Banks Warn 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, Mr 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.

Mr 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.

In July last year, mobile phone giant Vodafone said a regulatory framework to govern financial transactions by mobile phones was urgently needed to "provide financial security to millions of people without access to banking services."

According to Vodafone, "Know your customer and anti-money laundering rules need to be adapted to conditions in developing markets where formal documentation and access to photocopiers is limited.

"The customer data held by mobile operators could, with appropriate safeguards, offer an alternative to existing forms of regulation," says the firm.

Kenya's Safaricom, in which Vodafone has a 40 per cent share, was the first mobile service provider in the world to introduce money transfer services under the M-Pesa brand.

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.