Kenya’s capital city is quickly becoming a technology epicenter. An agile mobile banking system is creating new market opportunities for digital entrepreneurs.
At first blush, you might not think of Nairobi, Kenya, as being especially ripe for startups. Public concerns about security, government red tape, and a long waiting period for corporate registration are a few reasons why the capital city has historically fostered less entrepreneurial activity.
Still, in recent years, Nairobi has seen massive development in all things digital. Counting thousands of STEM (Science, Technology, Engineering, Math) graduates from local colleges each year, Nairobi’s tech scene could be worth as much as $1 billion to Kenya in the next three years, Bloomberg reports.
As the use of mobile phones gains popularity, a more fertile marketplace for e-commerce businesses is being created. IBM recently chose Nairobi as the location for its first-ever “African research lab,” citing the city’s notable tech “buzz” and connectedness to the African continent at large.
M-Farm is one of the many tech startups to emerge from Nairobi’s entrepreneurial ecosystem. Founded in 2010 by a trio of women, the company gives farmers access to real-time information about market prices, and where they can sell produce and buy supplies, all at the touch of a mobile button.
To sign up for the service, farmers pay 800 Kenyan shillings ($8 U.S., which is a reasonably small fee in Kenya) for a six-month M-Farm subscription. An SMS transaction for a single crop instead is simply the cost of a text message. The company counts nearly 17,000 users in Kenya, and projects one million by the end of next year.
M-Farm aims to be more than an information platform. It wants to empower African farmers to grow more effectively by cutting out the costly middleman. Presently, those farmers are producing just one-seventh of the possible yield per hectare that is produced in developing countries, according to consulting firm McKinsey & Company.
“In Kenya, agriculture has always been looked at as a punishment,” says Linda Kwamboka, one of M-Farm’s co-founders. “You always hear farmers saying that they don’t get enough profit from their transactions because the middleman is taking everything.”
Still, Kwamboka continues, it’s the small-scale farmers who actually feed everyone. So the idea for M-Farm was born: “If the farmers really know how much their produce is going for in the market, they will be able to negotiate with the middlemen,” she says.
Innovative companies like M-Farm have given Nairobi the boost it needs to succeed economically. Currently home to 242 startups and nearly 2,000 private investors, the city — once nicknamed “Nairobbery” for its crime rates — is adopting a new title: “Silicon Savannah.”
Powerful support system for tech ventures.
The Kenyan government recognizes that startups create jobs, and to that end, is making several investments to support the entrepreneurial ecosystem.
In 2013, the government partnered with Kenyan incubator Nailab to launch a $1.6 million technology program to provide entrepreneurs with access to capital and education, as well as helpful contacts in the industry. Graduates of the program, which runs for three to six months, include startups like SokoText, which solicits text messages to aggregate demand for food, and then determines wholesale prices for local microentrepreneurs.
Technology resources unaffiliated with the government are also springing up in Kenya. Founded in 2008, the iHub conducts business research in partnership with the University of Nairobi. The organization offers consulting services as well as a collaborative local workspace for business owners.
The IPO48 startup competition is another initiative that proved particularly useful to M-Farm’s co-founders. The program brings together over 100 Kenyan entrepreneurs, programmers, designers, and project managers, and asks them to build a new mobile or Web service over the course of just two days.
As the 2010 winner, M-Farm received a prize of $10,000 in investment money. Since then, the company has received additional (undisclosed) funding from other investors. “The most important thing we got out of this was the networking,” Kwamboka says. “It gave us visibility for other people to know what we’re doing, and to start getting involved. People know where to find you. If they come to Nairobi, and want to invest, people check the iHub to see what’s going on.”
What’s more, Kwamboka notes that the Kenyan government is remarkably supportive of women in business. “The Kenyan president [Uhuru Kenyatta] is taking strides to ensure that women entrepreneurs are being recognized and heard,” she adds.
A strong new market opportunity for the mobile sector
Internet penetration in Kenya has surged over the years, creating a massive opportunity for digital entrepreneurs.
As of 2014, nearly half (43 percent) of the Kenyan population had access to the Internet, according to the World Bank. This is a significant uptick from 2010, when penetration hovered at just 14 percent. What’s more, 82 percent of Kenyans now own a cell phone, compared with 89 percent of Americans.
“Mobile phones are the best way to go [for businesses],” says Kwamboka. “The information it contains is very personal. You can store it, and you can always go back and check yesterday’s price, or last week’s price.”
The ability to make smart and analytical decisions is essential for farmers. A suburban town elsewhere in Kenya, for instance, might have a better tomato market this week than Nairobi had last week, which lets farmers sell at a higher (more appropriate) price point. As Kwamboka explains, a farmer — equipped with the right market information — might be able to sell his crop for an extra 10 shillings. Predictably, the middleman may reject that price in the morning, but will agree to it by the afternoon.
In 2007, Kenyan provider Safaricom also took advantage of mobile penetration to launch M-Pesa, a microfinancing company, in partnership with Vodafone. M-Pesa has become something of a mobile banking revolution, which has since spread across eastern Africa, Afghanistan, India, and parts of Europe, and now counts about 15 million daily active users.
The service allows for easy money transfer, bill payments, and money withdrawals by simply sending a PIN-secured SMS text message. The platform has spawned offshoot ventures, which all leverage the same technology. M-KOPA Solar, for example, gives Kenyans cheap access to solar energy.
In 2014, M-Farm partnered with M-Pesa to process mobile payments on the back end as it sends out pricing information and updates to its users.
It’s one of the most developed cities in Africa.
Nairobi is a fledgling when compared with urban giants like New York City or Los Angeles, but within Africa alone, it’s one of the fastest-developing cities.
In economic terms, Nairobi is Africa’s seventh leading city, according to a recent report in PwC‘s series on “Cities of Opportunity.” And a 2012 study by the EIU, “Hot Spots: Benchmarking Global City Competitiveness,” projected that Nairobi will become one of the 40 fastest-growing urban economies in the world by 2016, due to its highly skilled workforce and comparatively low cost of living.
In fact, Kwamboka and her co-founder Jamila Abass, who studied in Kenya and Morocco, respectively, both hold bachelor’s degrees (Kwamboka in business information technology, and Abass in computer science). “Really, I do feel supported as a woman in tech [in Nairobi],” Kwamboka adds.