Thank you very much, Jonathan, for the introduction, and, uh, Maya, thanks for being here and agreeing to moderate this. And, uh, it's great we are sharing the platform. Um, but I'll just dig in directly into the subject to give us as much time as possible. I'll speak for about maybe 15 minutes or so, 10, 15 minutes. Um, if I go beyond 15, please wave, you know, and then stop me, you know. Uh, a lot of you have heard about the M-Pesa story. Okay. So, this is the digital transformation, the way of sending money, uh, using your phone, right? And you can, I can send money to you, you can send money to me, you can make payments on your phone, etc. And basically, it is where fintech started. So, in effect, in Kenya, we think of ourselves as being the, uh, having the cradle of fintech, you know, that's where it started. Yeah. Um, we can also talk about the cradle of mankind, but that will require fighting with Ethiopians who tend to be more aggressive about this, you know. Um, but anyway, so it all began with M-Pesa in 2007. Now it will be 20 years next year. Uh, that's when this innovation started. You notice that it happened at the same time as iPhone, right? The iPhone transformation, I mean, the iPhone product, the two were distinct, meaning they are not related in any way. And it was a very simple idea. Now, actually, it started because, uh, of, uh, it didn't start as a, to solve a problem related to payments. It started as a way of making payments to a microfinance institution, uh, women's microfinance institution, and they somehow thought that this would be a way of doing it. Yeah. So in effect, it's like sending vouchers to each other. That's what they were doing. And then suddenly people began to see, no, no, we can actually send the vouchers. The vouchers are value, and airtime is value. So we can send this to each other, and then you could, uh, use them in particular ways. And that's really how the M-Pesa, uh, element, uh, got started. Now there are four elements that made it sort of take off. First is because the central bank was innovative. Meaning when they gave them, when they came to the central bank and said, look, we want to try out this product of sending money to each other, the central bank did not say, no, no, no, we don't have a law, so you just, uh, you know, just wait until we have a law. Yeah. No, they said, okay, fine, you can start it, but, uh, on the agreement that if, uh, anything, if, if the risks sort of explode, we are going to pull it off the wall, kind of thing. Yeah. So it was a sort of a gentleman's agreement, uh, if you want to put it that way. That was one. The second is, of course, there was a specific problem, social problem, and this was sending money home. People needed to send money home to their relatives, etc. Um, and in the past it was done in a very complicated way. You giving an envelope with cash to somebody, and hopefully the money will get there, and half the time it didn't get there. You know, all that whole mess. The other thing is people, Kenyans are very, uh, let's say they're early adopters of technology, and, uh, so they adopted the, the phone, the cell phone, and also adopted this technology quite quickly. There's a fourth element which is also important, which is there, there were all these agents, um, let's just call them, uh, cash, well, banking agents, let's put it that way. And there were small kiosks around the country. There are like 300,000 of them all over, and people could go in there and cash in or cash out. Yeah. So it was important to maintain that connection with cash. And indeed, because of that, the whole, uh, let's say, the whole experiment sort of exploded. Yeah. So those are the four elements. So if you ask yourself, why didn't it take off in other countries as much? It's because you didn't have this sort of, uh, uh, let's say, perfect storm of four items like we did in Kenya. You often have two or three of them, and then, and so there's a slow sort of adoption. But today, now it's ubiquitous in Africa. Yeah. So now at the same time, what happened? Um, financial inclusion also surged dramatically, or increased dramatically. In 2007, in Kenya, financial inclusion was about 26%. Yeah. So about a quarter of the adult population were included in the financial system. Again, financial system then meant banking. Uh, today, 85% are included, meaning, and it's not just banking now, it is because you can actually get connected to the financial system using your mobile wallet, etc. Um, there are also other things that have happened. It has been dramatic in terms of, uh, um, well, other economic things, um, other economic, uh, let's say, indicators. If you think, for instance, about, uh, creation of, uh, um, uh, a safety net. So the mere fact that you have a group of people in your WhatsApp group, you're familiar with the WhatsApp group, right? And you can borrow from each other in that, uh, in that sort of network of people. So there's been a lot of programs, and I think people have written about this. Tniti has written about this. Uh, other people, um, maybe even Maya, you've written about this, I'm not sure now, but there has been a lot of literature about the impact of M-Pesa. Jonathan, you're writing about this. Um, so that is important to see. Now, it hasn't just happened in, in Kenya, it has happened all over Africa that financial inclusion has surged dramatically, and, uh, and yeah, with all the benefits, by the way. Today, the, I, I talk about Kenyans being early adopters in terms of, uh, penetration of cell phones, mobile phones. The latest number I've seen is 165%. So if you think of number of SIM cards versus the population, yeah. So it is more than 100% now. That means obviously you have businesses that, you're not just thinking, uh, held by people like, uh, like, you know, the general public, also the businesses have SIM cards, but also people have two SIM cards, you know. So in any event, so in terms of, uh, the whole experiment, I think has worked very well. So what, who was the first, uh, adopter? It was the, the company behind M-Pesa is called Safaricom. It is actually a Kenyan company. It was owned, uh, well, it's, it's owned also by, uh, South African Vodacom and Vodafone, and also, um, Vodacom in the UK, you know, so shares, whatever it is. So you cannot say it's 100% Kenyan, but, um, it was owned, 45% was owned by the government, um, etc. But very Kenyan in that sense, the largest company in the stock exchange. Uh, today, other companies did come onto this. Yeah. Airtel, Telkom, etc. However, there was always a very strong network effect, uh, which Safaricom through M-Pesa used, and you cannot say that it kept the others out. It just was, uh, let's say it didn't bully the others away, but it used, uh, it, it, it helped curate a very active, uh, network of its own consumers. Um, in 20, well, the numbers in terms of today, the dominance of M-Pesa, it remains dominant. It has like 90%, uh, of all the transactions of registered customers, but even in terms of transactions, it's somewhere like 98%. Yeah. So it's huge in terms of dominance, and all the others try and get into, not so much its market share. You just want to have services that are connected to the, uh, to the network, um, the Safaricom network. And think about businesses, for instance, businesses who prefer to have, uh, um, their services in the bigger network. So that's where the problem is. Unfortunately, the question about interoperability, which is a big one, if you are into fintech, etc., you need to make sure that they are interoperable. Um, Safaricom was very slow. Legally, you are required, the law requires it, but they were very slow to actually implement, um, interoperability. And yes, excuses are long. Yeah, it's, um, we're not going to go into all the excuses, but basically, they always had a good excuse about delaying this, etc. And during COVID, uh, during that period, the central bank got very aggressive and actually demanded, uh, the interoperability to take place. And as a consequence of that aggression, indeed, uh, they, they began to sort of open up. And for instance, you can send money across networks. In the past, if you're in a different network, if I was sending money to you and you're in a different network, you're not in the M-Pesa network, what you get is a, um, let's say, uh, you get a text message with a voucher on it, and then you go to a M-Pesa shop, you'd show them the text message with the voucher on it, and then you'd have to cash out, uh, on that, and then have your money instead of actually having money sent to you. Yeah. So it was very complicated, and, uh, clearly this wasn't helping, um, easing transactions, etc., etc. So the regulator was, uh, it, the regulator forced interoperability and integration during that period. Um, I want to underscore a couple of points that even as this thing developed, even as interoperability sort of began to take place, there also other gaps that were happening, um, and, and I think the other developments, let's put it that way. Yeah. So for instance, one of the things that happened, it wasn't meaning you have the payments rails, but now you have other things that, other services that, uh, popped up around this. People did make, uh, take advantage of it. So for instance, you did have credit lenders. Yeah. Or digital lenders, you know, credit providers, and, uh, they would lend you money on your phone. Uh, and at the beginning, this was solid. They were backed by banks, and this worked well. But then you had other guys that showed up that were pretty much, uh, fly-by-night operators, and they were not regulated, and they did cause a lot of trouble in terms of the, the processes that they were using, in particularly when they are trying to recover their money, etc. Very unethical, uh, practices, etc. But the point I'm making is that it wasn't just payments, and you had all these other services that popped up, good and bad. Now, there are some obvious gaps that we see. Yeah. I think the, in terms of services, we are thinking of consumers, etc. The services that we haven't seen much of are things like health, education, um, those sort of things, uh, which are very important for development, uh, have been lacking. What we've seen a lot of is the lenders. We've seen betting apps. I don't know, is that a problem in the US? Okay. Quite a bit. Okay. It's maybe 10 times worse if you have, uh, if you're getting, if you can get credit and then you can use it to bet. Yeah. Um, and then so the point I'm making is you had this ecosystem that began to develop, uh, and developing in ways that may not always be socially pro-, I mean, productive. Yeah. So that's one thing. Now, M-Pesa has continued to innovate, and there are some innovations it did very well, for instance, integrating with commercial banks, and they focus on that. The, the problem at the beginning, a lot of people thought, um, that, uh, fintechs would actually, uh, well, were in conflict with commercial banks. It turns out that that's not what happened. The fintechs and commercial banks actually began to work hand in hand. The commercial banks realized that the fintechs, in this case M-Pesa and others, uh, could do certain things much more, uh, effectively, you know, much more effective than, uh, than the, um, than the commercial bank. So the integration happened, and I think that was a significant improvement in the ecosystem. There's been other things as well, you know, the 5G. Now, why do you need 5G? Well, people like you and me. Yeah. I mean, you maybe if you're doing TikTok or whatever it is, okay, fine. You have bandwidth and all that. But let's be clear, the majority of the people in Kenya don't, I mean, 5G is not what they need. We are still stuck in many instances on the 2G sort of space. Um, my favorite phone, by the way, is not the iPhone. My favorite phone is the Nokia 3310. Uh, I would ask you to just Google that. You know, the Nokia 3310. It's one of the best phones of all time. Yeah. Uh, you can throw it down on the floor and you break the floor. Yeah. And it has alleged, uh, like the battery lasts forever, you know. I mean, I'm sure if you, if it ends up in the dump somewhere, you know, years later you pick it up, it will still be working, you know. Um, any exaggeration, but I think the point I'm making is that, uh, we are still very much on the feature phones. A lot of, uh, people still operate on the feature phones, and so they, you need to always have this sort of backward integration in mind even as you improve. I want to make a few points before handing over. Um, so there has been progress, but I think, oh yeah, there are two other things which are important to, to mention. They have ended up having a super app. Yeah, the super app is an interesting phenomenon. Those of you that are familiar with it, maybe WeChat, etc. Um, it's a great idea. You have, uh, on your phone, smartphone, you can connect to all channels. Yeah. Uh, from that one app, and the ones that connect to that, through that app, have very small, uh, a very small program, right? So, and also things like security, uh, things like, uh, your more financial data, etc., are all in the super, and therefore connection to something else is to third parties is done, uh, security and quickly, etc. Now, Safaricom has curated a sort of a huge, um, ecosystem of, uh, third parties. As a matter of fact, they have something like, uh, 130,000 registered developers. Yeah. 130,000 of which 70,000 of them are active. So you can imagine, you know, a lot of these guys are connecting their little app, whatever it is. Uh, they are not always at the same level, meaning they are not necessarily the final guys that connect the super app, but they in the chain, right? Um, and I think that's one of the things that I find very exciting, that a lot of these 70,000 people and others are really young people like yourselves, yeah, and they're doing all this, uh, they're bene-, they're making the system more efficient in particular ways, yeah, fine. Now, the system has also been improved in other ways, and we can talk about this, uh, but the two things I want to mention is, uh, uh, the improvements in terms of QR code. We launched that. Unfortunately, the QR codes have not really been, they haven't taken root, and I think the reason for that is because, uh, M-Pesa has not really encouraged it. Yeah, they didn't kill it, but they didn't encourage it. If you control 90% of the EOS, 99% of the ecosystem, uh, if you don't encourage it, um, it'll just die on the vine, you know. So, so we don't have as many, we don't have that much use on QR codes, you know, payments, etc., which I think is a big, uh, weakness. Right now, I want to mention this sort of significant issues that have come up so far. I've talked more about the positives. I've talked about some of the weaknesses, but I still haven't talked about, uh, this, the real, let's say, soft side of M-Pesa and the ecosystem. The point is that they have generally used their position, as I said, uh, to keep other, um, let's say, other PSPs, payment service providers, sort of at bay. Yeah. And in a sense, they have not encouraged, well, they don't need to encourage, but they, they have worked, uh, they haven't provided the right, uh, connections for all this in, on a timely basis. So it's timeliness, uh, we are talking about, but I think also they have ended up being very important to government because of, uh, uh, the dividends that they receive, and it's a big company, right? So it's like, I don't know, think about, uh, here the tech bros, right? Uh, you know them, right? Uh, so think about, uh, Elon Musk, etc. I mean, that's sort of, um, let's say, a big, um, connection with government, and, uh, what he wants, he gets from government, kind of thing. Yeah. So it's this sort of insidious, uh, relationship with government that I think to me is more problematic. Right. So how has this happened? First, I think in terms of ability to get away with, uh, uh, let's say, things that are not exactly, uh, well, to bend the rules. Let's think about data protection, for instance. Yeah. So there, there has been a lot of complaints that Safaricom has not been careful in protecting customer data, and, uh, you get phone calls from people you, you don't know, and there are all these fraudsters. Yeah. And more than that, you know, there has been a lot of complaints to about people, uh, who say that Safaricom had provided, let's say, the, uh, the, the government, or should we say, the security forces, um, data about location on people, etc. Right. Uh, which is something that obviously people have been very upset. I'm now talking particularly the Gen Zs, you know, who have been involved in, uh, protests, etc. Right. Um, but there has been also other things that there has been repeated sort of breakdowns in the system. So resilience has been a big problem. Right now, what do you mean by resilience? You can imagine what happens if you cannot make a payment, right? You go to buy Starbucks, and somehow the system is down. Yeah. What are you going to do now? If you have a system that, that, uh, is 90% or 95% of the ecosystem, if it is down, you have a problem in the entire country. So how resilient should it be? If you talk about Microsoft or, well, whatever the, uh, Microsoft 365, you, you know that, yeah, the 365, if you have a contract with them, they generally want the, the, the service level agreement is for nine, no, four nines, 99.99% uptime. Yeah, you understand the uptime concept right now. 99.99 is actually something like one hour every year, or five minutes, roughly five minutes every month. That's terrible. I mean, so you think it is good, 99.99. Actually, in the central bank, we, we couldn't stand 99.99 even in our own systems. The minimum was 99.999. That's the standard we wanted to start from. So if you're in the running, begin with five nines. That gives you something. I think now, out of my head calculating it, it's probably something like two minutes. Actually, it's like five minutes every, five minutes every, every year, which is not good, but at least now you're, you're in the running. Yeah, I'm making the point that resilience, by the way, to go from four nines to five nines is a huge, is, is really a lot of effort, right? Um, so the effort is increases even more, right? Uh, exponentially as you increase the nines. And the design has to be different. Uh, the, you have to spend a lot more money on redundancies, redundant systems, etc. These are things that corporates don't like. Yeah. Why? You, we're spending money on just duplicating stuff. I mean, you can imagine the board, you know, that is discussing this. No, no, no. These are waste of money. We need a dividend. Yeah. And so we had to push them, uh, precisely to make sure that their systems are much more resilient. Um, there are the issues that are there, but I think the big ones are the ones I mentioned, this being slow, them being slower, uh, in, um, transitioning to interoperability across networks. Oh, there's another one I should have mentioned. The very high cost of the payment services, that is something that a lot of people have complained about. Now, it's true. You begin to say, well, okay, it's 3% when you run your credit card. Uh, by the way, one of the things I found very interesting is we are, I hate to put it in terms, but you know, we are a bit behind in the US in terms of the payments, payment systems. Yeah. The only thing we really have is a credit card. Yeah. Okay, fine. Even if you put it on your Apple, on your phone or Google Pay or whatever, it's still your credit card. Yeah. Um, but when you run the credit card, maybe the company loses or the Starbucks will lose 3%, right? The company takes 3%. Fine, it's not the end of the world. They're just going to change the prices. But if you have somebody who is, uh, earning, let's say, 500 shillings, which is close to $4 and something dollars, yeah, a day, and then you, you charge them, you know, $20, 20 shillings for the transaction, you know, to, to pay or whatever else it is, I mean, it's huge in terms of percentage. My point is that Safaricom started with a particular idea of helping society. However, somewhere along the way, they became more interested, more interested in the bottom line. They became more interested in sort of connection with the, with the powers that be, you know, the government, etc., that sort of, uh, symbiosis. And in a sense, forgot who are the people that they actually, uh, need to work with, and the people that made them great, which is the regular joes. Yeah. I mean, the regular people, the regular Kenyans, etc. Um, and to me, that is the issue. So you have all read about, I'll actually throw out two books that I found very interesting. I read them recently. Um, there's a book known as Lights Out about General Electric. Yeah. And there's another book, uh, like on, um, the, uh, Boeing. Yeah. Uh, it's Flying Blind or something like that. It's about the, the Max 73, the 737 Max. You know, the problem with that. Basically, both of this indicate that these were companies that were doing very well. Then they lost their way, uh, largely due to hubris. Yeah. And, uh, looking at the bottom line, for in the case of, uh, Boeing, they, they were more interested in, in the bottom line and forgot that they actually an engineering company, that the number one responsibility has to be safety. Yeah. Uh, it wasn't the bottom line, is it? So the same thing with, uh, Safaricom. The number one responsibility cannot just be, uh, the, uh, make the bottom line. It has to be having a proper ecosystem that serves Kenyans. If they make money on top of that, that is great, but the, the responsibility has to be there. So now we'll get into all these fixing, like backfilling operations, and that's where things get really nasty because, I mean, you need to use a baseball bat, uh, on them or, you know, break something. Yeah. The way people used to say, you know, move quickly and break a few things. Well, now we need to break them. Yeah. So that they can actually go back to their original idea of serving society in particular ways. You can imagine if a utility company, for instance, here decided to be more focused on the bottom line rather than serving and providing utility. I mean, so you, when you have a storm, they don't care. They'll, they wait until the storm goes and then go around fixing all the, uh, all the connections that were broken instead of being out there when the storm is out there to make sure that we are getting the utility, right, the, the electricity, etc. I want to finish. Um, I need to add to, to, to make one point. Uh, this, these things are massive today. They've just become, M-Pesa is huge. Yeah. I, I want to make it very clear to you, this is not a sort of a small thing, right? And the way to think of it is how big is the system, meaning the, the system that supports it, and how many transactions you do you get per second. Um, Zelle, right? Is it Zelle? Is that, how do you pronounce it? Okay, so Zelle, you talk, there's so much talk about it. Actually, the peak size, let's just talk how many transactions per second can it handle? Yeah, it's a thousand. Yeah, these are numbers that I've checked. A thousand tips transactions per second, right? Actually, on average, it is like 125 to 150. So it's, you muddling, just hoovering at 150, and then it can handle, you know, s, like at Christmas or whatever, you know, to 1,000. Fine. Venmo is at 500, and it is sort of at 50 on average. Yeah. So those are the sizes that you are more or less familiar with. M-Pesa handles something like 100, 1,500 to 3,000 on average. Yeah. So it's multiple times that. Its peak is something like 6,000 to 10,000. Yeah. So we are multiple times. You can see it's a different order of magnitude. Right now, just to compare Visa, we all know the Visa card. I mean, it's huge as well. Combine all their transactions in the world. Worldwide, there are 65,000 at peak, and the on, and the average is like 10,000, 10,000. So you can see they are bigger than M-Pesa. I mean, it's a different order of magnitude. Yeah. Um, well, let's leave Mastercard, but Mastercard is Pix. I don't know if you guys, anybody from Brazil, Pix is a new instant payment system. Hi, Marina. That actually is at, uh, well, 10,000, basically 10,000 its peak, and it hoovers around 2,500. So it is comparable to M-Pesa. Yeah. Now we can talk about India, but the, the giant of them all. Yeah. You can all guess who the giant is. Ant, Ant, Ant Financial, the Alibaba, WeChat, you know, the, that is the, the, the monster of them all. It, it's everybody for lunch, right? Uh, we don't know what the final limit is, but we know it has been proven at 544,000 transactions per second. So you can see it's a completely different order of magnitude. Why I'm throwing this at you is to appreciate the technology, the quality of the technology that needs to be in place for these things to operate. Yeah. And if you think, well, a familiar thing, this is my last point, uh, Bitcoin. Remember Bitcoin? Everybody got excited about Bitcoin, and at the beginning they say that this is going to replace everything we know and all the transa-, how, what is the peak? How much can Bitcoin handle? Do you know? Seven transactions per second. Seven. So when these guys came to you as governor and sort of say, you know, we want to improve your system, we want to have loaded with Bitcoin and blockchain, this, the other, you look at them and sort of wonder, oh, you have no clue what you're talking about, because we at 2, you know, whatever the number I gave you, yeah, 150, 1,500 to 3,000 on average, and it peaks every so often, you know, to closer to 10,000. I mean, Bitcoin can, is not even a starter. Yeah. Now I'm making this point because actually blockchain is useful for particular transactions, and we are thinking more in terms of specific cross-border transactions. But for this size, you, they cannot, you cannot handle, uh, them via a sort of a blockchain, current level blockchain. There are new blockchain technologies that are coming out now, and actually the first number that I gave you on Cambodia runs on blockchain, and that's at 200 tips, but, uh, today it runs at 64 on average. The point is that, uh, the design and, uh, and organization of this thing is not something that you can just take for granted. Now, anything that you do, if you think about making a plane, you know, designing a plane or designing all the great things that you guys will be doing, they require a lot of ingenuity. So I think it is, it's for you to sort of see the scope of the problem because we want those transactions to happen and to create proper technology that can actually handle that efficiently and, uh, and obviously at low cost. That's it.
Okay, let's begin with, uh, with the first point. You gave your own story about, uh, being in Kenya and how this impacted your, you know, the, the fallacy that innovation takes place in Silicon Valley, fast-moving places, you know, tech bros, t-shirts, hoodies, that's tough. Yeah. I mean, so you get to Kenya and you realize that the people that are doing the innovation are probably people that are just the ladies in the street. Yeah. The, the guy that is riding the motorbike giving it, and I'll give you, this is the story I'll tell. When I got there, uh, I'm very data sort of, I want to have data to make decisions, right? So we were looking at two platform, one particular platform, uh, that was lending, uh, was providing lending on the phone for, you know, short-term lending, 30 days, right? So this is excellent, right? You can borrow, you don't need to go to a bank, obviously, to a partic-, the, there's a limit on it, and, uh, and then you repay, right? That after 30 days, excellent. So we were looking at the data and we discovered that more than 50% of the transaction of the borrowing takes place between 3:00 and 5 in the morning. Can you imagine that? So I began to...
Wonder, okay, so this now the economist. Yeah, we know nothing about society. You know, so how in the world are these people who is waking up at that time of the day? And I'm going to leave the social answers that we thought of. Yeah, and then eventually discovered, well, we thought that is some men leaving birds or something like that at that time, you know, but no, 50% of them were women. There's something wrong with this thing. So we...
Okay. So, this is a story I'll tell. Basically, the wholesale market for fruit, vegetable, and all that is most active at that time of the morning. So, this lady wakes up. She's a... she owns a kiosk somewhere. She wakes up in the morning. At 3:00, she calls the wholesaler, the contact, and says, 'I need X, Y, this. Here's the money.' She borrows the money, sends money to this person, then calls a young man who has the pushcart and says, 'Go to so-and-so, he has my produce, take it to the kiosk.' This lady would then wake up the kids, give them breakfast, send them off to school, and then at 6:30 she shows up on a motorbike, of course, will show up at her kiosk, right? 6:30 she's already done all this work. So, we were very impressed with that. But then we discovered there's a problem. You know, this lady would repay, and it wasn't one, it was like a mass of them. They would repay the 30-day loan at the end of the day. So, they wouldn't keep it for 30 days. So, what's going on? They've already paid, quote-unquote, the interest. So, why don't they just use it again, you know, roll it over for 30 days? It's free money. No, they wouldn't do that. They would actually, the next day, they would start all over again, get another loan. So we, this obviously as economists, we realize that, you know, these ladies are crazy, they don't understand financial... they have poor financial decisions, right? But then once we began to dig, we discovered what was going on. These ladies had discovered the algorithm. Remember this thing is lending via the algorithm. The techies that had coded this thing had that if you borrow 12 times, meaning like 12 months, right, in their mind you borrow for one month, etc., then you borrow again and again 12 months, then you double your credit limit. These ladies had discovered that if you did it 12 times, one day after the other, it would count and then it would be 12 and then you double your credit limit. Yeah. So within a week, within two weeks, they had doubled their credit limit. Within a month, they've gone four times their credit limit. Yeah. The coders somehow missed that, but they had discovered the algorithm. So anyway, it's a story I tell because it shows you how, let's say, innovative people are. I mean, how did I... I would never have figured it out myself ever, not in a million years, because I'm so fixated on this thing of, you know, it's 30 days, it's free money, just use it for 30 days, you know. So just giving you an example of underscoring the fallacy of where technology, where innovations come from. So those people, they may not look sharp, they may not wear hoodies, but that's where the innovation is taking place. Yeah. Um, you asked about the regulation, regulation without laws. Basically, we... there were no laws because nobody... this is all new today. And now Kenya has applied, has an entire ecosystem and many other countries have it. So today now you can do a bit of cut and paste. Yeah. Um, so you can think for instance about cryptocurrencies and things like that. You know, most of us are only now putting together laws that will deal with them, you know, the virtual assets. So, the issue wasn't a failure of laws. It was just that this was very new. And so, you have a choice to wait until you put together a law, but you also don't know what you're regulating. How can you put together a law that you don't know what you're dealing with? So in some sense it was so new that it was okay, fine, let's just watch, let's work with the innovator and see how best to regulate this thing. But it required the buying of the regulator that is not going to mess up, right? And in time you actually did understand how, in a sense, this was... nowadays you call it, you know, putting it in a sandbox, right? So we were sandboxing before the term sandbox was invented, you know, that's exactly what sandboxing is. Yeah. Okay. Now we found there's another experiment, another one that I need to mention, which is the digital lenders that I talked about. Yeah. And I said that there are two types of them. There are those that were connected with banks and those were much more sensible, you know, like the one that I mentioned. Yeah. But then you had the other one which were small, you know, Tala, Branch, and a thousand others. You know, there were like 300 of these guys. They grew up, they were like mushrooms everywhere, and they would lend you... there was no law, and their view was there's no law so we can do whatever we want. I mean, you cannot hold us accountable on anything because there's no law and we're doing something that is not forbidden by the law. Yeah. Anyway, the trouble is they ended up doing all sorts of crazy things, meaning using very unethical tech tactics for recovery, etc. Um, and it became a significant social problem. So we then, as governor, we actually put together the law, but this takes time to, you know, the law eventually, like somebody says, you know, the ark of... oh, what's the ark of... just what... ark of history is long but it bends towards justice. Exactly, so that's MLK, right? So in effect... Cambridge resident. Ah, there we go. So basically you're putting together the laws, but it takes time to put together the law. The machinery for putting together the law takes a long, long time, and this one took us more than a year, actually took us more like closer to two years, in which... and during that time there was chaos in the financial system because of these operators. So I think the point is you should be aware that you'll be facing entities that are... I mean, because innovation is happening very quickly, that you don't know how to regulate, and you'll have to figure out, you know, how to deal with them, you know, either in a sandbox sort of environment if they have worked in other jurisdictions, then you just get in touch with those jurisdictions, those other central banks, and work together. So this is a time for cooperation, and one of the things I did as governor is I spent time with other governors who are just beginning in this journey and compared notes and told them this is what we did, and we sent our people there and they, you know, explained to them in more detail. I think that is... the cooperation is the way to go. Um, you mentioned this question of the state, how does the state deal with this? And here is where I would say there are two elements. One is the central bank, and the central bank, not surprisingly, I'm very complimentary to them, having been a central banker myself, with our own mistakes, with our own mistakes, and I'm sure you know a lot of our mistakes. I think the point here is we have... if you are focused, the central bank is focused on its mandate, then you can get somewhere. What happens is you get confused... not confused, you mix up the mandate with other, let's say, yeah, other objectives, private objectives. Yeah, I mean, you can imagine there's a lot of temptations if you are the governor of the central bank, right? Everybody says hello and all those other things, and everyone wants to play golf with you. But I don't play golf, you know. And this is a beauty. I love running. Yeah. So if anybody wants to play golf with me, well, let's go run, you know. And they would immediately drop that idea, you know. So I encourage you to go run, to have that as your sort of way of exercising to keep things away from... anyway. But I think the bigger issue is working with the rest of the public, that is the government proper, because the government's objectives, remember, can be amorphous. Yeah. They're interested in having returns if they are shareholders, but they're also interested in some social objectives. And at times, so for instance, one of the things that... this, I'll make a point here. One of the things that I don't understand, which has bothered me intensely, is that, you know, there's a lot of funds, think of the wallets that we have, right? Everybody, if you put it all together, it's something like... the funds, all those funds, they are more like a tier one bank. Yeah. So they are smaller. They are eight tier one banks. They are sort of like three-quarters the size of the smallest tier one bank, but they are bigger than tier two banks, etc. So they are sizable. Okay. I'm just making the point that their funds are there. But the government was more interested in having these funds used for charitable purposes. Charitable purposes. So what those charitable purposes are is a bit amorphous. Yeah. And by the way, I mean, the interest on those funds, they're held in trust, and there are rules around the trust, but the rule around what they do with the return, it was you can use them for charitable purposes. The point is that when M-Pesa started, nobody expected that this would be huge. You know, everybody thought that the funds are going to be small. Um, and also, yeah, so in effect, there was also the concern that they may be... they didn't want them to compete against banks. So, yeah, so just direct the money to some charitable thing, you know, like whatever. But as you can imagine, this became sort of a slush fund. Yeah. In terms... I'm talking of the interest. Yeah. And the government has an interest in that. So my issue here is that when politics collides with money and with ability to do stuff, um, that's where the bigger concerns are. And we as regulators then have a problem because you cannot really push. And I can give you a simple example, another example. During COVID, we required... we as a central bank, we issued a directive to them. I do remember it wasn't just a directive. We invited them to my office boardroom and there, to their face, told them, you know, from now on all the transactions will be free, zero. Why? Because we were trying to support sort of digital transfer. I mean, otherwise you'll end up spreading COVID to everybody via, you know, to reduce the use of cash, right? And believe it or not, you know, there are people... there was a particular company that was very, very opposed to this. Yeah. Why? Because from their perspective, this is loss in revenue. Actually, at the end of it, they did very well. They were the only company that actually grew dramatically during that period. And we had done our calculations. And I'm making the point that at times those sort of considerations become dominant in their thinking, and they are quick to grant to, let's say, the politicians, and then have the politicians put pressure on us, yeah, we the decision makers, you know. So I think those are the things that I would... I would say, well, to answer your question.
