Extending pension and savings scheme coverage to the informal sector: Kenya's Mbao Pension Plan

Abstract

The Mbao Pension Plan is a voluntary individual account savings plan to which all workers in Kenya may contribute without regard to income or age. It is designed to provide a programme that is suitable for the unique nature of the informal sector and to encourage a savings culture for those workers. The key innovation is that low‐income workers can easily make small contributions at relatively low cost, considering the small contributions and small account balances. Participants can conveniently make contributions anytime and anywhere using their cell phones. This savings innovation is made possible by technological innovations that have reduced the costs of cell phones and airtime, and by the entrepreneurial innovation of mobile money. The plan is provided through private‐sector businesses.

Managing Longevity Risk in Low and Moderate Income Countries: Longevity Insurance Benefits as a Policy Solution

“…For example, Kwena and Turner [10] examine the Mbao pension plan in Kenya as possible model. That plan is based on mobile money and cell phone technology.…”

Social security reforms in Kenya: Towards a workerist or a citizenship‐based system?

“…Some of the schemes run by private companies target the middle classes, who strongly mistrust the public NSSF and have a strong preference for private insurance and possess the means to act accordingly (Maupeu, , p. 60). However, private insurance companies are increasingly also targetting the informal economy, which makes up 80 per cent of the labour force (Kwena and Turner, , p. 79).…”

“…Launched in June 2011, the Mbao Scheme ambitiously targeted enrolling a million members within the first year (by July 2011, it had 42,000 members). By March 2014, the Scheme's 53,200 or so members had saved KES 75.8 million (Waitathu, , p. 3), but contributors have neither tax incentives nor matching contributions from government or employers (Kwena and Turner, ). Similar to a provident fund, contributors can draw their savings as a lump‐sum payment.…”

“…However, this can be done without penalty after as little as a year, and thus the Mbao Scheme might be a tool for short‐term saving rather than a form of old‐age provision. An incentive for membership might be that the account can serve as a mortgage (Kwena and Turner, , p. 94). It is too early to judge the impact of this scheme; however, it clearly shows the growing interest of the private sector in the informal economy, the financial potential of which, typically, has been underestimated.…”

Extending social security coverage to the rural sector in China

“…In some countries, voluntary pension systems have been provided to informal sector workers as a substitute for mandatory social security programmes. Both the NRPS in China and the Mbao Pension Plan in Kenya are new, innovative pension plans that are succeeding in enrolling rural or informal‐sector workers (Kwena and Turner, ). Both are voluntary plans for persons who typically do not pay income taxes, and thus do not have a tax incentive to participate.…”