Central Bank of Kenya: Mobile Phone Financial Services in Kenya

1. It has become necessary for the Central Bank of Kenya to issue a statement on mobile phone financial services in view of the continued media and public attention this issue is drawing. At the onset, the Central Bank welcomes innovation that has been introduced in Kenya's financial sector through the use of mobile telephony.

Whereas this interest in mobile phone financial services is welcome, the Central Bank considers it necessary to shed more light on assertions being made in the media on its' role in licensing mobile phone financial services products.

2. At the very outset, it is important to note that the Central Bank of Kenya currently has regulatory oversight over banks, non-bank financial institutions, mortgage finance institutions licensed under the Banking Act and Foreign Exchange Bureaus licensed under the Central Bank of Kenya Act. The Bank also since May 2008 has had regulatory oversight over Deposit Taking Microfinance Institutions.

The Central Bank therefore has no regulatory oversight role over mobile service providers, licensed by the Communications Commission of Kenya (CCK). The Central Bank's point of interaction with mobile phone providers is through its' licensee commercial banks who offer a platform for mobile phone financial services.

3. It is also important at this juncture to trace the genesis of mobile phone banking in Kenya. In 2005, a development agency requested for proposals from interested parties on cost effective ways of deepening Kenya's financial sector through enhanced access to financial services and products. Safaricom, a mobile service provider in collaboration with Vodafone U.K., one regulated commercial bank and two microfinance institutions submitted a proposal based on the use of mobile phones to transfer money.

4. The development agency found the proposal to be successful and a pilot of the mobile money transfer system was conducted in 2005/6. Before the pilot run, the regulated commercial bank requested the Central Bank for a go-ahead. The Central 'Bank agreed to the pilot run after discussions with the concerned commercial bank and a review of the proposed product. The pilot run was successful and the Central Bank was then approached in August 2006 with a proposal for a commercial launch of the product, "M-Pesa".

5. The product was subjected to a thorough due diligence from August 2006 to March 2007 when it was launched. The due diligence focused on the requisite legal and regulatory framework, product feasibility, customer identification procedures and product/customer/Agent security. However the principal concern of CBK related to the need for an enabling legal and regulatory framework for mobile banking to protect the interests of consumers and ensure sustainability of the product. An enabling regulatory framework for mobile banking should also incorporate a legal framework for oversight of payment systems,, electronic contracting, money laundering, consumer protection and Information and Communication Technology (ICT).

6. It is however noteworthy that regulation generally lags behind innovation and a pragmatic approach was adopted with regard to the review of M-Pesa. The Central Bank, therefore, required that safeguards be put in place to address money laundering, consumer protection, product and agent security concerns before the product was launched.

7. Coming to the present, there have been reports in the media linked to the proposed launch of a mobile banking solution by Zain in partnership with regulated commercial banks. The Central Bank has noted the unfortunate media reports implying that it is denying or delaying the issuance of a license to Zain. We once again underscore that CBK has no direct relationship whatsoever with Zain or licensing the services it wishes to launch.

8. The application under consideration by the Central Bank is from a commercial bank that proposes to partner with Zain in providing a mobile banking and payment solution. The application has already been reviewed in accordance with statutory and prudential requirements governing licensed banks. A similar due diligence process as was applied with M-Pesa has also been undertaken. Matters requiring to be addressed have already been brought to the attention of the applicant bank. The Central Bank has a cardinal duty to ensure that products introduced by banks are safe, efficient and that the public interest is protected.

9. It is therefore very unfortunate that issues that are purely of a regulatory nature are being distorted and used to smear the credibility of the Central Bank or to create a marketing platform via sympathy. The Bank will not waver in safeguarding the public interest by ensuring the stability, safety, efficiency and reliability of the banking sector.

10. The Central Bank will also continue working with relevant players in the ongoing development of a comprehensive legal framework covering oversight of payment systems, electronic contracting, money laundering, consumer protection and Information and Communication Technology (ICT). This framework will further bolster the development of payment systems that leverage on technology to enhance access of Kenyans to financial services. The Central Bank, therefore, welcomes the introduction of such products in the Kenyan market and will ensure that the necessary safeguards to protect the interests of Kenyans are put in place before they are launched.

27th JANUARY 2009

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