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CBK’s headache as banking on the move takes root
Central Bank of Kenya. Photo/FILE
The government intends to put the bank in the hands of the public, literally speaking. Do to this, however, it will have to surmount regulatory challenges that the mobile banking platform, being viewed by players in the financial sector as the next frontier to accelerate the entrenchment of banking services in the country, presents.
The adoption of m-banking comes with a myriad of opportunities and challenges to the regulators that will trigger a re-jigging of their operations if they are to stay ahead of the rapid technological changes. Some of the challenges like the cardinal rule in banking - Know Your Customer - (KYC), will increasingly be masked as deals through remote systems take root.
This will be in addition to the rising need for surveillance due to increased incidents of money laundering and the threat of terrorism in the country. Players in the banking industry say there is need for creative ways to enable institutions adhere to prudential benchmarks set by the Central Bank.
It was with these considerations that a conference jointly sponsored by the Centre for Emerging Market Enterprises at The Fletcher School, Tufts University and the Kenya School of Monetary Studies, an affiliate of Central Bank of Kenya, was held last week.
Central Bank governor Prof Njuguna Ndung’u said the government intends to encourage mobile banking solutions that enable more people to save and transact in a safe, efficient and affordable way. “The proportion of population with bank accounts stands at 6.4 million. The number of mobile phone subscribers, on the other hand, has risen to over 11 million and continues to grow. This is an indication that a more elaborate structure of banking has the potential to reduce the number of the unbanked,” he said.
Long distances
According to FinAccess, 38 per cent of the population was unbanked in 2006. They had no accounts in commercial banks, micro finance institutions or savings and credit societies. Reasons for the high number of those without accounts ranged from cost of banking to the long distances to banks.
But with mobile banking, the services are now close to many who can transact at the touch of a button. “We carried a survey on why there were few accounts in some areas and discovered that it had more to do with the cost of access than the cost of maintaining the account,” said Equity Bank managing director James Mwangi.
For example in some areas, he said, it would cost Sh600 in transport cost to the nearest bank while it costs only Sh30 to withdraw money. The conference dubbed balancing regulation and innovation drew participants from bankers, regulators, industry practitioners, telecommunication players, researchers, academics, policy makers and the media from different countries.
It emerged that Kenya, despite introducing innovative money transfer systems like Safaricom’s M-pesa and Zain’s Zap, faced regulatory challenges that needed to be fixed. Particularly, there will be need for a unified regulatory system after it emerged that Communications Commission of Kenya, upon which the mobile banking platforms operates, is a key player.
Innovations launched have had to grapple with a dual regulatory framework; that of CCK and the Central Bank. Among the challenges is to ensure the solutions are subject to prudential guidelines that detail minimum, Know Your Customer requirements to arrest potential money laundering schemes. The other challenges will involve liquidity management, settlement risks, system reliability, system audit trail and consumer protection.
Expressed concern
Former acting Finance minister John Michuki early in the year expressed concern over operations of M-pesa and ordered its audit, which underlined the challenges of the regulator in staying on top of things as more innovative banking solutions are unveiled.
In Philippines, they use rural bankers associations to identify those transacting through m-banking in what they call ‘close look’. Those without identification are not allowed to open accounts, while experienced people are used to identify customers.
“It is important to strengthen KYC while being creative to keep it simple so that it does not stifle the innovation,” said Mr Eduardo Jimenez, an advisor to Central Bank of the Philippines. To expand access to m-banking, the government will have to implement the national payment system Bill that will strengthen the oversight mandate of the Central Bank over payments, clearing and settlement system.
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