Mobile banking laws should not restrict capital inflow

The money transfer market in Kenya is increasingly vibrant. As the economy grows, new and innovative methods of transferring funds are being modelled and improved upon. The latest of course, is the mobile telephony money transfer system.

The system is now being used to pay worker’s salary, pay school fees, settle utility bills such as electricity and water, withdraw cash and even settle bar tabs and basic food purchases in rural Kenya.

To many, the system is providing a service which the traditional bank account could never provide whilst for others it is replacing the bank account.

It would appear that in Kenya, as long as the money finds its way to its rightful destination in the shortest time and lowest cost possible, anything goes.

The growth of the money transfer markets has brought with it the heated debate about whether the Central Bank of Kenya has powers under existing laws to regulate mobile telephony payment services and if not, whether these services should be brought within regulatory purview.

Banks are pushing for tough regulation of this sector whilst the mobile telephony companies appear not to see that there are any grounds for concern.

The central question that arises is whether the payment of monies to a mobile telephony money transfer operator constitutes taking of “deposits” or conducting “deposit-taking business” within the meaning of these terms under the Banking Act.

The Banking Act restricts the taking of deposits from members of the public in the course of carrying on a deposit taking business.

The Act prohibits any person, other than an institution which holds a valid licence, from inviting or accepting deposits in the course of carrying on a deposit-taking business.

On the face of it, it would appear that mobile services providers are taking deposits in the course of providing mobile-telephony money transfer services.

However, the strict definition of the term “deposit” under the Banking Act is perhaps what has led to the protracted debate about whether the mobile money transfer services should be regulated or not.

Making payment
The term is defined to mean “… a sum of money paid on terms (a) under which it will be repaid, with or without interest or a premium, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it; and (b) which are not referable to the provision of property or services or the giving of security.”

The model adopted by mobile companies in offering money transfer services is that the funds are not held by the mobile company themselves or in accounts opened in the names of the mobile companies.

The mobile companies instead establish trusts and appoint trustees to manage the funds.

Bank accounts in the names of the trustees are opened with licensed banks in Kenya and the funds are held in trust for customers of the mobile companies.