CBK seeks mobile firm subsidiaries

An M-Pesa shop on Banda Street in Nairobi. The Central Bank of Kenya has drafted new rules for mobile money operators to safeguard customers’ money. FILE 

By GEORGE NGIGI

Mobile phone companies that offer money transfer services will be required to open independent subsidiaries to handle the cash remittance business if a new regulation proposed by the Central Bank of Kenya (CBK) is passed into law.

Draft rules published by the regulator seek to safeguard customers’ cash deposited with the telcos by enforcing a distinction between other operations of the parent company from the money transfer business.

“The electronic retail payment service provider conducts its payment services in a separate and distinct business unit from its other business units, including maintaining a separate management structure and keeping separate books of account for its payment services division,” reads the proposed rules which are open for public debate till October 18.

Safaricom, the global leader in mobile money transfer business with its M-Pesa service, said it would only comment on the impact that the new rules would have on its operations after presenting its view to the regulator.

“The regulations as proposed by the CBK are currently the subject of a stakeholder engagement workshop,” said Safaricom director of corporate affairs Nzioka Waita. “We will be in a much better position to comment when the regulations are gazetted.”

Kenya is the global leader in mobile money transfers having pioneered with the M-Pesa service.

Central Bank has had to develop regulations that safeguard public deposits held in the mobile devices, now turned into financial tools. Mobile operators will be expected under the new rules to ensure that their cash holding is equal to customer deposits held in their systems all the time.

The rule is meant to ensure that the operators do not use the deposits to subsidise other operations, putting them at the risk of facing liquidity crunch in case of huge withdrawals.

“The electronic retail payment service provider shall not transfer the funds to its own account used for normal business operations nor commingle the funds with the funds of any person other than payers and payees on whose behalf the funds are held,” said CBK in the guidelines.

The regulator has made changes to the guidelines issued in April to allow for reversal of transactions in instances where the money is sent to the wrong party.

In the initial draft CBK had ruled out reverse transactions in a bid to curb a trend of people being conned by fraudsters who claimed to have sent them money irregularly.

The regulator has reviewed the clause to now allow the service provider to reverse the transaction where it has sufficient grounds through the set mechanism, but prohibits charging users. All complaints should, however, be lodged within 15 days and resolved within two months.

Among the country’s four telcos only Safaricom, which is the largest operator, discloses its financial performance to the public as it is a listed company.

It has in the past been disclosing revenues arising from M-Pesa commissions but not the profits of the business unit. In the last financial year the Sh21.8 billion M-Pesa revenue accounted for 18 per cent of the company’s total income.

In its annual report, Safaricom stated that M-Pesa Holding Company acts as trustee for M-Pesa customers and holds all funds from M-Pesa business in trust to ensure that they are safe.