Digital and mobile finance applications have boomed in Kenya over the last decade. Mobile money, Vodafone’s M-Pesa system in particular, is ubiquitous. Kenyan banks and smaller start-ups have led the adoption of a wider range of mobile and digital financial applications.

For promoters of fintech as a tool for development, Kenya is a paradigm case. Estimates from Tavneet Suri and William Jack – suggesting that the advent of M-Pesa had directly moved 194 000 households, equivalent to 2 percent of the country, out of extreme poverty – have been triumphantly cited across a wide range of media reports and policy documents. The rapid adoption of mobile and digital finance, according to advocates, has allowed Kenya to ‘leapfrog’ the developmental constraints of its existing financial system. In the words of one author: ‘new technologies solve problems arising from weak institutional infrastructure and the cost structure of conventional banking’.

There are good reasons to question this rosy narrative, as recent critics have demonstrated compellingly. Among others, Milford Bateman and colleagues raise a number of important methodological and other objections to Suri and Jack’s claims, and Serena Natile shows how narratives of ‘inclusion’ mask the perpetuation of gendered patterns of exclusion and inequality. Wider applications of fintech in Kenya have come in for critique as well. Kevin Donovan and Emma Park highlight emerging patterns of digitally-enabled over-indebtedness. Laura Mann and Gianluca Iazzolino trace the emergence of monopolistic corporate power enacted through the extension of digital platforms (including for finance) in Kenyan agriculture. Ali Bhagat and Leanne Roderick show the emergence of new forms of racialized dispossession and exploitation through efforts to extend fintech applications to refugees in Kenya.

On a more basic level, ‘leapfrogging’ narratives have to contend with the fact that the geography of Kenyan fintech looks a lot like that of the financial system more generally. The fintech boom is predominantly an urban phenomenon, and especially concentrated in Mombasa and in and around Nairobi. Data from the 2019 national ‘FinAccess’ survey shows that 6.6 percent of respondents currently or had previously used of mobile lending services, and 6.4 percent reported the same of digital lending apps. The corresponding figures among urban residents were 17.2 and 11.4 percent. The proportion of residents in Nairobi Metropolitan Area and Mombasa using mobile money services (25 percent) and digital lending apps (18.2 percent) is more than double the respective use rates of mobile (12.3 percent) and digital borrowing (7.1 percent) among urban residents elsewhere.

These persistent patterns of uneven development matter because they go to the heart of claims about the contributions of mobile and digital finance to development. In an article recently published in Antipode, I show how, far from ‘leapfrogging’ existing infrastructures, the digital finance boom has worked through and even reinforced patterns of uneven development inherited from Kenya’s distinctive mode of settler colonialism.

The settler-colonial origins of uneven financial development

If we want to understand the pattern highlighted above — a predominantly urban financial system disproportionately centered on Nairobi and Mombasa — we need to understand the long-run interplay of the financial system and the political economy of settler colonialism in Kenya.

The commercial financial system in Kenya developed alongside and in relation to the colonial export economy. The first colonial banks were established in the late nineteenth century in coastal trading entrepot Mombasa. In the first decades of the twentieth century, they followed the development of the Uganda railway (running from Mombasa to Lake Victoria) inland. Nairobi was established in 1899. It was selected as the site for a major railway depot, largely because it sat roughly midway between Mombasa and Kampala in Uganda.

Following the completion of the railway, colonial officials sought to open ostensibly ‘un-used’ land in the highlands surrounding Nairobi to white settlement. The advent of settler agriculture, and an associated market in fervent land speculation, encouraged the expansion of the banking system to Nairobi in particular and to surrounding highland areas.

Land titles played a crucial role here both as instruments of racial stratification and as financial infrastructures. As Abreena Manji notes, ‘Kenyan land policy was… racialised at its inception’, with land titles reserved for White Settlers and Africans increasingly confined to ‘reserve’ areas.

Alongside their role in processes of racialized dispossession, the role of land titles as specifically financial infrastructures also strongly shaped their development. Notably, land rights were initially conditional on ‘productive’ use, as the state sought to minimize land speculation. This was quickly overturned as settlers complained that such restrictions inhibited their ability to use purchased land as collateral. Colonial officials, keen to enable wider access to credit, quickly complied. In short, while racial restrictions remained in place, other restrictions on property titles were quickly removed specifically in order to facilitate their use as means of assessing credit risk.

The intersection of credit infrastructures with racialized structures of property relations in this sense was also crucial to the political economy of settler colonialism. It was not simply ownership over land, but also the control this granted over access to credit — and hence over inputs and machinery — that enabled settler control over African labour.

The financial system that emerged from these developments was dominated by three banks controlled from London, accounting for roughly 80 percent of banking assets. Until 1950, bank branches in Kenya were predominantly located in Mombasa and Nairobi, and virtually all in ‘White Highland’ areas. Although there has been considerable expansion of banking networks into other areas since the 1950s in particular, the centrality of Mombasa and Nairobi as key poles of financial activity has clearly persisted up to the present.

This tells us something first of all about how fintech does and doesn’t ‘disrupt’ existing financial systems, and about how colonial legacies are reproduced over time. It’s useful in the first instance to keep in mind that financial markets are made up of material flows that move through durable infrastructures — backgrounded material means of assessing risks, settling payments, calculating values. These include things like physical branch networks linked together by road, rail, and electronic communications, as well as embedded practices like using property titles as a means of assessing credit risks. In Kenya’s case these financial infrastructures are also ‘imperial remains’ in the sense highlighted by Wangui Kimari and Henrik Ernstson — ‘entangled colonial practices that have racialism immanent to them, and which continue to occur in an, ostensibly, postcolonial state’.

Mobile and digital finance in Kenya has mapped closely onto the financial infrastructures initially laid in the development of the financial system under colonial rule. Indeed, it has arguably ‘succeeded’ in large part because of those close links. A key difference between mobile and digital finance in Kenya and other countries is that the vast majority of digital lenders in Kenya are established banks. But if mobile and digital finance succeeded in large part because of its ability to ‘plug in’ to existing financial infrastructures, it has also as a corollary been constrained by the spatial limits of those infrastructures.

A brief history of failed reforms

Yet, colonial infrastructures do not mechanistically determine contemporary development. Indeed, these patterns of uneven development have been subject to recurrent (if largely failed) efforts at reform.

There were tentative efforts to change entwined systems of credit allocation and property relations support African agriculture as early as the 1930s, with the colonial state seeking both to expand its fiscal base and contain growing political threats. These were ramped up in the aftermath of the Mau Mau rebellion — an armed revolt led by the Kenya Land and Freedom Army, which was brutally repressed by the colonial state.

Agricultural reforms formed a key part of the colonial response to the rebellion. Roger Swynnerton, then-Assistant Director of Agriculture in Kenya was appointed to propose a strategy for agricultural development in 1953. A core element of Swynnerton’s proposals was the expansion of formal land titling to ‘African’ areas, facilitating the use of such titles as collateral. The thrust of Swynnerton’s reforms, in short, was to reform the ways that Africans held land in ways that would be more compatible with existing financial infrastructures. In practice, though, the lending operations of Kenyan banks were refocused on short-term commercial loans in Nairobi and Mombasa, rather than on direct lending to riskier agricultural activities.

Formal decolonization ultimately did little to alter this situation. Postcolonial elites largely sought to preserve the essential structures of the colonial economy, particularly around land and property relations. This was compounded by the large-scale flight of settler capital. Especially given the absence of mineral rents on which the Kenyan government could draw, this created a growing dependence on attracting foreign investment. A key result of this enforced deference to foreign private capital in the early years post-independence, though, was that the financial sector remained dominated by the big British banks, which continued to collectively control more than 80 percent of financial assets. These banks, as noted above, provided little credit for African enterprise in general and for agriculture in particular. The World Bank concluded in 1975 that ‘it appears that commercial banks direct their funds from rural to urban areas and, above all, to foreign-owned firms in the formal sector’.

The Kenyan state essentially constructed a parallel agricultural finance sector in an effort to respond to these limits. The Agricultural Finance Corporation (AFC) was established in 1963, alongside an extensive system of cooperatives. These played a prominent role in agricultural lending. Several external and internal factors led to the collapse of this system by the 1980s. Agricultural production was disrupted by a series of major droughts starting in 1974-5, culminating in a particularly severe and protracted agricultural crisis in 1983-4. This coincided with increasingly volatile global prices for key exports, and increasing fragmentation and competition for agricultural land.

Kenya was ultimately one of the first states to undertake a programme of structural adjustment, starting in 1980. This led to significant restructuring of the financial system. The state-backed system for agricultural credit was drastically scaled back. Neoliberal reforms, if anything, deepened the urban concentration of commercial lending. Restrictions on interest rates were removed in 1991, leading to increasingly volatile borrower rates, accompanied by growing concerns about bad debts at major banks, and increasing restrictions on credit.

Structural adjustment exacerbated the stratification of land and agricultural production. Currency devaluation and the marketization of inputs led to spikes in prices for seed and fertilizer, and the restructured financial system restricted available sources of credit for smallholders. These conditions were exacerbated by the intensification of conflict over agricultural land. All of this has happened as urban working classes were deeply affected by structural adjustment, particularly by the retrenchment of public sector employment and the devaluation of the Kenyan shilling.

Access to credit and the proliferation of indebtedness, in this context, have (re)emerged as critical policy concerns from the early 2000s. The development of mobile and digital financial systems ultimately proved to be a crucial area of intervention. As Florence Dafe details, there was some early resistance from commercial banks to the development of M-Pesa, but this was largely allayed in the early 2010s as banks were encouraged by the CBK in particular to adopt mobile money systems.

From ‘leapfrogging’ to radical restructuring

The digital finance boom, in short, can also be viewed within a longer series of state-backed efforts to remedy the social and spatial unevenness of the financial system. Past efforts have failed because of an unwillingness (or structural inability) on the part of the state to meaningfully challenge private, capitalist control over the financial system itself, and over land and other key productive resources.

Maybe more importantly, then, this case tells us that financial development in itself is likely to reinforce existing patterns of uneven development. The forms of social and spatial unevenness baked into the ‘imperial remains’ (per Kimari and Ernstson) of Kenya’s financial infrastructures are unlikely to change without a more radical restructuring of existing systems of property relations and exploitation and the state forms through which they are sustained. Fintech is not a substitute for the democratization of control over land, or for meaningful social protection and public provision.

Nick Bernards is an Assistant Professor in Global Sustainable Development at the University of Warwick. He tweets at @BernardsNick.

Photo: M-pesa Wakala. By Development Planning Unit (DPU) at the University College, London.