Shortcomings of Current Policy and Regulation

The RBZ currently faces some challenges in regulating MM and one 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, or be stopped 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 Electronic Money Act in place, making it difficult for the Central Bank to effectively regulate e-money products. The RBZ uses internally developed guidelines and the biggest challenge with internally developed guidelines is that they can be changed by the regulator 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 Acts.

• 
  Policy is not providing for potential conflict of regulators. It is not uncommon to have clashes and conflict of regulators, especially where there is overlap 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 which 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 potential 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 to be conflicts given that there is temptation that MNOs may not give equal up-time to gateway platforms which banks are on as compared to the platform on which its product is resident. Although in Zimbabwe, there are agreements between banks and MNOs 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 complaint of unfair treatment by any MNO regarding uptime of their connectivity ports.
  
• 
  The current policy does not 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 tapping into the unbanked markets. For banks it is mainly increasing client and deposit base and broadening of markets. The RBZ generally is not driving provision of MM to promote financial inclusion. Rather the issue of financial inclusion is just an added benefit or spill over benefit of MM products. If financial inclusion is at the centre of provision of MM in Zimbabwe, then the e-money model would have been driven by the Central Bank and regulation would have been crafted to include incentives to those institutions 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 indicating 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 transfer 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 current 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 authorities).
  

5. 
   Regulation and Policy Formulation Process in Zimbabwe
   

4. 
   MM AND REGULATION IN OTHER COUNTRIES: LESSONS FOR ZIMBABWE
   

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 the 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 restrictions on the size of transaction (Bångens and Söderberg, 2008). The coming on board 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 operator-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, electronic 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 provider 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, risk 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 regulations come at a time when the National Payment System Bill that will help to encourage innovation 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 inclusion and mobile banking, in 2004, the South 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, all large retail banks offered mobile phones as an additional access channel to existing bank accounts. South Africa has also seen the emergence of two mobile banking models, 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 independent entrepreneurs in 2004 to target the almost 50% of unbanked South African adults and it 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 since 2005 as a joint venture with Standard Bank (CGAP, 2008).

The 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 banks, 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 attached to it. The money 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 transfer/ remittances, but not credit. E-money issuers have to maintain the equivalent 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 and transactions (Ashta, 2010).

2. 
   Lessons for Zimbabwe
   

Whilst the current policy on MM in Zimbabwe conforms 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, the money transfer institutions need to have a minimum capital of 100 million 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 adopt (regulatory) environment of SA and Philippines and openness of Kenyan 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 risks related to banking includes include 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 sectors would result in more and increased risks⁵. Managing these risks depends on the ability of the government to impose financial service regulations and supervision on mobile bankers. Often 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 successful 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 Money). These products are currently being governed by internal policy guidelines which have limitations and their own challenges. The Act must also ensure that it enforces interoperability of system 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 which draws from both the financial 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 involved.
   

4. 
   Regulation pro-activeness soon after an innovation: Innovations 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 regulators would not move with time to avoid delay in adoption of the innovation as well as creating an environment which promotes development of these new innovations. Monitoring and understanding financial sector innovations by policy makers and regulator is therefore critical, to enhance efficiency and access as well as ensure a sound and stable sector. The financial sector should not consider lack of legal infrastructure as 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 development of legislation on mobile financial services as more and more products are introduced and technology enable certain transactions which are currently not possible. On that mandate, there 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 support 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 drawn with the South African 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, and make comparison with other countries, when making local regulation. For example, unlike Kenya, the local environment is characterised by good network of banks and high number of banks, there is need to weigh the benefits of having a bank only versus a bank-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 financial 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 inclusion as one of the broader objective of mobile finance. Financial inclusion cannot be driven by the telecommunications sector; rather MNOs should just provide the platform through 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 of these new actors. Zimbabwe’s Mobile Money product, although still at its early stages of development stage, 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 provision. The RBZ is currently using the National Payment Systems 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 regulator in terms 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 peculiarities 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 protection and financial inclusion.

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