| 4. In which ways is the initiative creative and innovative?
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In 2007, the CBK indicated its willingness to stand on the side of innovation rather than consign the market to payments inefficiencies. CBK took calculated risks ensuring it was reasonably satisfied with the mitigants put in place to address the operational, legal and liquidity risks. Kenya today has low levels of financial exclusion owing largely to the implementation of ‘pro-poor’ policies of financial inclusion and certain specific regulatory interventions.
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| 5. Who implemented the initiative and what is the size of the population affected by this initiative?
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The implementation of the mobile phone money transfer had a number of stakeholders considering it was a landscape changing innovation.
Central Bank of Kenya as a regulator was involved in the whole process monitoring of the pilot phase. The first challenge to CBK was to ensure that the product design was compatible with the existing legal framework. The CBK had to satisfy itself that Safaricom was not undertaking any intermediation of M-Pesa customer funds which would render it liable under the Banking Act that reserves intermediation activity to licensed banks and thus create a conflict.
Communications Authority of Kenya (CAK) participated in ensuring the quality of services were not compromised by Safaricom extending their services to mobile money transfers. CAK was responsible in licensing Safaricom’s systems and services in the communications industry. This was in an effort to facilitating the development of e-commerce in Kenya while protecting consumer rights within the communications environment. CAK was responsible for monitoring the activities of licensees to enforce compliance with the license terms and conditions as well as the law.
The subscribers of Safaricom voice and data services played a major role in participating in the pilot phase which ensured the success of the initial stage. The enthusiasm displayed at this stage entrenched the desire for the services provider to make it a success and provide affordable, safe and efficient channel to send and receive money country wide.
The Mobile phone money transfer got the backing from the Government when it re-asserted that mobile money was not a banking service but a low value retail money transfer service which had passed the scrutiny of the CBK’s internal legal and risk assessments as well as an external information systems audit. This put to rest questions around the legality of mobile money and reaffirmed government’s strong support for financial inclusion, providing the much needed confidence boost for the industry.
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| 6. How was the strategy implemented and what resources were mobilized?
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This initiative was launched in 2007 by Vodafone for Safaricom, the largest mobile network operators in Kenya. This was a private investment between the two aforementioned entities. However, CBK as the regulator dedicated significant time and human resources in reviewing and monitoring of the product.
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| 7. Who were the stakeholders involved in the design of the initiative and in its implementation?
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The impact of mobile money is widely felt across the financial services industry as well as in the broader digital ecosystem. Mobile phone money transfer service customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets acting as banking agents.
Other financial services include;
Transferring money to other users and non-users
paying bills
purchasing airtime and
transfer money between the services and, in some markets like Kenya, a bank account.
A partnership of Safaricom with Kenya-based Equity Bank and Commercial Bank of Africa launched M-KESHO and MSHWARI respectively, products using M-PESA’s platform and agent network, to offer expanded banking services like interest-bearing accounts, loans, and insurance.
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| 8. What were the most successful outputs and why was the initiative effective?
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Central Bank has an Oversight section that supports the Bank’s overall objective of financial sector stability by promoting safety and efficiency. It is charged with the responsibility of promoting the objectives of safety and efficiency of payment systems by monitoring existing and planned systems, assessing them against these objectives and, where necessary, inducing change.
The section executes this function through the payment system monitoring and payment system risk assessment units. Payment system monitoring conducts data collection summaries analysis and creation of statistical database on payment systems. Risk assessments involve risk identification, monitoring and suggesting strategies and mechanisms to mitigate.
Through its oversight function, CBK:-
i. Promote Safety and Efficiency of Kenya’s Payments System to ensure the soundness of the National Payment System and hence financial system stability
ii. Prevent Market abuse by ensuring anti-trust tendencies are minimized
iii. Ensure conditions of fairness, equity and transparency in payment systems - the rights and obligations of parties to funds transfers are allocated in an equitable manner to ensure level field for all payment system participants
iv. Promote extension of payment services nationally, regionally and internationally
v. Protect payment systems from criminal abuse such as money laundering and fraud
vi. Address risks that could jeopardize the soundness of the payment system by promoting risk reduction measures.
vii. Reduce and contain the systemic risks inherent in the national payment system
viii. Keep abreast with international development in payment system oversight and payment systems in general
ix. Monitor the exposures in the NPS
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| 9. What were the main obstacles encountered and how were they overcome?
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The first challenge both Safaricom and the CBK needed to overcome was to ensure that the product design was compatible with the existing legal framework. The CBK had to satisfy itself that Safaricom was not undertaking any intermediation of M-Pesa customer funds which would render it liable under the Banking Act that reserves intermediation activity to licensed banks. This was resolved by engaging all stakeholders and CBK in deliberations which resolved the impasse.
Sentiment was growing within the banking association that mobile money which the banks perceived to be in competition with banking services, were receiving favourable treatment from the CBK. The Government through the Treasury after studies on mobile money transfer services released a statement that distinguished between the conversion of cash into mobile money (and vice versa) and the acceptance of deposits from the public, emphasizing that mobile money providers were not accepting deposits from the public or contravening the Banking Act
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