* Service to use Airtel Kenya's network infrastructure
* Says to roll out service in neighbouring nations
By Drazen Jorgic
NAIROBI, May 26 Equity Bank of Kenya plans to launch a mobile telecoms service in July, eyeing a piece of the fast-growing cellphone-based financial services market, it said on Monday.
Kenya has led the world in mobile money, with the M-Pesa platform of its largest telecoms operator Safaricom offering banks a cheap and easy way to reach the large number of people without access to formal financial services.
In the year ended March, Safaricom reported M-Pesa service revenue of 26.56 billion shillings ($302.51 million), up 21.6 percent from the previous year.
James Mwangi, Equity's chief executive, said it had teamed up with the east African nation's No. 2 telecoms firm, the local arm of Bharti Airtel, to roll out its new service.
Equity was licensed as a Mobile Virtual Network Operator (MVNO) by the telecoms regulator earlier this year, giving it permission to run a service using a telecom operator's network.
It will offer its customers sim cards linked directly to their bank accounts. They will then be able to access their accounts and apply for loans via their mobile phones.
Mwangi said Equity, Kenya's biggest lender by depositors, will seek to expand the service across east African countries where both firms operate, if the service catches on in Kenya.
"The good thing with this partner is that then we are able to look at east Africa as they are in Uganda, Rwanda and Tanzania," Mwangi told an investor briefing. "As soon as we succeed in Kenya, we repeat the same in the region."
Equity has outlets in Uganda, Tanzania, Rwanda and South Sudan.
Adil El Youssefi, Airtel Kenya's chief executive, said the service would help his firm chip away at Safaricom's market share.
Mwangi said Equity's investment was minimal as it did not need to spend money on telecoms infrastructure.
Airtel agreed to let the bank use up to 60 percent of its spare network capacity at a variable rate depending on usage.
"There is no capital expenditure because we are being hosted," Mwangi said. "It's plug and play."
Safaricom's M-Pesa platform has grown rapidly since its launch in 2007. One service run by Commercial Bank of Africa on M-Pesa - called M-Shwari - had attracted over 24 billion shillings in deposits and lent 7.8 billion shillings by February this year, after it was launched in 2012.
Equity said its mobile customers would be able to take loans on the platform at interest rates between 1-2 percent per month.
Its first quarter profit rose by 21 percent to 5.4 billion shillings ($62.14 million), lifted by growth in its loan book, it said in April.
($1 = 87.8000 Kenyan Shillings) (Editing by Duncan Miriri and Mark Potter)