By Dan Muhuni
(Kenya Times)
The ministry of finance last week gave Safaricom’s mobile money transfer service M-Pesa a clean bill of health confirming the fears of commercial banks in the country that were up in arms that the mobile service company was eating into their market share.In making the announcement, finance permanent secretary Joseph Kinyua finally put a lid on a raft of regulation questions raised by the banks in regard to M-Pesa’s safety and uneven competition in the industry.Last month, former acting finance minister John Michuki ordered an audit of M-Pesa after concerns were raised about the safety of users’ money.The minister’s move was the first by the government to contain the currently galloping growth of electronic money transfers.M-pesa has become so popular in the country especially among the un-banked and low income groups with subscription standing at 5 million as a t the end of last year. By august last year, the money transfer service alone had a turnover of some Sh17 billion making it the most lucrative and active business venture in the recent times.Hardly two years into its existence, the money transfer service has been subject of discussion even among the rural folks most of whom cannot access banking services in the country.In a statement, the Permanent Secretary in the Ministry of Finance, Joseph Kinyua, said that an audit by the Central Bank of Kenya (CBK) found the service safe and reliable.“I therefore reiterate that the Treasury and the Central Bank of Kenya are committed to promoting safe and efficient innovations that enhance access to financial services thereby addressing the challenge of financial exclusion due to infrastructural constraints.”The government’s move therefore points to a bright future of the service that has in the recent days given Safaricom an edge over the other mobile service companies in the wake of heightening competition.Among the accusations leveled against the service was money laundering in what would pass for a dig in by the commercial banks to cut the rival to size despite not being very aggressive to penetrate the millions who make up the unbanked lot in the country.According to Kinyua, the fears, issues and concerns raised had been mitigated through a number of measures which the Central Bank of Kenya (CBK) and the Communication Commission of Kenya (CCK) monitor regularly.Mr Kinyua said there was no evidence to support the allegation that the service was competing with commercial banks.“In any case, there is nothing wrong with competition as long as it is pinned by a level playing field,” he read a statement by the finance permanent secretary on Saturday last week.On credit risk, Treasury said that since M-Pesa agents pay before offering services to customers, the risk cannot arise.“CBK has placed the maximum limit of Sh50, 000 per M-Pesa account per day and a transaction limit of Sh35, 000 per day in order to mitigate against settlement risk,” he said.Safaricom is still the leading mobile communications provider in Kenya. The company recently announced that it wants to partner with corporate organisation to be making cash transactions through the M-Pesa service in what will further shore up the service subscribers.M-Pesa is an innovative mobile payment solution that enables customers to complete simple financial transactions by mobile phone. M-PESA has been developed by Vodafone, the world’s leading mobile telecommunications group, with the pilot in Kenya operated by Safaricom. Kenya was the first country in world to use the mobile money transfer method earning Safaricom a UN global award.Safaricom is part of the Vodafone group, and hence Treasury believes that the M-Pesa product benefits from the research and development of Vodafone and as such, the operational risks are minimal if not non-existent.CBK has proposed and formulated the enactment of the National Payment System Bill that will strengthen its mandate as an oversight body over all payment systems including money transfer.The development is expected to raise reactions from the industry as Safaricom’s competitor, Zain Kenya last week accused the Central Bank of taking too long to licence its money transfer service Zap despite having applied for approval in October last year.“We have been struggling to get an approval for the past few months unsuccessfully which puts us at a disadvantage to competition,” said Zain Kenya managing director Rene Meza.Initially, M-PESA was aimed at mobile customers who do not have a bank account, typically because they do not have access to a bank or because they do not have sufficient income to justify a bank account. However the service has slowly but surely become a reliable money transfer service even among the middle and high income groups in the country.All one needs to do is register at an authorized M-PESA Agent by providing their Safaricom mobile number and their identification card. Once registered, customers can load money into their account by depositing cash at a local agent, send money to other mobile phone users by SMS instruction, even if they are not Safaricom subscribers.Cash is paid into M-PESA and withdrawn at M-PESA agent outlets. These outlets are typically local Safaricom Dealers, but can also be other kinds of retailer such as petrol stations, supermarkets, chemists and local shops. There is currently a large network of M-PESA agents across the country who have been trained to use the service. It is planned to grow this network significantly in the coming months.
The M-PESA service was originally created as a pilot funded jointly by Vodafone and the UK Department for International Development (DFID) Financial Deepening Challenge Fund. The pilot ran for over 6 months in Kenya from October 2005 in partnership with Faulu Kenya, a local Microfinance Institution.M-Pesa and Zain’s equivalent, Sokotele, have been operating outside Central Bank’s (CBK) regulation unlike other money transfer services pending the passage of a National Payments Systems Bill.At the time of the announcement of the audit, Safaricom’s chief executive Michael Joseph welcomed the audit, saying it would prove that M-pesa is a reliable money transfer service.
“We welcome the audit because it will verify the concerns and satisfy the regulator that we have put safeguards and the risks are minimal,” he said.Mobile money transfer services are popular since unlike banks, one does not require a bank account, neither is interest charged on the amounts being transferred. They are instant and flexible.Critics of M-Pesa point out that apart from being a merely money transfer service, some users have converted it into a bank account using it to store money they use to settle bills and buy services much to the chagrin of the banking institutions.
Concern has been rising over how users would be compensated in the event that the service collapsed. But the financial sector regulator, CBK, has in the past argued that it does not have the legal backing to monitor the service.Plans are already underway by Safaricom to make M-Pesa a regional cross boarder money transfer services. This will be done through a new partnership with Vodafone and Western Union to pilot a cross-border mobile money transfer (MMT) service.The service will enable customers to send cross-border remittances from select locations in the UK directly to Safaricom mobile subscribers in Kenya in minutes.
An earlier effort to expand the service to UK in March was hampered by regulatory concerns by the British Government.The UK authorities were demanding that Safaricom meets the regulatory requirements governing banking, money transfers and exchange rates before it could be allowed to enter into the lucrative international money transfer business.
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