MOBILE MONEY FOR FINANCIAL INCLUSION: POLICY AND REGULATORY PERSPECTIVE IN ZIMBABWE.

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Nov 12, 2013 (4 years ago)

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MOBILE MONEY FOR FINANCIAL
INCLUSION: POLICY AND REGULATORY
PERSPECTIVE IN ZIMBABWE.






Alex Bara

Research Fellow

Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU)

55 Mull Road, Belvedere

Harare

+263 772 962 491

+ 263 4
778423
;

alexabara@yahoo.com



Abstract

The arrival of mobile telephony and innovative technology is
forcing regulators to re
-
evaluate their rules f
or financial service
provision. Mobile phone technology
is

bringing new dimension
where nonbanks are now able to offer

financial products.
Nonbanks like
Mobile Network Operators (
MNOs
)

may be
well
-
placed to dramatically expand the reach and range of
financial services for the poor and unbanked. Zimbabwe has
also adopted mobile financial service, currently, being provided
by both banks and
non
-
bank

institutions. Inevitably, it

has been
c
onfronted with the regulatory challenge
s

associ
ated with
Mobile Money

(MM)
. The country

has benchmarked it policy
and regulation
for MM products driven by MNOs
MM

service

on international standards, more specifically, on the Kenya’s
M
-
PESA

Model. Whilst cu
rrently there is no legislation which
directly
regulates

MM in Zimbabwe, the Central Bank
(
Reserve
Bank of Zimbabwe
-
RBZ)
has used the National Payment
System Act to regulate MM and has internally develop
ed

some
operational policy guidelines to enable direct supervision of
MM. The major shortfall
s of the current policy
include

lack of
clarity on the model which the country adopts,
non
-
enforce
ment
of

interoperability

and lack of emphasis on financial inclusio
n
.
Zimbabwe can learn from the MM regulation of countries such
as Kenya, South Africa, Indonesia and Philippines,
particularly

on issues to do with consu
mer protection,
Know Your Customer
(
KYC
)

procedures, c
apitalisation of service providers
and the
genera
l environment of m
obile financial services. This paper
makes a number of
recommend
ation
s
, firstly, the need for
enactment of an E
lectronic
M
oney Act, which covers issues of
interoperability, among other.
Secondly, t
he RBZ must enable
technology to reach
its full potential

and must be pro
-
active
soon after innovation, in coming up with suitable regulation.
Third, e
ngaging international development partners in coming
up with such regulation may also help since these partners have
the technical expertise and

the financial capacity to handle such
initiatives
.
Fourth, t
he RBZ is also encouraged to consider the
peculiarities of the local environment in drafting the suitable
regulation on MM by looking into cases where its adopted
model (the
M
-
PESA
) model succeed
ed and failed as well.
Fifth,
t
here is also need to harmonise regulation to address issues of
potential
conflict
of regulators and individual inst
it
utions
.
Lastly, the Regulator must link Mobil
e Money to Financial
Inclusion.





Key words:
Mobile Money,
Banking, Regulation, Financial
Inclusion,
Mobile Network Operators (MNOs)
,
Zimbabwe
.


























1.

INTRODUCTION

Mobile Money (MM) is one
development
which has managed
not only
to
revolutionise the way banking is done but also to
promote
financial inclusi
on in most developing countries.

One
positive aspect of MM has been the capacity of countries to
leap
-
frog the financial development stages, which some
developed world went through, by utilising technological
innovation. Financial services

can now be offered to outlying
and marginalised areas without need for establishing physical
banking institutions. Technology has also enabled integration of
markets across countries, shortening of distances between points
of transactions, and more import
antly brought efficiency in
financial transactions. Whilst there

has been such positive
development
, its

existence has forced the inter
-
linkages

and
inter
-
operability of previously unrelated economic segments.

Such a fusion is now occurring between the ban
king industry
and the telecommunication industry, creating a concept called
mobile banking, which would enable transaction cost reduction
and increase in outreach to enable poor unbanked people to
access micro financial services.

For example, Mobile Money

has

brought together people, ICT, M
obile
N
etwork
Operators
(MNOs)
and financial institutions.

This fusion is necessitating a change in the regulatory
and
institutional environment to accommodate and adapt to this
synthesis
.

Traditionally, banks use network platforms of
tele
communication companies to carryout financial transactions
with little if any involvement of these companies

in financial
service provision
. The current developments, where even
tele
communication companies
are also actively involved in
financial matters, inevitably have some implication on the
policy an
d regulation. Policy and r
egulatory framework
s are

required not only to enable provision of financial services like
MM, but also to enable supervision and con
trol of providers of
the service. However, regulation, by its nature, reacts to
innovation and there are trade
-
offs which occur there
-
of. The
regulatory framework has an impact on the reach, type, nature
and extent of MM products which could be offered.

T
his paper determine
s

the policy
and regulatory

frameworks
which enable provision
of the

MM products by banking
institutions and mobile phone companies in Zimbabwe.
Specifically, the paper determine
s

the current policy and
regulatory framework, establish it
s adequacy, assess its impact
on future development of the MM products, determine its
current challenges and propose policy recommendation on the
regulatory framework. The paper also establish
e
s

the regulatory
formulation process, institutions involved and

the possible
impact on the efficient operation and adoption of MM products.
In order to ascertain this, the study
carried

out
an interview

with
the regulator of the financial sector, the Central Bank, to
establish provision of the current policy for the e
stablishment,
regulating and controlling MM.
Interviews

were also held
with
MM providers
to assess the impact of regulatory framework on
operation of companies and banks offering MM services and
establish challenges and constraints b
eing faced by providers of
MM.
The
study identifies international best practices on MM
regulation, especially of countries where Mobile Money has
been successful, and draws

lessons for Zimbabwe
. The paper
give
s

recommendations on the necessary adjustments
which the
country does

to the current regulation in order to promote MM.

It envisaged that this research would benefit both the regulator
and service providers in coming up with the more favourable
regulatory
environment for Mobile Financial S
ervice. To t
he
regulator, the research would help in highlighting some of the
challenges which service providers are facing as well as
highlighting some of the weakness and shortfalls of the current
policy. It would assist the regulator in coming up with
appropriate r
egulation and in refining existing policy
frameworks. To the service providers, this research provides
them with
a deeper insight into the MM issue
, especially from
the regulation side. It gives them clarity on issues and they may
use it for lobbying of po
licy refinement or on any policy review
advocacy initiatives.

1.1

Basics about MM and Financial Inclusion

Mobile M
oney

refers to a suite of financial services offered
through mobile phones

and other hand
-
held mobile devices.
These services can include 1)
person
-
to
-
person

transfer of funds,
such as domestic and international remittances, 2) person
-
to
-
business

payments for the purchase of a range of goods and
services, and 3) mobile banking,

through which customers can
access their bank accounts, pay bills,
or deposit and withdraw
funds

(Dolan,
2009)
.

Si
mply put, Mobile Money is a service that
enables money to be transferred
through a mobile phone. Mobile
M
oney provides unbanked mobile phone users with a secure
platform, which introduces easy to use menus on
their phone to
send messages through an audited system

and is an ideal
medium of storage of money for both the banked as well as
unbanked subscribers

(
Akinkugbe
-
htt
p://234next.com)
.

Financial inclusion

means that the majority of the population
has broad
access to a portfolio of quality financial products and
services.

Financial i
nclusion,
include

the
following core

elements:



Broad access to a range of financial products and
services;



Financial literacy and financial capability initiatives,
and a consumer protection framework; and



Minimum requirements for these financial products and
services in terms of availability, q
uality, cost and
sustainability

(
Reyes, Cañote, and
Mazer,
2011)
.

Bank(s) offer
individual accounts
that can be used
throu
gh bank
-
managed branchless
channels


e.g CBZ Mobile
Banking


Bank(s) offer
individual accounts
accessed through
nonblank
-
managed
agent networks and
/or technology
platforms

e.g
.
Emali Card
(Tetrad Bank)

Bank(s) issues
electronic value which
is
purchased from
bank and redistributed
by nonblank directly to
customers

e.g

Cell Card, Kingdom
Bank

Nonbank issues
electronic value and
holds matching
-
value
assets in pooled
account in regulated
bank

e.g

EcoCash (Econet),

Onewallet (Netone)

Bank
-
Based

Model




Nonbank Based Model


A
ccording to CGAP, harnessing the power of technology could
dramatically increase access to financial services for poor
people around the world.
Promoting financial inclusion requires
creating or enhancing market incentives to develop and provide
financial
products and services focused on populations with low
levels of access
. It also involves

use of other types of financial
products and services, as well as empowering financial users
with the tools needed to better understand financial products and
services offered. Mobile money is one channel through which
financial inclusion can be attained.

The significance of mobile
banking goes well beyond developing countries and financial
inclusion. By providing a clear disaggregation of the
components of banking, it throws light on the nature of financial
services in general. By identifying the differen
t components of
financial services so clearly, mobile banking helps to establish
where the focus of regulation should lie in all financial
systems
(
Klein and Mayer, 2011)
.

2.

MOBILE MONEY IN ZIMBABWE

Mobile Money is one of the many branchless bankin
g products
which are being offer
ed in Zimbabwe.
In Zimbabwe, and most
probably in most countries,
Mobile
M
oney

(MM)

is offered
through two ends,
that is
,

through banking institutions
and
through M
obile

N
etwork Operators

(MNO
s
)
.

Bank based
Mobile Money products were the first to be introduced before
MNOs introduced their own products.

Banking institutions,
from commercial banks, building societies
and mercha
nt banks,
offer MM products, mainly anchored on money transfer

and
payments
.

Figure
1
: Banks involvement in Mobile Money

Source: Tarazi and Breloff, (2010)


B
anking institution
s

uses the MNO
s

platform
s

to

enable
account
holders

to access banking services through their
mobile
phones.

Generally, financial institutions which offer MM products

offer
the following, a
ccount access (inquire/check bank balance), bill
payments
, payments at registered merchants (retail shops)
,
money trans
fer

and air time purchase.

On the other hand, MM products are also offered by MNOs,
which currently are restricted to transfer of funds only, given
that MNO based MM is still at its infancy stage
1
. Most MNO
driven MM products are still on the early stages

of
implementation and hence caution is still being observed before
rolling out of more advanced products. The MNO based MM
product concept is by and large
modeled

around the
M
-
PESA

concept. As such, mobile money in Zimbabwe has developed to
the extent which mobile banking has gone. However, according
to Tarazi and
Breloff, (2010), while the distinction is often made
between bank
-
based and nonbank
-
based models of branchless
banking,
the reality is both banks and nonbanks typically play
roles in any branchless banking scheme (see Figure 1).

In a
bank
-
based model, customers have a direct contractual
relationship with a licensed financial institution (even though a
customer may deal excl
usively with nonbank agents who
conduct transactions on the bank’s behalf). In a nonbank
-
based
model, the customer does not have a direct contractual
relationship with a licensed bank, and instead exchanges cash
for electronic value recorded in a virtual a
ccount on the server
of a nonbank, such as an MNO or an issuer of stored
-
value
cards.






1

With the first MNO to offer such products being Telecel which
introduced its Skwana Product in 2010


2.1

M
M and Financial Inclusion in Zimbabwe

The wide
-
spread use of mobile phone technology has opened
new markets across the
world
, most notably in the
financial
sector with mobile phones widely used to provide financial
services (AFI, 2011). The use of Mobile Money (MM
) is one
avenue through which inclusive financial development is being
promoted in Zimbabwe. This is a fairly recent phenomenon
which has
a potential to increase financial inclusion.

Zimbabwe
is one country which, despite having an arguably
well
-
developed

financial sector, still has high levels of financial
exclusion
2
.
Building an inclusive financial sector serving the
asset poor households
and marginalized communities,
remains a
key task of policy
(
XLRI Jamshedpur, 2011
).

Zimbabwe
has
a
high
mobile
penetration
rate,

standing at 66% in 2011, and is the
third
in Southern Africa
after Botswana, 125%, and South
Africa, 102% (
The
Zimbabwe Independent,
13
October 2011).
In Zimbabwe,
there are more people with cellp
h
one than with
bank acc
ounts,

as such,
mobile phones provides a

good avenue
to push for financial inclusiveness in
the country
.
All the three
mobile network operators in Zimbabwe have created
platforms
which enable

carrying out of banking services wi
thout need for
getting into the
physical bank.
For example, Netone,

has “
One
Wallet”, Telecel has “Skwama” and Econet has “EcoCash
” an
d

all these products have
mobile
money transfer
features similar to
those offered through banks.

The use of MM is one
phenomenon which needs great support by policy makers,
service providers and consumers given its potential
in reducing
financial exclusion

(Bankable Frontier Associate, undated).





2
A survey conducted by the National Task Force on Microfinance
between December

2005 and March 2006 showed that 70 percent of the
economically active population in Zimbabwe are excluded from access
to formal financial services. In the Financial Inclusion Index

(IFI)
modeled by Sarma (2007), Zimbabwe is ranked number 38 out of 45
coun
tries measured.



Index Financial Inclusion
-

Using Three Dimensions

Country

D1
(Depth
*)

D2(Availab
ility**)

D3(Usage
***)

IFI

IFI
Ran
k

Switzerland

0.73

1

0.89

0.873

1

India

0.167

0.154

0.308

0.2096

21

Bangladesh

0.071

0.105

0.196

0.124

33

Zimbabwe

0.050

0.073

0.179

0.101

38

Uganda

0.002

0.000

0.078

0.027

45

Key


0.6 < IFI < 1


high financial inclusion


0.4 < IFI < 0.6


medium financial inclusion


0 < IFI < 0.4


low financial inclusion

Source: Sarma

M (2007), Index of Financial Inclusion (A concept note)


3.

POLICY AND REGULATION OF MM IN
ZIMBABWE


3.1

Overview

Mobile Money is still
at the early stages of
develop
ment

in
Zimbabwe,
as such
,

the accompanying
specific
regulation
which
governs provision of MM has not yet been
fully
developed.

A
ll
‘licencing’ and supervision of MM is done by the Cent
ral Bank,
given that MM product is

a financial product.
Within the RBZ,
supervision of MM is resident in the National Payments
Systems

(NPS)

Division. The Division
oversees

the operation of
the MM products, particularly its compliance with the National
Payment System Act of the country.

The Central
B
ank uses a set
of
internally developed
operational guidelines and policy
frameworks, to regulat
e MM products.

T
he RBZ
, however,

abides by

international
standards

in regulating mobile money
and branchless banking. Specifically, the RBZ indicated that
they draw much from the
EU, the
Bank of International
Settlements and
Bankable Frontiers Associates
guidelines in
creating the operating policy frameworks.

Besides, Mobile
Money has
,

by and large
,

b
een structured along the Kenyan’s

M
-
PESA

Model.
The policy guidelines currently being used by
the Central Bank have not yet been made public.

On
the electroni
c m
oney

model
, t
he RBZ is following a bank
-
based model

o
n the e
-
money products and innovations
, even on
those which are offered

by
non
-
bank institutions
. The Central
Bank’s

primary focus when regulating
e
-
money

is
on
risk of the
products
and compliance

of the underlying bank to financial
regulations.
In the current arrangement, the
RBZ has

a direct
relationship with banks, and the banks are partnering the
network providers, th
us RBZ has an indirect relationship
with
the network providers
. Under its poli
cy on MM, the RBZ has

relaxed the

Know You
r

Customer (KYC) requirements on MM
in order
to allow the marginalised

people

to participate in these
products. However, the MNOs themselves have registration
details of mobile

phone

users

as per POTRAZ requirements

that
all mobile lines be registered
, a platform which the RBZ rides
on. In addition, the RBZ works
together
with POTRAZ

and the
Registrar

G
eneral
’s Office

t
o

ensure
that no

line
s are registered
under

dead
people’s name.
Besides
,

minimum KYC are met
during opening of

MNO based

MM accounts

and during
cashing

out since a
National I
dentification
Document is
require
d

for e
very transaction. Furthermore, for MNO driven
products, it is
a

requirement
by

the RBZ that the amounts si
tting
in the network provider’s e
-
money
virtual
account

be equal or
less than the amount (baking the e
-
money product) in the trustee
account
.
T
here is a

limited to the trustee account which

mus
t not
be
exceeded and in the e
vent of reaching the limit, MNOs

need

to

open

another trust account with
a different

bank. This is done
in order to avoid concentration of risk

o
n one bank.

MM products offered by Banks are not very much difficult to
regulate since the primary institution
s offering them are

already
regulated under by RBZ under the Banking Act. Banks are
,

however
,

required to apply for ‘permission’ to offer such
products and the RBZ do regular check
s

to see if the products
complies with
the National Payments Systems

Act
r
equirements.
For exam
ple, the RBZ checks on the security features and
potential risk of the products

to the whole National Payment
System and the financial sector at large.

A
t the end of each
week
, banks are required to
provide

returns

to the RBZ on daily
balances, volume and value of transactions which were done
through the mobile money platform
,

among other regular bank
submission to the Bank. Hence
,

the regulation of MM offered
directly by banks is not a major issue as it is covered
by current
regulation.
The only challenge which may be to the RBZ is to
assess the robustness of the system and telecoms platforms on
which banks operate their MM products. In that regard,
the RBZ
has to rely on the principal regulator,
POTRA
Z,
in

providin
g
a
dequate
regulation since these platforms
is beyond
the Central
Bank’s
mandate

and capacity.


MM products offered by
MNOs po
se some regulatory
complex
i
ties,
since the Central
Bank
does not deal directly with
MNOs
and

there are
no specific
regulations

which have been
developed

to

rationalise that.

This is because, MNOs are
primarily regulated
under the telecommunications sector
, but
they are now offering financial products which

are
regulated

in
the financial sector.

In Zimbabwe
,

MNOs

are regulated by

the
Post and Telecommunication Regulatory Authority of
Zimbabwe (POTRAZ), which falls under the Ministry of
Transport, Communication and Infrastructure Development.
POTRAZ allows MNOs to offer what it regards as Value Added
Services (VAS) and MM is one su
ch service. POTRAZ regards
MM as a V
AS, and as such, its
regulation lies in the line
ministry or authority under which such a s
ervice primarily lies.
In this c
ase, MM is supervised under the financial sector and
by
the RBZ.

MNOs
do not meet the
requirements to offer financial
products
, as per financial sector standards
. As such
,

all MNOs
are required to partner a Banking Institutions which provides the
financial service to the MM product.

The RBZ would ensure
that MM products do not create ‘credi
t’, do not store value, and
that MNOs do not offer other products outside the regulated
ones.

By and large the oper
ation of MNOs in provision of MM

products is model
ed in the form and structure which the Central
Bank of Kenya did when it
authorised rolling

out of
M
-
PESA

(see

Figure 2)
.










Figure
2
:
Flowchart of a Case of MNO Provided Mobile

Mo湥n

Source: Citigroup (2010)










3.2

Issues Raised by
MM Service Providers
3


In conversation
with some Mobile Money service providers
around the

country, some common issues emerged
as they were
discussing their concerns about Mobile Money.

Although

most
service providers indicated that they do not have any challenges
with the current regulations a
nd policy on MM, there are still
some

implicit

challenges

which are affecting operators.
Fundamentally, service providers hindered on the delays and
difficulties in getting licences or authorisation to offer their MM
products. This was common among MNOs wh
o noted that the
Central Bank to
ok

a lot of time in assessing their applications
and granting of permission. It could have been
due to
the need
for assessing suitability of MNO in offering banking products
since they are not regulated under the financial r
egulations.
Current regulation also gives indications on the ceiling amounts
which could be send per each transaction. Service providers
indicated that the set limits, which vary from one operator to the
other, are

determined by the Central Bank guidelines

on anti
-
money laundering.
Providers are going to face similar
challenges again as they expand their MM products or intr
oduce
more e
-
money products.


It also came out that banks are
advocating

for MM to be bank
-
based with MNOs
only
providing the platform,
while MNOs are
arguing that they are equally capable to providing MM service.
As a result, policy requires all MNOs to partner a banking
institution which provides physical backing for the virtual
accounts held at the MNO. For example, if there is $2m wort
h
of balances in the virtual accounts there should be an equivalent
$2m in the trustee account held at the Bank. The MNOs, just
like banks, provides weekly reports to the central bank detailing
the volumes/values that have been made through their facility
and also corresponding information about the trustee account
held at the backing bank.

This lack of clarity on whether to
pursue bank
-
based or t
elcom based mobile money may present

future regulatory challenges on the part of the regulator.
Banks
believe th
at having MNOs offering MM products brings unfair
competition since MNOs have an urge on the mobile gateways
which they own and they are not regulated by the strict financial
regulations like banks.


3.3

Regulation
Effect on Financial I
nclusion

Whilst financia
l inclusion is the net beneficiary of any mobile
money or mobile banking initiative, the current regulation and
policy seem not to
drive towards
that. The restrictiveness in
terms of products range which MNOs can provide and the
periodic returns requiremen
ts by the central bank do not
promote reaching into deeper

areas. More
-
so
,

the requirement



3

Appendix 1 gives detailed information for each service provider
interviewed
.

that the KYC procedures
, though relaxed,

still needs to be
followed by MM providers still likens MM provision to
provision of ordinary banking service since
KYCs
are some of
the restrictive practices which makes exclusion of the poor from
the banking sector increase. KYC also makes service provision
costly given the documentation which is required. Whilst the
advent of technology could have eased the challenge, the

current
regulation still need to be changed in order to accept, for
example, electronic copies of identification particulars and move
away from current hard copy requirement.

3.4

Shortcomings

of Current Policy and R
egulation

Mobile money mo
dels are still in
their infancy, but a
s these
models gain traction and expand, other regulatory challenges
will arise, including (i ) whether to treat e
-
money as savings
products (rather than as simply funds transfer) and (ii ) how to
level the playing field among different

kinds of entities offe
ring
similar services (
Tarazi and Breloff
,
2010)
. The scenario is
currently prevailing
in Zimbabwe
.
Whilst there currently

are no
clear cut

dire
regulatory framework

challenges

on Mobile
Money, as the sector develops,
more and more
challenges are
po
sed.

The RBZ currently faces some cha
llenges in regulating MM and
on
e of
them is

perception. The RBZ indicated that some banks
believe that by offering MM, MNO providers are now into
banking, hence they must be regulated just like banks, o
r be
stop
p
ed altogether. The RBZ
’s

position, however, is that all MM
products are bank products, with MNOs just being agents for
marketing a bank product.

As such, there is no need for
MNOs
to be treated like banks.

The other challenge is on pricing of
MM
products. Banks in Zimbabwe are accused
,

by the banking
public
,

for
having

high service charges and the transacting
public want the RBZ to regulate the prices
.

The same is being
said about the current
charges of
MM products, which even the
RBZ feels are too high for the common people.
Nonetheless
,

as
it stands the RBZ does not regulate bank charges

and policy
does not provider for control of service charges.
The
other
challenge is that currently there is no an Ele
ctronic Money Act
in place, making it difficult for the Central Bank to effectively
regulate e
-
money products.
T
he RBZ uses internally developed
guidelines and the biggest challenge with internally developed
guidelines is that they can be changed by the re
gulator at any
time and to suit any situation hence it can be subject to abuse.
Furthermore, the legal enforceability of such polices is always
subject to interpretation as there is no direct relation of such
policy to existing Act
s
.



To cover policy gaps

caused by lack of a specific and
comprehensive legislation, t
he RBZ is
using moral suasion.
For
example, t
he current policy and regulations does not enforce
interoperability of the institutions in MM provision.
T
he RBZ is
using moral suasion to try and
talk with banks and MNOs to use
platforms w
hich enables inter
-
linkages of b
anks and transfer of
funds across all MNOs without change of existing infrastructure
and systems in use.
Currently banks and MNOs are making
self
-
negotiations

to try and ensure inte
roperability of the systems.
The b
anks and MNOs are currently working on using the
already existing ZIMSWITCH
gateway
to offer a mobile money
product which is accessible across banks and across all network
operators, through the
ZimSwitch Instant Payment I
nterchange
Technology (
ZIPIT
)

system.
Lack of back
ing

regulation renters
the RBZ

ineffective in enforcing b
anks
to
corporate on the
infrastructure and compete on service provision.
Below we
explore some of the
general
short comings of the current policy
and regulation on MM.




Policy is not
providing for

p
otential conflict of regulators. It
is not uncommon to have clashes and conflict of regulat
ors,
especially where there is o
verlap in areas of influence. In
this case,
when MM is being driven by MNOs,
primarily

regulated under telecommunications,
there is likely to be
conflict of there are policy changes in the sector, which
could affect provision of financial products. In some
instances conflicts could even arise on
wh
i
ch authority

to
attribute success
of
the

products. Should success

be
attributed to the
financial

sector or the telecommunication
and ICT
sector?



Policy is not addressing p
otential conflict between Banks
and MNOs. Banks relay heavily on MNOs to offer MM
products and at the same time MNOs are offering the same
products being offered by their clients. As such
,

there is
likely t
o be conflict
s

given that there is temptation that
MNOs may not give

equal up
-
time to
gateway
platforms
which banks are on
as compar
ed to

the platfo
rm on which
its product is resident
.

Although in Zimbabwe, there
are

agreement
s

between banks and MNO
s

which require

MNOs
to

fairly treat
banks;

there is always scope for cheating
or
breaching
, besides such agreement at times not legally
binding.

The RBZ
,

however
,

indicate that ever since the
introduction MM
products, no bank has

brought in a
complain
t

of
unfair treatment by any MNO regarding
uptime of their connectivity ports.



The current policy
does no
t enforce Financial Inclusion as

the primary reason for MM provision.
The current drive is
seemingly initiatives by private institutions

which want to
make more profits by tap
ping into the unbanked markets.
For banks it is mainly increasing client and deposit base and
broadening of marke
ts.

T
he
RBZ
generally
is not driving
provision of MM to
promote

financial inclusion. Rather the
issue of financial inclusion is just an added be
nefit or spill
over
benefit
of MM

products. If
financial

inclusion i
s at the
centre of provision of MM in Zimbab
we, then the
e
-
money
model would have been driven by the Central B
ank and
regulation would have been crafted
to include

incentives to
those instituti
ons which provide such service.



Current policy on MM in Zimbabwe does not allow
MNOs
to offer more products apart from funds transfer.
Despite
the RBZ i
ndicating that current licences

of MM provides
for more products, like international remittances and
payments,
the Central Bank still needs to assess the success
of local money transfe
r first before allowing expansion into
other services.



Current policy also does not
provide for a
legal

framework
to deal with problems and challenges which may emanate
from
systems and service provision.




Agents which would be used by MNOs to reach out
to the
clients (cash
-
in and cash out agents) are also regulated
under a varying legislation, depending on the nature of
business of the agent, but are supposed to provide financial
service without supervision of the financial regulator (at
least with the c
urrent set up where MM is mainly funds
transfer, there is not much financial service involved, as
such, agents are able to handle these simplified transactions.
But the fact still remains that their operations remain
outside the radar of the monetary autho
rities).


3.5

Regulation and Policy Formulation Process
in
Zimbabwe

In Zimbabwe, the financial legislation, just like any other
legislation, is formulated through the Parliament where a Bill is
debated, in both Houses of Parliament (The Parliament and
Senate),

and when passed and is signed by the country’s
President, it then becomes an Act. There are also some
regulation and policy directives which are designed by the
financial regulator, the RBZ, mostly in consultation with the
parent ministry, Ministry of Fin
ance and these are announced
during Monetary Policy Statements. Such policies are mostly
in
line

with the primary mandate of the Central Bank which is
enshrined the
RBZ
Act. On the other hand, the Ministry of
Finance can make some regulatory changes or add
itions to the
current Act and announce these thro
ugh Statutory Instruments
(SI).
The long process of establishing legislation

normally
forces regulators to use internal guidelines and policy
frameworks to regulate new developments.
As the sector
develops, there
is

need for a separate Act which details all
operational issues rega
rding provision of the service.



4.

MM AND REGULATION IN OTHER COUNTRIES:
LESSONS FOR ZIMBABWE

Central b
anks worldwide are constantly reviewing their
regulatory

position with regard to e
-
money in its vari
ous forms

(SARB, 2009).

Currently
,

policymakers and regulators in
countries
like
Namibia
Indonesia, Mexico, Philippines, Kenya
and
Pakistan are drafting regulations for the era of mobile
money
. They struggle with adapting banking regulation to
mobile banking
(Klein and Mayer, 2011).
More specifically,
central banks are continuously investigating the impact
e
-
money

products will have on the regulatory and operational
requirements that are necess
itated by these means of payments

(
SARB
,
2009)
.
CGAP indicated key regulatory trends the
organisation had identified over the last 12 months in the mobile
money market. These i
nclude

on
-
going

development of ‘e
-
money’ regulation, consumer protection, and competition and
interoperability
4
.


K
enya

M
-
PESA

was
launched in 2007 into a vacuum of clear
guidelines and precedents that dictated how money could move
around a mobile ecosystem. This was
due to a

loophole

in the
banking regulations and the service did not, at that time, require
a banking license to operate

(Collings, 2011
)
. By 2008, the
regulation of
M
-
PESA
’s services was not yet formalized by the
Central Bank, which had agreed to allow th
e transactions under
the assumption that “remittance is not banking” (CBK; 2008)
and should be viewed as a payment service. The agreement,
apart from
M
-
PESA
’s strict control and supervision of
transactions and float, there were restricti
ons on the size of
transaction
(Bångens and Söderberg, 2008). The coming on
b
o
ard of
M
-
PESA

and lack of clear regulation

on its operation
created conflict with banks which viewed
M
-
PESA

as
competition. Clearly the established retail banks in Kenya
viewed the upstart mobile o
perator
-
led service that acted like a
bank, as a threat. There were efforts to make
M
-
PESA

be
regulated just like other banks.

As Mobile banking developed in Kenya,
The Central Bank of
Kenya
launched
draft regulations to guide on, e
lectronic retail
transfers by banks and
non
-
banking

institutions while ensuring
that risk management is adhered to and at the same time
protecting customers.

Under the regulations
,

for the provisions
of the electronic retail transfer, a payment services pr
ovider
other than a bank or financial institution, are required to apply to
Central Bank for authorization
before commencing such
business.
The draft offers guidelines for payment service
providers and electronic transfers such as capital requirements,
ris
k management tools, execution of payments and rules on
outsourcing.
The rules were made in accordance with Section
4A of the Central Bank of Kenya Act.

The regul
ations come at a
time when the National Payment System B
ill that will help to



4

Makin, (2010) argued that regulators in general need to give due
consideration to the following principal regulatory issues around
branchless banking issues:
The risk of a high profile scheme failure,
non
-
bank institutions leading schemes

and s
uitability o
f KYC
regulation
.


encourage innovat
ion in products such as mobile banking and
allow
non
-
banking

institutions perform
stand
-
alone

functions
,
among other things,

is before parliament

(CBK,2011)
.

South Africa

In a
move to promote both financial i
nclusion and mobile
banking,
in 2004,
the S
outh
Africa Government established

an
enabling regulatory policy framework called the

Financial
Sector Charter

(the “Charter”)
.
The Charter requires existing
banks to provide effective access to first order financial services
to 80% of the low income population

by 2008.

The government
committed itself in the Charter to amend regulations that hinder
the extension of financial access by private financial institutions.

The Charter enabled the creation of low cost accounts targeting
the poor, the Mzanzi Accounts.
In

addition, a
ll large retail banks
offer
ed

mobile phones as an additional access channel

to
existing bank accounts
.
South Africa has

also seen the
emergence of two mobile banking mod
els, WIZZIT and MTN
MobileMoney. With these models,
the mobile phone is not

only
used as an access channel to existing bank

accounts, but the
bank account application is fully integrated with the mobile

phone, enabling the customer to use the mobile phone itself as a
payment instrument.

WIZZIT is a start
-
up founded by two
indepen
dent entrepreneurs
in 2004
to target the almost

50% of

unbanked South African adults and i
t operates in partnership
with the Bank of

Athens.

MTN
Mobile

Money is a MM product
offered by
MTN, one of South Africa’s two largest mobile
operators

sin
ce

2005 as a joint venture with Standard

Bank
(CGAP, 2008)
.


The Philippines:

T
he country has been a pioneer, directly regulating and
supervising MNO e

money providers since the early 2000
(Citigroup, 2010). In the Philippines, e
-
money can be issued by
bank
s, NBFIs as well as other institutions (money transfer
agents). It has to be issued and redeemed at par and cannot earn
interest nor have insurance att
ached to it. The m
oney transfer
institutions have to be large enough to be considered safe. As a
result,
they need to have a minimum capital of 100 million pesos
(about 45 pesos to a dollar). Their activities are limited to e
-
money issuance and related activities such as money transfe
r/
remittances, but not credit. E
-
money issuers have to maintain
the equival
ent of the money issued either in bank deposits or in
government securities. They also have to obtain a quasi
-
banking
license from the central bank. In 2006, the Central Bank of
Philippines passed a circular for consumer protection from
electronic banking,

relating to the requirements to safeguard
customer information; prevention of money laundering and
terrorist financing; reduction of fraud and theft of sensitive
customer information; and promotion of legal enforceability of
banks’ electronic agreements a
nd transactions

(Ashta, 2010).


Indonesia

and Afghanistan
:

Indonesia has

instituted progressive e

money

policies to foster
an MNO issued e

money

model. Non

banks can issue e

money
provided

that the funds are placed in accounts at

commercial
banks. Moreover, Indonesian

regulators mandate fund isolation
by

disallowing the MNO to finance operations with

e

money
float. Specifically
,

the regulation states

that th
e float at the
commercial bank
must

total 100% of the funds derived from
sa
les

proceeds of electronic money that represent

the i
ssuer’s
liability towards e

money holders. Afghanistan’s e

money

regulations additionally require fund isolation,

stating that l
iquid
assets must be held in
a
trust

account at a banking organization
(Cit
igroup, 2010)
.


Figure
3
: The E
nabling Environments for Mobile
Money

Source: Bankable Frontier Associates (2009).


4.1

A
n

“enabling
environment” for

mobile financial
services


According to the Bankable Frontier Associates (2009), an
enabling environment

for mobile financial service

has two key
dimensions
: 1
) Openness: new, potentially transformative,
mobile

money models, are allowed to start up; and

2) Certainty:
clear regulatory frameworks or guidance

exists in a way which
reduces ar
bitrary regulatory

discretion over new approaches and
hence the risk

for private sector operators

(see F
igure 3)
.





4.2

Lessons
for Zimbabwe


Whilst the cur
rent policy on MM in Zimbabwe conform
s

to

international standards and
is
consistent with

some policies in
other countries, there are a few issues which
need

emphasis,
especially in view of the
need for
development of specific MM
regulation.



Customer Protection
: Just like

other ordinary financial
products, customer protection is
equally

important

in MM
products
, especially
issues to do with
safeguarding of
sensitive
customer information
, prevention of money
laundering

and
addressing the issue of
misdirection of funds
when
crafting regulation on MM.




Capitalisation of MNOs
. In MM provision, especially for

MNOs, capitalisation

of the service provider is equally
important. For example in Philippines, t
he money transfer
institutions
need to have a minimum capital of 100 mil
lion
pesos (about US$45 million
)

to be considered safe.
In
addition, MNOs must not be allowed to use e
-
money float
to fund operations.



Enabling environment for MM is very important to the
success of MM and Zimbabwe can a
dopt (regulatory)
environment of SA

and
Philippines

and openness of
Kenya
n environment and the certainty in the Indonesian
environment.


5.

POLICY AND REGULATORY
RECOMMENDATIONS

Policies and regulations are meant not only to facilitate smooth
operation of products
or

products concepts but
,

more
importantly
,

to mitigate risks associated with provision of such
products.
There are many risks associated with mobile money
since it borrows from both the telecommunications and banking
sector risks.
Some of the r
isks related to banking includes

inc
lude credit risks, liquidity risks, interest rate risks, and
reputation risks while risks involved in telecommunications
include

risk for the telecom operator, risks for telephone users
and risks for the system

(Ashta, 2010)
. Combing the two sector
s

would
result in
more and increased

risks
5
.
Managing
these risks
depends on the ability of the government to impose financial
service regulat
ions and supervision on mobile b
ankers.

O
ften it
is not

clear how the basic design of Mobile Money

regulation
might potentially differ from traditional banking regulation
beyond general statements that regulation should be calibrated
to the risks of a particular scheme
(Klein and Mayer,
2011).

In
Zimbabwe, despite adopting MM in the mode which successf
ul
countries have done, there are
some
regulatory
issues which
can
be

recommended to further refine the development of mobile
financial services.
Below are some recommendations which

would assist in refining the current policy and regulation on
Mobile Money in Zimbabwe.


1.

There is need for
policy clarity

on the model which the
Central bank is following. The RBZ indicated that it is
following a bank
-
based model for MM products, even for
those driven by MNOs. Lack of policy clarity is driving
perceptions, some of which is very detrimental to the
development

of MM products.


2.

Developing legislations which regulate e
-
money. The RBZ
indicate the need to develop an Act which governs
electronic money given that there are now many financial
products which are e
-
based (inducing ATMs, Internet
Banking and Mobile Mone
y)
. T
hese
products
are currently
being governed by internal policy guidelines

which have
limitations

and their own challenges
.

The Act must also
ensure that
it en
forces interoperability of s
yst
em and
infrastructure so that
financial
institutions

are left to
compete on service but cooperating on infrastructure. Such
an approach would reduce cost of providing e
-
money
services,

hence reduction in
charges to customers
.



3.

Harmonisation of regulation: Zimbabwe must come up with
harmonised regulation wh
ich draws from both the financial



5
Additional risks include: High velocity of circulation of money which
is not accounted for by the financial system which could be
inflationary; Prudential regulation using Basle 2 or earlier guidelines,
protects banks and, ultimately,
their clients from the risk of banks going
bankrupt but these regulat
ions do not apply to telecoms; t
he billing risk
in telecommunications becomes a banking transaction risk in mobile
banking; The risk of fraud is based on elusiveness and rapidity.
Elusive
ness is because one can use hundreds of small mobile
transactions to cover up huge movements of funds for illegal or
purposes;
the

risk of privacy of information also increases; and
Interoperability, so useful to network power
-
functions, dynamically
increa
ses mobile banking risks (Ashta, 2010).

and telecommunication sectors. These regulations must
address potential conflict between the sectors (both at
regulator and individual player’s level), allow or promote
interoperability of
the
sectors

and institutions invo
lved.


4.

Regulation p
ro
-
activeness soon after an
innovation:
In
novations
normally respond to market needs. Regulations
follow thereafter in order to protect consumers and ensure
safety and financial stability.

Generally, regulation is
always lagging behind
innovation. Whilst that is acceptable
for new innovations, there is no excuse why r
egulators
would not move with ti
m
e

to avoid delay in adoption of
the
innovation as well as creating an environment which
promotes development of these new innovations.
Monit
oring and understanding financial sector innovations
by policy makers and
regulator

is

therefore critical, to
enhance efficiency and access as well as ensu
re a sound and
s
table sector. The financial sector
should not consider lack
of legal infrastructure a
s an impediment
.


5.

Enabling technology to reach its full potential: The RBZ
seemingly has a passion for promoting financial inclusion
and has drafted many programmes to which promotes
inclusion, but the biggest challenge is lack of effective
implementation. The Central Bank
must promote initiatives
which are aimed at promoting financial inclusion through
technology. Mobile technology has the potential to reduce
the cost of financial services and expand the outreach of
financial services particularly to those hitherto excluded

from formal financial services.


6.

Leveraging
on
development partners:
Inevitably, the
Central Bank must
facilitate
develop
ment of

legislation on
m
obile financial services as more and more products are
introduced and technology enable
certain

transa
ctions
which are currently not possible.
O
n that mandate, the
re is
scope for the RBZ to engage developmental partners and
leverage on them in the development of sound regulations
for mobile finance. The RBZ must engage partners to seek
s
upport
in
the development
of appropriate regulations that
enhance safe, sound and effective systems; consumer
protection; inclusiveness and efficient oversight of mobile
platforms.


7.

The RBZ

must look into why the
M
-
PESA

Model was not
equally successful

in SA and
identify

the

similarities which
could be dra
wn with the S
outh
A
frican

case
.

Zimbabwe
situation is not similar to Kenya, where the
M
-
PESA

model
of MM was successful, neither is it to the South African
Case where the same model was not equally successful. The
regulator must take into account local situation
, especially
the
structural set up of the

financial sector

and the economy
at large, a
nd make comparison with
other countries, when
making local regulation. For example, unlike Kenya, t
he
local environment is ch
aracterised by good network of
b
anks
and high

number of banks, there
is
need to weigh the
ben
e
fits of having a bank only versus a
b
ank
-
and
-

MNO
-

based

MM service.


8.

Linking MM to Financial Inclusion.
Regulation has a
unique responsibility and opportunity to provide clarity in
pushing forward the financial inclusion agenda. Zimbabwe
must have a vision to attract the poor to formal fina
ncial
services through models that use mobile phones. Along
with development partners,
the Government must start
supporting the model by
using mobile financial services to
deliver government to person transfers

(CBK, 2011)
.

The
RBZ must ensure that the regulatory framework must
include
financial i
nclusion as one
of the

br
oader objective
of mobile f
inance
.

Financial
i
nclusion cannot be driven by
t
he t
elecommunications
sector;

rather MNOs should just
provide the platform throug
h which financial institutions
could reach the unbanked. The regulator should implement
policies which encourages technology based financial
inclusion
.


6.

CONCLUSION


A clear e

money regulatory framework can help

increase
adoption of mobile money, and

ultimately, financial inclusion
amongst the poor.

The challenge is to craft policies

and
regulations that mitigate the risks to customer funds without
stifling the dynamism, creativity, and potential o
f these new
actors. Zimbabwe’s Mobile M
oney product
, al
though

still at its
early stages of development s
tage,
has
been offered in line with
international best practice and modelled along the
M
-
PESA

Model. The major challenge is

on the regulation
side
, where
currently there is no

specific legislation for MM pro
vision. T
he
RBZ is currently using the N
ational
P
ayment
S
ystems

Act and
internally developed guidelines on MM provision. The major
challenge, however, remains that of addressing potential conflict

of regulators and institutions
,
risk mitigation, ensuring
interoperability which facilitates development of MM service.
Forward
-
thinking regulators in several countries have crafted
innovative approaches to meet this challenge.
Fundamentally, it
is mainly the drive

of the reg
ulator in te
rms

of

widening of its
mandate, risk taking and development of regulations which
promote innovation. Zimbabwe still has a chance to refine its
current policy by making comparison with international best
practice
, successful countries and fuse it with the p
eculiarities of
the local environment. By and large,

Zimbabwe

must come up
with
a legislation

which
supports

development on mobile
financial service.
Policies related to fund safeguarding and
isolation allows regulators to meet their goals of customer
prot
ection and financial inclusion.


ACKNOWLEDGEMENTS

This research was made possible with the assistance of
institutions which provided information used in this paper.
These
institutions
include Econet Wireless Zimbabwe
, NetOne

Cellular
, The Reserve Bank of Zimbabwe (RBZ), CBZ Bank,
Tetrad Investment Bank and the
People‘s

Own Saving
s Bank
(POSB). Mention should also go to Mr. G Chiwunze

and Mr. E
Mugocha of ZEPARU who assisted
with collecting

of
information and conducting
interviews
.


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APPENDIX 1 POLICY REGULATORY ISSUES AFFECTING
SERVICE PROVIDERS

Table

A
1
: Policy

R
egulato
ry Issues affecting Service Providers


(1)

Econet Wireless Zimbabwe: EcoCash Mobile Money



Econet is in partnership with a local bank TN Bank which provides physical backing for the virtual
accounts (EcoCash) held at
Econet. Thus if there is $2m worth of balances in the virtual accounts there should be an equivalent $2m in the trustee accou
nt
held at TN Bank



The network provider provides weekly reports to the central bank detailing the volume
s / values that have been made through
the EcoCash facility and also corresponding information about the trustee account held at the backing bank.



The EcoCash product follows the central bank guidelines on anti
-
money laundering which the limit the value of

each
transaction to $200 and $500 every month.



The central bank gave a blanket approval (that is not time bound) to Econet that allows it to provide other related financial

services with its EcoCash product.



POTRAZ regulates the platform that carries the
virtual accounts/system.

POTRAZ will seek to ensure that the network has
room to carry the additional features and products that utilizes the network infrastructure. POTRAZ does not regulate the
Mobile Money product but it is regulated by the Central bank

since it is a financial product



There are also mechanism in place to correct the misdirected funds



The
company also submits

regular (daily) returns to the RBZ

on the transaction activities on EcoCash.


(2) E
-
Mali Cash Card from Tetrad Investment Bank



Provision of the mobile banking facility is constrained by capacity issues with the telecommunication companies especially
with Telecel were more banks are offering their mobile facility through their platform

and the same MNO offers its own MM
product.



Th
ere is no interference by the telecoms regulator (POTRAZ) since the carrier in this case the mobile network operator is the
one regulated.



The E
-
Mali product has to comply with the Central Bank Know Your Customer (KYC) requirements and the Anti
-
money
Laun
dering requirements which put a cap on the value of transactions to $1000.00.The compliance issues are mainly managed
by the main banking unit and not by department which runs E
-
Mali product.



They also have to furnish the regulatory authority with returns
(MPSD 7) which states the volume, value of transactions and the
number of people using the facility.


(3)

CBZ Mobile Banking



The launch of the CBZ mobile banking product was delayed due to the lengthy verification process that the financial regulator

had to un
dertake i.e. the mobile banking system is put under a stress test to ascertain its ability to withstand certain risks both
internal and external.



The mobile banking system is separate from the core banking system used by the banks main arm. However the vir
tual
accounts are backed by the creation of a suspense account in the core banking system.



The Mobile Banking Unit gets connectivity ports from the Mobile Network Operators (MNO) who only provides a platform
which allows the mobile bank clients to interact

with bank system. Hence the bank has no interface with telecoms regulator
(POTRAZ) and is not subjected to its compliance requirements.



The Mobile Banking Unit has to furnish the Central Bank with monthly returns detailing their monthly activities.


(4)

One W
allet
-

NetOne Cellular



NetOne has partnered with a Banking Institution (FBC) which backs its virtual account held in its system. The financial
regulator has restricted the MNO to be backed by only one institution.



The One Wallet product has a cap on the am
ount of money (placed on it by the financial regulator) that can be transferred per
transaction.



It also has to comply with central banks Know Your Customer (KYC) guidelines.



Net One has to furnish the Central Bank with periodic returns about the volume a
nd nature of transactions on the One Wallet
system.



The operations of the One Wallet product is not entirely regulated by POTRAZ but only as a value added product.


(5)

POSB Bank



The bank uses a ZimSwitch

(a platform which enables inter
-
linkage of banks such an account holder access his bank from
another bank) Mobile platform for its Mobile Money Service.



The Bank reports to the NPS Division of the RBZ on a regular basis. The type and transactional limits

in place (example
$1,000 ZIPIT limit) are examples of their policy guidance.



The biggest challenge was getting all MNOs to connect, as well as getting all 19 financial institutions connected to ZimSwitc
h
to use the shared central system to ensure minimal

costs and national inter
-
operability



Both POTRAZ and the RBZ play an active
role

in governing and guiding the offering of mobile money through the shared
ZimSwitch Mobile system. All products offered by ZimSwitch Mobile are for banked individuals only, th
ereby differing the
service functionality from standard MNO based products. The MNOs play the
role

of “distribution channel” rather than owner
of the mobile banking product.