The battle for control of M-Pesa backed unit trusts has escalated after a Safaricom partner and investment banker Genghis Capital called the telco a fraud for forming a rival fund and embracing new associates.
Genghis Capital fired a protest letter to Safaricom on December 3, a week after the capital markets regulator approved a new unit trust called Ziidi Money Market Fund, which will run on M-Pesa.
Before Ziidi, Safaricom and Genghis have been piloting a similar unit trust product dubbed Mali money market fund, which also runs on M-Pesa and has accumulated assets worth Sh3.1 billion over the past five years.
The scathing letters from the former allies unearthed the well-kept secret behind the delayed launch of Mali and offered a sneak-peek into Safaricom’s plan to tap fees from the wealth management business.
Genghis accused Safaricom of secretly redirecting Mali customers for Ziidi while breaching data laws, an allegation that has seen the telco warn the investment banker of legal action.
“In blatant breach of the commercial partnership agreement dated 26th October 2020, you refused to launch Mali but discreetly proceeded to register Ziidi with other parties,” Edward Wachira, the CEO of Genghis, said in a letter of December 3 seen by the Business Daily.
“We construe your acts and conduct as a business fraud. Failing to launch Mali, exposes us to litigation arising from data breach being occasioned by yourselves out of the illegal migration and restriction of investor customers.”
Safaricom responded on December 6 in a scathing letter, terming the allegations erroneous while threatening legal action.
"This is a serious allegation and we retain our rights to pursue restitutive action against Genghis for these unfounded allegations," said Esther Waititu, Safaricom's chief financial services officer in a letter addressed to Mr Wachira.
Safaricom said it formed a rival product to provide the market with alternatives and termed the Genghis technical platform unstable to host Mali.
"This is similar to our approach in providing credit products where we have partnered with several banks to allow our customers the option to choose," added Ms Waititu.
The Capital Markets Authority (CMA) on November 27 opened the way for the spat after it revealed the approval of Ziidi Money Market Fund, a partnership between Safaricom and three fund managers: Standard Investment Bank (SIB), ALA Capital Limited and Sanlam Investments East Africa Limited.
The new fund came amid a vicious fight for control of the Mali money market fund pitting Genghis and Safaricom over the telecom operator's plans to tap SIB, ALA Capital Limited and Sanlam Investments.
Genghis was unhappy with the late entry of the three fund managers, arguing that the model of the product—which has been on trial since 2019—was to have a sole fund manager.
SIB had registered Mali's trademark name at the Kenya Industrial Property Institute (KIPI). However, Genghis Capital claimed ownership of the product on the grounds it had introduced and sought approvals for the unit trust through the CMA regulatory sandbox.
The sandbox allows for the live testing of innovative capital markets-related products under a less onerous regulatory regime to spur innovations and attract fintech companies.
"In December 2019, Mali received a letter of no-objection from CMA to launch to the public," Mr Wachira told Safaricom. "In addition, Mali did in April 2022 receive a letter of no objection from the CBK."
Safaricom in 2019 tapped investment banker Genghis Capital as the partner fund manager for the rollout of the unit as the telco raced to broaden its successful M-Pesa mobile money platform into wealth management. Genghis Capital has been the fund's administrator since late 2019 when the M-Pesa-based collective investment scheme went to market on a pilot basis.
Safaricom has blamed Genghis for the fund's delayed launch, terming the investment banker's tech platform rickety.
"The platform has for a long time experienced instability resulting in numerous customer complaints and we could not allow further customer onboarding," Ms Waititu told Mr Wachira.
"These challenges would not only expose Safaricom to reputational risks, but they could also potentially result in adverse regulatory and legal action for Safaricom and Genghis.
In Mali, Safaricom allowed its subscribers to make small payments of as little as Sh100 via M-Pesa that will be placed in a collective scheme for investments in assets like stocks, fixed bank deposits and government securities.
The subscribers receive a return either from dividends or capital growth of their units in the latest plan to grow the mobile money platform beyond sending and receiving cash, tapping loans as well and paying for goods to include insurance and wealth management.
CMA ranked Mali as the seventeenth largest collective scheme as of September 30, 2024.
Mali primarily invested in fixed deposits where it had assets worth Sh1.5 billion while its exposure to securities issued by the government stood at Sh595.9 million. A further Sh524.3 million was held as cash and demand deposits while the balance of assets was spread across listed securities and as investments in other unit trusts.
Ziidi is expected to mimic Mali in targeting low-income savers with the minimum investment amount set at Sh100, according to a source close to the fund's operators.
Money market funds are the most popular form of collective investment scheme and primarily invest in short-term instruments such as Treasury bills and fixed deposits.
