Kenyan mobile operator Safaricom has launched a new service in the financial market, mobile money based credit scheme, M-Shwari.

M-Shwari is a partnership between Safaricom, its parent company Vodafone Group, and Commercial Bank of Africa (CBA), and allows users to save, earn interest and borrow 30 day loans using their mobile phones.

The service targets 12 million unbanked Kenyans and hopes to bring a significant chunk of the $3.4 billion that sits outside Kenya's formal banking system into the formal banking environment.

The service which extends the offering of mobile money transfer service, M-Pesa, is poised to positively contribute to Kenya’s financial inclusion agenda by making it possible for people to save as little as 1 Shilling a day and earn interest at rates of up to 5% annually on their savings.

“Saving is no longer the privilege of the elite, all Kenyans can now save, even the smallest amounts and at their own pace,” said Michael Joseph, director for M-Pesa within Vodafone Group.

“M-Shwari creates a safe environment for customers to borrow small amounts and links the amounts of credit available to the ability to save.

“Through their M-Shwari savings account, M-Pesa customers are empowered to manage their financial lives,” he explained.

Users will be able to borrow amounts from as little as $12 virtually via their mobile phones. The loans from M-Shwari will attract a one-time facilitation fee of 7.5% of the borrowed amount. And users will receive loans based on their M-Pesa transactions and savings history.

In order to qualify for a loan, one needs to be an M-Pesa subscriber for at least 6 months, put in some savings in their M-Shwari account and also use other Safaricom services such as voice and data.

Safaricom chief executive Bob Collymore said M-shwari will foster a culture of saving and allow Kenyans with no collateral to access micro-saving and loans through the convenience of their mobile phones at very competitive terms.

“I am talking about money that is hidden away in the layers of the mattresses, lockboxes, and some even buried away in the ground,” said Collymore.

Collymore explained that the service would not attract ledger fees, limits on the frequency of withdrawals, minimum operating balance and charges on deposits for M-PESA to M-Shwari Account.

“You do not need to go to a branch and fill in application forms. Just one click on your phone and you will have a bank account at no cost,” he added.

The product is likely to be replicated in other markets where Vodafone operates, said Joseph.

“Based on our experience in Kenya, we will look to take this innovation to other markets,” he said.

Analysts pointed out that M-Shwari would give Safaricom another competitive edge in the telecoms market making it easy for the firm to retain and attract new customers as well as increase revenues from non-voice products.

Currently, the M-Pesa service is Safaricom's second biggest revenue stream after voice, contributing about 37% of the firms total revenues, according to half year results for the period ended 30 September 2012.