can be created to manage the funds held by a payment system participant like Safaricom’s M-Pesa service (not to be confused with M-Pesa Holding, the trust company). The regulations allow the trust to invest deposits it holds, but income from such investments must be donated to charitable organisations. Or (if approved by the Central Bank of Kenya) wherever the agreements creating the trust stipulate. The wrinkle is that the national payment system Act came into law seven years after the M-Pesa service was launched. In effect, the trust forming M-Pesa Holding predates the payment provider regulations. Safaricom is a licenced payment service provider in Kenya, but the lack of a banking licence undergirding its lending operations has long been debated in public and in Kenya’s parliament.

On the campaign trail last year, President Ruto promised to separate Safaricom M-Pesa so it could be better regulated. Buying M-Pesa Holding from Vodafone may be part of moves to supplement cash flow as the company takes on its Ethiopian rival. But it could also easily be a belated attempt to comply with the rules that prevent Vodafone from owning the trust managing M-Pesa deposits.

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