[kictanet] Kenya’s Banks ask for regulation on Mobile Money Transfers

Tue Oct 21 16:56:59 EAT 2008

Kictanetists,

The arrival of the radical mobile phone anchored banking service has
changed the banking environment both in form and in substance. The
obvious winners provided for by this innovation are mobile phone
operators and their clients. Future customers will have themselves
relieved of the baggage that was typical of the conservative banking;
pass books, cheque books and ultimately bank notes may become extinct
paving way for the dawn of a "cashless economy".

Second, the nature of M-banking's invasion of what was hitherto a
traditional banking terrain is devastating. It further dilutes the
prospects in the banking transactions service income following soaring
levels of inter-bank competition. Thus, banks need to find a different
growth path that leads beyond the one they are currently following.
This state of affairs also catapults technology into apposition of
preeminence in banking affairs and puts traditionally engineered banks
on notice that they have to contend with more robust and assertive
technology solutions that will not hesitate to make incursions into
the financial arena.

Regulatory approach to mobile phone banking in a rapidly dynamic
setting has also emerged as a critical question for consideration,
thus it might be imprudent to overlook the concerns of bankers and
others (Motivations aside). Still, evidence from the countries where
the phone banking has gained huge momentum demonstrates that the
industry will not wait to innovate while policy makers and regulators
take ages to deliberate over an ideal course of action.

>From my prior research work on Mobile phone banking applications some
pertinent questions that seem to require attention in this matter
include:

1. Adequacy of Consumer protection - Appropriate consumer protection
against risks of fraud, loss of privacy and even loss of service is
extremely critical for growth of phone-banking. Risks proliferate
further when agents are involved and reach to a maximum. Since a large
number of clients are first time customers with low financial
literacy, the risks become even higher. These risks can be mitigated
by entering into mobile banking activities through known and
meticulously regulated players and agents. Guidelines regarding
privacy protection, network security, complaint redress mechanisms and
robust mechanisms for consumer protection are fundamental as the
uptake of M-Banking goes to scale.

 2. Distinction between payments and deposits. The CBK as the mandated
regulator under the Banking Act does not give an explicit definition
of "Banking". What the CBK elaborates in its mission statement is the
purpose which is cited as "for investment or borrowing". The
definitions of payment and deposit either as cash or electronic lacks
clarity hence the need for comprehensive distinction.

 3. Stipulations for E-money and E-Transaction dealings. According to
the Basel Committee definition, Electronic Money (E-Money) is a stored
value or prepaid product in which a record of the funds or value
available to the consumer for multipurpose use is stored on an
electronic device in the consumer's possession.  E-money implies
"monetary value as represented by a claim on the issuer which is
stored on an electronic device; issued on receipt of funds of an
amount not less in value than the monetary value; issued and accepted
as means of payment by undertakings other than the issuer". (Bank for
International Settlements, 2004).  This definition could provide a
useful benchmark upon which the authorities can develop an appropriate
legal framework in tune with international modes.

 4. Provision for cash withdrawal and deposits by Agents. The existing
guidelines by CBK have no clear provisions for agency cash withdrawal
and deposits. Contractual arrangements with agents handling money on
behalf of the M-Banking service provider require clear legal
principles.

 5. Integrating AML/CFT regulations to account opening and cash
transactions. A risk-based approach should be adapted to customers'
due diligence (CDD) requirements. This is already in practice for
Commercial and microfinance banking institutions. Appropriate
guidelines with regard to transformational banking entities are
needed.

 Some suggestions for regulatory steps vital for implementing phone banking

 a) M-Banking entities ought to be brought under a suitable financial
regulatory net by giving these entities a special banking status
preferably a quasi-bank or remittance agent as appropriate.

 b) Precise definition of the supervisory structure for Mobile phone
banking entities- This is in view of the fact that within the Kenyan
spectacle entities of this nature will fall into two regulatory
domains i.e. the Communication Commission of Kenya (CCK) and the CBK.
A clear division of authorities and responsibilities should be made to
ensure that different authorities coordinate without working at
cross-purposes.

c) Minimum requirements with respect to transparency, financial
strength and liquidity for obtaining the above status

d) Allowable activities for such entities including well-defined
limits on nature, type and volume of transactions

e) Obligation to deposit net e-banking surplus funds of such entities
with scheduled banks meeting a specified rating criterion.

 Specific guidelines addressing various aspects of the business
especially AML, CFT, customer privacy, data security, disaster
recovery and business continuity, risk management and complaint
redress among others.

Kamotho Njenga

On 10/18/08, alice <alice at apc.org> wrote:
>
>        (From Balancing Act)
>
>
>
>        Kenya's Banks ask for regulation on Mobile Money Transfers
>
> The banking fraternity is crying foul over what it described as unfair
> and increasing competition from money transfer operators. The industry
> says the operators are enjoying privileges similar to those extended to
> deposit taking institutions despite not being covered by the same
> regulatory regime.
>
> "Currently, there is no legal framework within which these entities
> provide their services despite behaving like current account
> institutions," says John Wanyela, executive director of the Kenya
> Bankers Association. "If these operators want to join the financial
> sector, they have to be properly licensed."
>
> The bankers are calling on the government to subject the services to
> prudential regulations "for robust and secure movement of funds across
> the economy." Under the proposed guideline, the services will have to be
> supervised by a specialised financial regulatory authority that will
> oversee their financial soundness and stability.
>
> Currently, the two leading mobile phone service providers - Zain and
> Safaricom - are offering money-transfer services in the country under
> Sokotele and M-Pesa brands respectively. Like other deposit takers, the
> bankers association wants the mobile cash transfer operators restricted
> on how much deposits they can take.
>
> To avert undue competition with the banking fraternity, Wanyela says,
> M-Pesa and Sokotele services have to meet the capitalisation requirement
> as stipulated in the Banking Act. According to the Act, a deposit taking
> institution should maintain a minimum capitalisation of Ksh250 million
> ($3.5 million).
>
> This is however expected to double come December next year before
> hitting Ksh1 billion ($14.2 million) by 2010 after capitalisation
> requirements were amended in this financial year's budget. The bankers
> also say the "digital money" has implications for the conduct of
> monetary policy by the Central Bank of Kenya.
>
> To control inflation levels in the country, CBK continuously monitors
> the amount of money in circulation, mainly in the hands of people and
> commercial banks. With the monies in circulation, CBK is in a position
> to maintain a reserve money target and, therefore, intervene to control
> inflation. Observers say it is this huge amount of money circulating
> electronically that has defeated CBK in the fight against inflation.
>
> Wanyela says it is time the government stepped in to ensure M-Pesa and
> Sokotele services are regulated before "something goes wrong." Debate
> has been rife on who should regulate the mobile phone money transfer
> operators, with some arguing that the CBK should be party to the
> issuance of guidelines as "part of M-Pesa and Sokotele services fall
> under the national payments system."
>
> Fundamentally, the two mobile operations are guided by the
> Communications Commission of Kenya. Early last month, CBK said it had no
> intention of bringing the mobile cash transfer services under the
> Banking Act.
>
> It claimed that treating the money transfer services under the Act may
> impede competition in sector that is still at its infancy in a country
> whose majority population has limited access to financial services.
>
>
> Safaricom statistics show that as at the end of the first quarter of
> this year, more than Ksh3.1 billion ($44.2 million) had been
> transferred. From its launch in March 2007 till May this year, the
> service has facilitated the transfer of more than Ksh23.77 billion
> ($339.5 million).
> (Source: The East African)
>
> For further information on mobile payments in Africa purchase Balancing
> Act's report  "M-Money - Finances, Banking and Payments through mobile
> phones"
>
>
>
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