Mobile money for financial inclusion: policy and regulatory perspective in zimbabwe



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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 Savings 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.


REFERENCES

  1. AGRAWAL, M. (2010), Socio-Economic Benefits of Mobile Money Transfer, http://www.telecomcircle.com/2010/01/benefits-of-mobile-money-transfer, posted on 1/27/10

  2. AKINKUGBE, N. (2011) (http://234next.com/csp/cms/sites/Next/Home/5678581-146/personal_finance_financial_inclusion_and_mobile.csp)

  3. ASHTA, A. (2010), Evolution of Mobile Banking Regulations , Burgundy School of Business (Groupe ESC Dijon-Bourgogne), CEREN, CERMi, France

  4. BÅNGENS, L AND SÖDERBERG, B (2008), Mobile Banking – Financial Services for the Unbanked? The Swedish Program for ICT in Developing Regions, SPIDER., Uppsala, Sweden

  5. BANKABLE FRONTIER ASSOCIATES (2009), How Enabling is the Latin American Environment for Mobile Money, Briefing Note 1.

  6. CENTRAL BANK OF KENYA (2011), Policy Reflections: Leveraging the success in Mobile Financial Services to expand financial inclusion, AFI.

  7. CGAP (2008), Notes on Regulation of Branchless Banking in South Africa, CGAP

  8. CITIGROUP (2010), A Perspective on E-Money in Central Africa, Partnerships for Financial Inclusion in Africa, Mobile Money Policy Forum, Nairobi, 30 November –1 December 2010

  9. COLLINGS, G. (2011), How over-regulation has stifled the pace of mobile money adoption in Africa, Mobile Money Africa, (http://mobilemoneyafrica.com/how-over-regulation-has-stifled-the-pace-of-mobile-money-adoption-in-africa/)

  10. COMMERCIAL BANK OF ZIMBABWE, www.cbz.co.zw

  11. DOLAN, J. (2009) , Accelerating the Development of Mobile Money Ecosystems, DC: IFC and the Harvard Kennedy School, Washington (USA)

  12. ECONET WIRELESS ZIMBABWE, www.econet.co.zw

  13. KLEIN, M. AND MAYER, C. (2011), Mobile Banking and Financial Inclusion: The Regulatory Lessons, Frankfurt School – Working Paper Series No. 166, Frankfurt, German

  14. MAKIN, P. (2010), Regulatory Issues Around Mobile Banking: New initiatives to bank the poor are straining the world’s financial regulatory systems, Consult Hyperion (http://www.chyp.com)

  15. NETONE CELLULAR PVT LTD. www.netone.co.zw

  16. PEOPLE’S OWN SAVINGS BANK (POSB), www.posb.co.zw

  17. RESERVE BANK OF ZIMBABWE, www.rbz.co.zw

  18. REYES G. P., CAÑOTEA. L. D., AND RAFEMAZER, (2011), Financial Inclusion Indicators For Developing Countries: The Peruvian Case , CGAP

  19. SARB (2009) Position Paper on Electronic Money , National Payment System Department, Position Paper NPS 01/2009, Pretoria , South Africa

  20. TARAZI, M. AND BRELOFF, P., (2010), Nonbank E-Money Issuers: Regulatory Approaches to Protecting Customer Funds, CGAP Focus Notes, Issue No. 63

  21. TETRAD INVESTMENT BANK, www.tetrad.co.zw

  22. XLRI JAMSHEDPUR (2011), Inclusive Financial Innovation Making Finance and Insurance Markets Work for the Poor, March 1-3, 2012XLRI Jamshedpur (India).



APPENDIX 1 POLICY REGULATORY ISSUES AFFECTING SERVICE PROVIDERS

Table A: Policy Regulatory 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 account held at TN Bank

  • The network provider provides weekly reports to the central bank detailing the volumes / 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.

  • There 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 Laundering 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.




  1. 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 undertake 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 virtual 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.




  1. One Wallet- 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 amount 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 and 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.




  1. 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 ZimSwitch 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, thereby 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.









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


2A 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 countries measured.

Index Financial Inclusion- Using Three Dimensions



Country

D1 (Depth*)

D2(Availability**)

D3(Usage***)

IFI

IFI Rank

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 Appendix 1 gives detailed information for each service provider interviewed.

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 suitability of KYC regulation.


5Additional 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 regulations do not apply to telecoms; the billing risk in telecommunications becomes a banking transaction risk in mobile banking; The risk of fraud is based on elusiveness and rapidity. Elusiveness 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 increases mobile banking risks (Ashta, 2010).


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