MOBILE MONEY TRANSFER IN KENYA
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Transcript of MOBILE MONEY TRANSFER IN KENYA
THE LEGAL IMPLICATIONS OF MOBILE MONEY TRANSFER
SERVICES TO THE ECONOMY IN KENYA: THE NEED FOR
REGULATORY REFORM
MUSEVE K. RONALD
REG.NO. G34/2674/2010
A Dissertation Submitted in Partial Fulfilment of the Requirements for the
Award of a Degree of Bachelor of Laws (LLB), University of Nairobi
UNIVERSITY OF NAIROBI
APRIL 2014
THE LEGAL IMPLICATIONS OF MOBILE MONEY TRANSFER
SERVICES TO THE ECONOMY IN KENYA: THE NEED FOR
REGULATORY REFORM
MUSEVE K. RONALD
REG.NO. G34/2674/2010
A Dissertation Submitted in Partial Fulfilment of the Requirements for the
Award of a Degree of Bachelor of Laws (LLB), University of Nairobi
Supervised by: DR. NJARAMBA GICHUKI
UNIVERSITY OF NAIROBI
APRIL 2014
I
DECLARATION
I, MUSEVE K. RONALD do hereby declare that this is my original work submitted for the
award of Bachelor of Laws Degree at the University of Nairobi and has not been submitted
for a degree or any other award in any other university. All secondary sources of information
have been duly acknowledged.
SIGNED ______________________ DATE _________________
MUSEVE KHAVAGALI RONALD
This dissertation has been submitted for examination with my approval as Supervisor,
University of Nairobi.
SIGNED ________________________ DATE ___________________
MR. NJARAMBA GICHUKI
II
TABLE OF CONTENTS
DECLARATION ..............................................................................................................................I
TABLE OF CONTENTS ............................................................................................................... II
DEDICATION ................................................................................................................................ V
ACKNOWLEDGEMENT ............................................................................................................. VI
ABBREVIATIONS AND ACRONYMS ..................................................................................... VII
LIST OF STATUTES AND BILLS ........................................................................................... VIII
ABSTRACT ................................................................................................................................... IX
CHAPTER 1 .................................................................................................................................... 1
INTRODUCTION ........................................................................................................................... 1
1.1 BACKGROUND ............................................................................................................... 1
1.1.1 The Kenya Communications (Amendment) Act 2009 ................................................. 2
1.1.2 The Kenya Communications Regulations, 2001 .......................................................... 3
1.1.3 The Banking Act ........................................................................................................ 3
1.1.4 The Central Bank of Kenya Act .................................................................................. 4
1.1.5 The Evidence Act, Cap 80 .......................................................................................... 4
1.1.6 The National Information and Communications Technology (ICT) Policy Paper of
March 2006 ............................................................................................................................... 4
1.2 STATEMENT OF THE PROBLEM ........................................................................................ 5
1.3 RESEARCH QUESTIONS ...................................................................................................... 5
1.4 HYPOTHESES........................................................................................................................ 6
1.5 JUSTIFICATION OF THE STUDY ........................................................................................ 6
1.6 RESEARCH METHODOLOGY ............................................................................................. 7
1.7 CONCEPTUAL FRAMEWORK ............................................................................................. 7
1.7.1 The Concept of Mobile Money Transfer ............................................................................ 7
1.7.2 The Concept of Mobile Banking Distinguished ................................................................. 8
1.8 THEORETICAL FRAMEWORK ...................................................................................... 9
1.8.1 The Theory of Technology Acceptance Model (TAM). ..................................................... 9
1.9 LITERATURE REVIEW ....................................................................................................... 11
1.10 CHAPTER BREAKDOWN ................................................................................................. 14
1.10.1 Chapter 1: ..................................................................................................................... 14
The Background to the Study ................................................................................................... 14
1.10.2 Chapter 2: ..................................................................................................................... 14
An Analysis of how MMT Operations Function and the Legal Implications ........................... 15
1.10.3 Chapter 3: ..................................................................................................................... 15
The Legal Framework for Regulation of MMT services ........................................................... 15
III
1.10.4 Chapter 4: ..................................................................................................................... 15
Recommendations for Necessary Reforms and Conclusion ...................................................... 15
CHAPTER 2 .................................................................................................................................. 16
AN ANALYSIS OF HOW MMT OPERATIONS FUNCTION AND THE LEGAL
IMPLICATIONS ........................................................................................................................... 16
2.1 INTRODUCTION ................................................................................................................. 16
2.2 HOW MMT OPERATIONS FUNCTION .............................................................................. 17
2.3 THE MOBILE MONEY TRANSFER PLAYERS .................................................................. 18
2.3.1 The Mobile Network Operator......................................................................................... 18
2.3.2 The Bank ........................................................................................................................ 19
2.3.3 Agents ............................................................................................................................ 20
2.3.4 The Consumer ................................................................................................................. 21
2.3.5 Regulators ....................................................................................................................... 21
2.4 LEGAL IMPLICATIONS OF MMT SERVICES ................................................................... 22
2.4.1 Proceeds of Crime and Money Laundering ...................................................................... 22
2.4.2 Privacy and Security ....................................................................................................... 23
2.4.3 Consumer Protections ..................................................................................................... 25
2.4.4 Credit Risk ...................................................................................................................... 25
2.4.5 Fraud .............................................................................................................................. 25
2.5 IMPLICATION TO THE BANKING SECTOR..................................................................... 26
2.5.1 At the Initial Stages of Development ............................................................................... 26
2.5.2 The Present Situation ...................................................................................................... 28
2.6 CONCLUSION ..................................................................................................................... 30
CHAPTER 3 .................................................................................................................................. 31
THE LEGAL FRAMEWORK FOR REGULATION OF MMT ................................................. 31
3.1 INTRODUCTION ................................................................................................................. 31
3.2 THE CURRENT REGULATORY FRAMEWORK ............................................................... 32
3.3 SHORTCOMINGS IN THE REGIME ................................................................................... 45
3.3.1 The Existing Laws .......................................................................................................... 45
3.3.2 Privacy and Data Protection ............................................................................................ 48
3.3.3 Prudential regulatory issues in mobile money .................................................................. 49
3.3.4 The Monetary Policy ....................................................................................................... 49
3.4 THE CHALLENGES FOR REGULATORS .......................................................................... 50
3.4.1 Different Objectives for Regulation of the Sectors ........................................................... 51
3.4.2 Inconsistencies in Regulation Resulting from Traditional Separation ............................... 51
3.4.3 Regulatory Arbitrage ....................................................................................................... 52
IV
3.4.4 Uncertainty ..................................................................................................................... 52
3.4.5 Which authority should regulate what? ............................................................................ 53
3.5 CONCLUSION ..................................................................................................................... 54
CHAPTER 4 .................................................................................................................................. 55
RECOMMENDATIONS FOR NECESSARY REFORMS AND CONCLUSION ..................... 55
4.1 INTRODUCTION; ATTEMPTS TO REGULATE ................................................................ 55
4.2 RECOMMENDATIONS ....................................................................................................... 56
4.2.1 MONEY LAUNDERING AND TERRORISM FINANCING ......................................... 56
4.2.2 CONSUMER PRIVACY AND DATA PROTECTION ................................................... 57
4.2.3 FRAUD MANAGEMENT .............................................................................................. 59
4.2.4 CUSTOMER EDUCATION ........................................................................................... 60
4.2.5 AMENDMENTS ............................................................................................................ 61
4.2.6 LIABILITY .............................................................................................................. 62
4.3 CONCLUSION ..................................................................................................................... 62
REFERENCES .............................................................................................................................. 63
V
DEDICATION
I dedicate this work to my lovely family, starting with my loving mother Esther Khavagali for
all the love and support a mother can ever give to her son, no love can ever rival this love,
may you live long. To my Dad Christopher Khavagali, you are a wonderful gift to me, God
bless.
To my siblings and my in-law who have supported me both financially, emotionally and in
every other aspect, thank you so much for your contribution towards my achievement.
GOD BLESS YOU ALL!
VI
ACKNOWLEDGEMENT
I first of all thank the almighty God for the gift of life and love. With him everything is
possible and by his grace I have come this far.
To my very dedicated and patient supervisor D
r. Njaramba Gichuki, you endured my numerous, disturbing phone calls and text messages
requesting for time to consult and you called and texted back with positive responses. Very
few supervisors can go the full extent of making phone calls to the supervisees reminding
them its time to consult, you ensured this work is done in the most correct way. You are one
in many and for that I say, thank you and GOD BLESS!
To my loving family, thank you so much for your support and love. You are the biggest
blessing I could ever get. Without you I couldn‟t be where I am today and this would not
have been possible. GOD BLESS this family. To my other friends cum family in Nairobi
particularly Dan Shikanga and Hillary Shikanga, God knows your kind hearts and he will
bless you and your families, I thank you.
To my parklands family (friends) especially my room mate Joseph Mwangi, we have come a
long way, we have endured so much together, we have supported each other in all aspects and
we have co-existed peacefully all this while since we set foot in parklands campus. I wish
you a happy life and a successful career. To my other friends and the 2014 class, all the best
in life.
And lastly to the love of my heart Viola Musavi, thank you for being there for me, to comfort
me when the push comes to shove and always putting a smile on my face, I love you.
VII
ABBREVIATIONS AND ACRONYMS
1. CCK - Communications Commission of Kenya
2. CBK- Central Bank of Kenya
3. MMT – Mobile Money Transfer
4. TAM- Technology Acceptance Model
5. IT- Information Technology
6. PIN- Personal Identification Number
7. ICT- Information Communication Technology
8. NSPD- National Payment Systems Division
9. MFI- Micro Finance Institutions
10. SACCO- Savings And Credit Coop. Society
11. CPT- Consumer Protection Taskforce
12. KCA – Kenya Communications Act
13. MNO- Mobile Network Operator
14. PIN- Personal Identification Number
15. KEBS-Kenya Bureau of Standards
16. EAC-East African Community
17. ITC-Independent Television Commission
18. CPT- Consumer Protection Task Force
19. MOF- Ministry of Finance
20. CGAP- Certified Government Auditing Professional
21. FATF- Financial Action Task Force
VIII
LIST OF STATUTES AND BILLS
1. Banking Act Cap 488 of The Laws of Kenya
2. Central Bank of Kenya Act Cap 491
3. Kenya Communications Amendment Act, 2009
4. Evidence Act Cap 80
5. Kenya Communications Regulations 2001
6. Kenya Communications Act 2 of 1998
7. Kenya Communications (Electronic Transactions) Regulations, 2009
8. The National Information and Communications Technology ICT Policy of March
2006
9. Science and Technology Act
10. Kenya Information and Communications Bill of 2007
11. Kenya Communications (Importation, Type Approval and Distribution of
Communication Equipment) Regulations 2010
12. Kenya Communication (Consumer Protection) Regulations 2009
13. The Kenya Information and Communications (Dispute Resolution) Regulations 2010
14. Retail Transfer Regulation 2011
15. The Proceeds of Crime & Anti-Money Laundering Act of 2009
16. National Payments System Bill 2011
17. The Kenya ICT Policy of 2006
18. Electronic Retail Transfers (2011)
IX
ABSTRACT
This paper focuses on the mobile money transfer services in Kenya. What is majorly the point
of duelling is the legal implications the new innovation has brought along with it and whether
there is need to reform the existing legal regime to take care of the implications the
innovation has created.
It analyses the way MMT operations function with an aim of making it possible to tell where
there is a niche that the regulators need to fill after discovering the areas that are vulnerable to
exploitation by ill-intentioned individuals and in general the players in the MMT sector, and
the challenges encountered in the process.
The paper will also delve into identifying the specific implications caused by MMT. This will
be after the current regime has been critically analysed and the unregulated areas in the sector
identified. These are the areas that might be used as loopholes to escape responsibility by the
MMT players including the MNOs, the agents, the banks, the consumers and third parties
who might harbour intentions to take advantage of loopholes in the regime to carry out
criminal activities. Challenges encountered in the operations are also dealt with in the same
light.
Finally the paper will offer recommendations on how the challenges faced may be addressed
through regulatory reform. This will be to enable the regulators get a view of what effect the
implications have had and where to incorporate amendments or come up with new
enactments to regulate the industry and ensure its positive contribution towards the economy
in Kenya.
1
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
Mobile Money Transfer refers to the moving of money using mobile phone technology
operated by either a mobile phone company or an independent operator1.
The origin of MMT Services can be traced back to April 2007, following a student software
development project in Kenya who came up with the innovation. Safaricom mobile company
then took up the idea and launched a new mobile phone based payment and money transfer
service, known as M-Pesa.2 The service allowed users to deposit money into an account
stored on their cell phones, to send balances using SMS technology to other users (including
sellers of goods and services), and to redeem deposits for regular money. Users are charged a
certain fee for sending and withdrawing money using the service. Other mobile phone service
providers in Kenya and around the world have since adopted this idea and launched similar
services under their respective brands. In Kenya, other services include Airtel Money offered
by Airtel and Yu Cash offered by Yu Mobile.3
For one to access these services he/she needs to own a mobile phone and register for the
service with the respective service provider after which the account is open and the consumer
can access the services.
MMT service providers also operate in conjunction with specific providers of services and
goods which enable consumers to pay for the bills through their mobile phones by obtaining
pay bill numbers. This enables consumers to transfer funds to the mobile account or bank
account of the person they are paying the bill to.
These services have impacted to the economy of Kenya in various ways as shall be explored
by this research. Various sectors of the economy have been impacted upon by these services
mostly due them being cheaper compared to banking services and being readily available
around the clock, and easily accessible even to those living in very remote areas of the
1 Njaramba Gichuki (2013); Law of Financial Institution in Kenya, 2nd edition, LawAfrica Publishing (K) Ltd,
Nairobi, p. 235. 2 William Jack ,Tavneet Suri and Mit Sloan, 2nd version (August 2010), “The Economics of M-PESA,” p. 2 3 Njaramba Gichuki (2013) supra.
2
republic where banking services have not been extended to reach. Besides, the only
requirement for one to access these services is a mobile phone and there are no charges for
registration. This has made MMT business more successful and to spread so rapidly, by 2012,
a stock of at least 17 million accounts had been registered in Kenya,4 and has become the
most successful mobile phone based financial service in the developing world.5
However in as much as MMT services have greatly impacted the economy of Kenya, there
are no laws that specifically seek to regulate the business. Most of the existing laws touching
the areas of communication, electronic transactions, finances and banking do not address
MMT services. For instance, briefly examining these laws will bring out how the issue has
been left out:
1.1.1 The Kenya Communications (Amendment) Act 2009
In its definitions section, Mobile Money Transfer Services has not been offered a definition.
It‟s the definition of a computer that has been provided instead and the Act thereby goes on to
limit itself to electronic materials in computes as opposed to those in mobile phones. This is
why the Mobile Money Transfer Services remain unregulated by the Act6.
Electronic transactions have been provided for in part IV. A brief analysis of some sub-
sections under section 83 will reveal that the section does not specifically cover mobile
phones as they restrict themselves to computers alone.
The previous Kenya Communications Act 2 of 1998 that preceded this Act did not even
provide for regulation of electronic transactions and neither did it provide for Mobile Money
Transfer Services.
It is through the amendment that led to the 2009 Kenya Communications (amendment) Act
that electronic transactions are provided for.
4 Communications Commission of Kenya (2012). “CCK releases 2nd quarter ICT sector statistics for
2011/2012".
<http://www.cck.go.ke/news/2012/sector_statistics.html > (accessed on 29/11/2013) 5 William Jack ,Tavneet Suri and Mit Sloan, 2nd version (August 2010) supra, p. 1. 6 Njaramba Gichuki (2013) supra, p. 236.
3
1.1.2 The Kenya Communications Regulations, 2001
This legislation recognizes electronic transactions by defining the terms electronic mail
services, electronic mail services, electronic mail, electronic document interchange and
electronic voice mail but it does not have provisions regulating the use of MMT services. The
Act also does not define Mobile Money Transfer Services.
1.1.3 The Banking Act
Basically regulates banking business and other connected services. The question has to be
asked is whether MMT services may fall under „connected services‟ of banking businesses as
envisaged by the Act. When Safaricom approached the CBK in early 2007, there were no
laws governing a mobile money service like M-Pesa, so the CBK issued a “Letter of No
Objection,” and M-Pesa was launched the following month. At the end of 2008, with the
huge success of M-Pesa and the growing concern of the Kenyan Bankers Association, the
Ministry of Finance asked that the CBK conduct a risk assessment of M-Pesa, which was
done and published in the newspapers and Kenya Gazette in early 2009, basically saying that
the CBK is satisfied with the risk situation and that they do not consider M-Pesa to be a
banking business.7
Section 2(1) (a) defines banking business as accepting from members of the public of money
on deposit repayable on demand or at the expiry of a fixed period after notice8. The act does
not provide for a definition of mobile money transfer services.
MMT will be similar to banking process in that there is the acceptance of deposits by the
agents of the service providers, and the transfer of money from one‟s mobile account to
another‟s as it happens in banking where there is transfer of funds from one‟s account to
another‟s. However despite the similarity, mobile money transfer services cannot be said to
fully and completely fall within the ambit of The Banking Act as seen under section 16(5) of
7 The CBK provides guidance to mobile money under Article 4 of the Banking Act, which covers Payment
Systems, rather than banks. As such, it is the National Payment Systems Division (NPSD) of the CBK that provides oversight, not the Banking Supervision Department. As a safeguard, however, CBK exercises full
supervisory oversight over the trust accounts for mobile financial services providers, which are held at
commercial banks. This effectively sequesters the float and protects it against any eventual financial failure of
M-Pesa. This also precludes M-Pesa from earning the interest on the float. 8 Banking Act (Chapter 488) of the Laws of Kenya, sec.2 (1) (a).
<www.bu.edu/bucflp/files/2012/01/Banking-Act.pdf > (accessed on 29/11/2013).
4
the Act which clarifies that such a business should be one that lends money to others from the
deposit or one that uses the deposit wholly or partly to finance its activities.
This provision operates to exclude mobile money transfer service providers from the scope of
The Banking Act.
1.1.4 The Central Bank of Kenya Act
This Act does not define mobile money transfer. It is involved in banking is defined by section
2(2) of the banking act which defines this as: the accepting from members of the public of
money on deposit repayable on demand or at the expiry of a fixed period after notice; the
accepting from members of the public of money on current account and payment on and
acceptance of enemies; and the employing of money held on deposit or on current account, or
any part of the money, by lending, investment or in any other manner for the account and at the
risk of the person so employing the money.
1.1.5 The Evidence Act, Cap 80
It does not expressly provide for admission of evidence from mobile phones. It only mentions a
„computer‟. This limits the use of technology. This should be amended to include electronic
gadgets like mobile phones.
1.1.6 The National Information and Communications Technology (ICT) Policy Paper
of March 2006
This policy paper does recognize the need for comprehensive policy, legal and regulatory
framework on ICT. Further it acknowledges the lack of adequate infrastructure in ICT but does
not provide for the solutions. It just states what the government intends to do. In as far as
Mobile Transfer Services and Mobile payment services are concerned this policy does not offer
any assistance.
These and other laws as shall be examined in detail are the existing laws that are supposed to
contain provisions for regulating MMT services but unfortunately they are insufficient to do so.
5
1.2 STATEMENT OF THE PROBLEM
Mobile phone business is regulated by the Communications Commission of Kenya (CCK).
Its worth noting, however, that CCK is neither sufficiently competent nor qualified to
regulate the mobile money transfer services sector on its own.9 This may be because the
Mobile Money Transfer services involve some banking aspect and information and
technological aspects that may be beyond the expertise of CCK. Besides, the convenience
with the use of mobile money transfer services may have contributed to the overlooking of
the risks involved and the subsequent lack of legal framework to regulate the enterprise.
There are no laws in Kenya specifically regulating the business despite the fact that it
commands a wide consumer base and vastly impacts to the economy in various sectors and
ways. The issues arising include: fraud that usually arises out of a vast range of unregulated
technology being used by consumers and service providers; unfair competition created by
new entrance of service providers who want to win over customers quickly to gain relevance
by offering rates that are prejudicial to other market players and employment of unfair means
of wooing clients; money laundering; and others as shall be explored by this study.
There is also need to determine who among the parties bear responsibility for liability
whenever there is a mistake or default in the course of the transactions; and to lay down
proper requirements to be fulfilled when hiring agents for conducting of transactions.
There is thus an insufficiency of laws regulating MMT services which prompts the need for
legal reforms in the area to cover this fast-rising sector of our economy in order to address the
concerns that accompany it as mentioned above and to enhance and increase the benefits that
come with it for the growth of the economy and achievement of Millenniums Development
Goals and the economic growth Vision 2030.
1.3 RESEARCH QUESTIONS
The following are the three research questions that this study will seek to explore and provide
answers to;
1. What is the legal implication of mobile money transfer services to the economy in
Kenya?
9 Njaramba Gichuki (2013) supra, p. 235.
6
2. Do we have a sufficient legal framework for regulation of mobile money transfer
services in the economy?
3. What are the necessary reforms that need to be put in place on the existing laws in
order to effectively regulate mobile money transfer services?
1.4 HYPOTHESES
This study will seek to prove or disprove the following put down hypotheses;
1. The emergence of MMT services has had legal implications to the economy of Kenya.
2. The existing laws are insufficient in regulating MMT business
3. Reforms are required to ensure the enterprise is sufficiently regulated for efficiency
and convenience purposes.
1.5 JUSTIFICATION OF THE STUDY
Mobile money transactions have operated in a widely unregulated environment since the
innovation was introduced in Kenya. The laws that existed by the time of emergence of the
services had not been promulgated with a prediction of this innovation behind the minds of
the legislators since it had not been foreseen by them that such would come up, hence the
laws do not address MMT services. The central bank of Kenya have offered too minimal
regulatory requirements, which left many players in the financial sector with fear that MMT
services would in some way have a choking effect on their business prospects.10
Thus, while looking at the beneficial impact of the innovation there is need to explore areas
that have posed challenges in terms of regulation, what regulations ought to be put in place
bearing in mind that too much tough regulations have the tendency of inhibiting further
innovation and frustrating the further development innovation. There is also need to point out
in the various existing laws the exact areas that need changes so as to ensue MMT is covered
by them. These will form the main part of my research work.
10
Banks in particular expressed concern as to why the services were operating in some kind of regulatory
vacuum. Their unease arose because many MMT subscribers actually use their mobile accounts as checking
accounts and thus a great deal of money has shifted from physical bank accounts to mobile phone accounts.
Different players from different sectors have had to engage in collaboration with mobile money service
providers and create networks in the financial ecosystem to co-exist and to some extent do away with the threat.
7
1.6 RESEARCH METHODOLOGY
In this research I will do a qualitative research in which I intend to rely on secondary sources
of data. The secondary sources will be mainly library research where I will use published
textbooks, journals, newspaper articles and magazines. I will also do desktop research where
I will peruse statutes, case law and government papers, reports and records. I will also to a
large extent research on the internet.
I will also analyse the way mobile money systems operate so as to have a clear picture of
what how they work before I can delve into the substance of my research topic.
The main challenge that will impede me from relying on primary sources is the unavailability
of such information due to scarcity of experts to provide the information and the expenses
accompanying such pursuit. Time required for travelling to places of interview and conduct it
will also be another limiting factor to the use of interviews.
1.7 CONCEPTUAL FRAMEWORK
1.7.1 The Concept of Mobile Money Transfer
Mobile Money Transfer refers to the use of a mobile phone in order to transfer funds between
accounts created via mobile phone, deposit or withdraw funds, or pay bills. This term is also
used for the broader realm of electronic commerce; it can refer to the use of a mobile device
to purchase items, whether physical or electronic.11
Although various definitions have been used when discussing the provision of financial
services through mobile phone networks, this paper will use the term “Mobile Money
transfer” to refer to the convergence of mobile telephony and financial services.“Mobile
Money” includes three elements: an electronic stored-value account linked to a user‟s mobile
phone; mobile money software that allows users to manage their accounts; and, a network of
agents where users can exchange between cash and electronic value. The software can afford
a variety of uses such as the ability to check one‟s account balance via text message, the
means to pay with or send money from a digital account on a mobile phone, or the practice of
receiving insurance or credit products over the mobile network including purchasing of
airtime from one‟s account.
11 <http://www.businessdictionary.com/definition/mobile-money.html#ixzz2iiNglcbE> (accessed on 29/11/2013).
8
The initial concept of MMT services started when Safaricom launched M-pesa which was
intended to create a service which allowed microfinance borrowers to conveniently receive
and repay loans using the network of Safaricom airtime resellers.12
This would enable
microfinance institutions to offer more competitive loan rates to their users, as costs are lower
than when dealing in cash. The users of the service would gain through being able to track
their finances more easily. When the service was piloted, customers adopted the service for a
variety of alternative uses and complications arose. In discussion with other parties, M-Pesa
was refocused and launched with a different value proposition: sending remittances home
across the country and making payments.13
Presently many mobile phone services provide the services which are not classified as
deposit-taking as the banks do. The service enables its users to deposit and withdraw money,
Transfer money to other users and non-users, Pay bills, Purchase airtime, and to transfer
money between mobile phone accounts.14
1.7.2 The Concept of Mobile Banking Distinguished
MMT is sometimes confused with mobile banking which is a different concept altogether.
Mobile banking is a system that allows customers of a financial institution such as a bank to
conduct a number of financial transactions through a mobile device such as a mobile phone
or personal digital assistant. The earliest mobile banking services were offered over SMS, a
service known as SMS banking. With the introduction of smart phones with WAP support
enabling the use of the mobile web in 1999, the first European banks started to offer mobile
banking on this platform to their customers.15
Mobile Banking is defined as the provision and availment of banking and financial services
with the help of mobile telecommunication devices. The scope of offered services may
include facilities to conduct bank and stock market transactions, to administer accounts and to
access customised information.
12
Hughes, N., & Lonie, S. (2007). M-PESA: Mobile Money for the "Unbanked": Turning Cellphones into 24-
Hour Tellers in Kenya. Innovations: Technology, Governance, Globalization, p. 63–81. 13 Hughes, N., & Lonie, S. (2007) supra p.6. 14 Vodacom. Send money by phone with Vodafone M-PESA, 19 February 2009.Roshan. M-Paisa—The Hawala
On Your Mobile!, 19 February 2009. 15 "The World's First WAP Bank is Norwegian" (2010-10-18).
9
In this paper I will be looking at specifically mobile money transfer services and not mobile
banking.
1.8 THEORETICAL FRAMEWORK
1.8.1 The Theory of Technology Acceptance Model (TAM).
MMT systems are majorly information technology (IT) based on procedures through which
users transact and move money within and across mobile networks. The adoption of the
MMT services is based on the greatest happiness principle of Utilitarianism that means
maximisation of utility. Studies show that the acceptance to use the mobile payments varies
with the context in which users are able to use a mobile payment procedure. Moreover, the
mobile payment procedures are functional services adopted for utilitarian reasons. This study
focuses on the impacts of MMT services and the possible reform recommendations needed in
that area and I will therefore base on the Theory of Technology Acceptance Model (TAM).
TAM is a theoretical model that explains how users come to accept and use a technology.16
The model suggests that when users are presented with a new technology, a number of factors
influence their decision about how and when they will use it. These factors are: perceived
usefulness defined as the degree to which a person believes that using a particular system
would enhance his or her job performance; and, perceived ease of use defined as the degree
to which a person believes that using a particular system would be free from effort.17
These
two factors are considered to be the primary determinants for adopting and using a new
technology and are influenced by other variables such as security concerns, cost,
convenience, and satisfaction. Perceived ease of use directly affects perceived usefulness and
both determine the user‟s attitude towards use, and eventually to the actual use of the system.
TAM has been widely used to predict user acceptance and use based on perceived usefulness
and ease of use.18
Consequently, TAM was chosen as the appropriate model and was extended
to include other factors such as perceived ease of accessibility of the MMT services,
perceived low cost of the services, perceived convenience, perceived security, perceived
16 Fred D. Davis (author), perceived usefulness, perceived ease of use and user acceptance of information technology, Published in Journal MIS Quarterly, Volume 13 issue 3 September 1989, pg 319-340. Published by
Management Information Systems Research Centre, University of Minnesota. 17 Fred D. Davis (1989) supra 15, pg 319-340. 18 Ndubisi, Nelson Oly; Richardson, Stanley. (2002).The Entrepreneurs’ Technology Acceptance Model;
Academy of Entrepreneurship Journal. An academic Journal Article from Academy of Entrepreneurship Journal
vol.8 No 2.
10
support from the mobile services provider and from the government, perceived satisfaction
and actual usage of the mobile payments.
Ease of accessibility is one of the main advantages of MMT services. People go to the bank
less often and business operators spend more time running their businesses. Many Kenyans
now receive and send money wherever they are in the country. Many people are now familiar
with the services due to the ease to operate and require no formal training.
The transaction costs are much lower when compared to what the banks charge.19
The
transactions had to be lower to make the total cost of the transaction competitive against
banks. The cost of the mobile payments should be affordable to most and below what banks
usually charge for their banking transactions.
In a country where majority of people have no access or cannot afford banking services,
MMT offers convenience and safety. People move around with their virtual money knowing
they can withdraw cash any time at a minimal fee. Accounts are secured by a personal
identification number (PIN) which is only known to the owner of the account and even
losing of mobile phones do not mean anyone else can access to their accounts. Safety
represents no delay, no transaction incompleteness, and no private information disclosure
during payment transactions. The use of the pin and secret code for the mobile money
transactions enhances the security and privacy issues.
Personal experiences for a lot of people indicate that the current technology is user friendly
and previous studies of the adoption of mobile payments show that it is the usability,
usefulness, speed, and convenience of the service itself that counts. The wide usage and
satisfaction that the existing customers have experienced has in turn influenced new
customers to take up the services.
The rapid spread of the mobile phone usage in Kenya means that the number of mobile users
exceeds by far the number of banked people. MMT services offer cheaper transaction costs
for the consumer. The MMT service is reaching the unbanked and the benefits are so
enormous that those who try to place regulatory pressure on it might feel guilty if they appear
to frustrate it.
19 Omwansa Tonny (2009), “M-Pesa Progress and Prospects: Innovations Case Discussion.” P 112
<http://www.strathmore.edu/pdf/innov-gsma-omwansa. pdf. > (Accessed on 29/11/2013).
11
The extent to which the mobile payment usage would impact on performance depends largely
on whether there is an enabling environment. Porteous20
defines an enabling environment as a
set of conditions which promote a sustainable trajectory of market development and one of
the conditions is a set of regulations touching every area that MMT may be involved, a
condition largely missing in the Kenya legal regime.
Although the mobile phone balances may seem low, the fact that there are balances proves
that there is storage which can be perceived as acceptance of deposits. This is a significant
indication of the high value placed on the convenience associated with the use of the MMT
services.21
1.9 LITERATURE REVIEW
Njaramba Gichuki22
notes that there are a number of unregulated issues that affect MMT
service provision. He explores various laws touching on mobile phone business including
communication laws, banking laws, technology laws, and evidence law.
In his examination of various communication laws he notes that the legal position in Kenya is
that there are no laws specifically regulating MMT services and mobile payment systems
despite attempts to amend some of the existing laws to that effect. He writes that mobile
phone business is regulated by the CCK but that mobile money payment services and mobile
payment services need more expertise than that of the communication sector because of the
banking aspects and information and technology aspects involved that CCK lacks, which
make it unqualified to regulate these services.23
Njaramba mentions the convenience that comes with MMT services and suggests that
perhaps this convenience could have led to the financial sector regulator to overlook the legal
and risk issues involved.24
In the various communication laws he examines, he brings out how each one of them is
deficient in mentioning mobile money transfer services as one of the issues regulated therein.
He mentions various sections that regulate related areas but they fail to specifically mention
20 David Porteous, (2006), “The enabling environment for mobile banking in Africa.” A report commissioned by the department for international development (DFID), definitions section p 4. 21 Adrian D Kamotho Njenga (2009), “Mobile Phone Banking: Usage Experiences in Kenya.” (pdf) 22 Njaramba Gichuki (2013), Law of Financial Institutions in Kenya, 2nd edition, LawAfrica Publishing (K) Ltd,
Nairobi. 23 Njaramba Gichuki (2013) supra, P 236. 24 Ibid.
12
MMT services as one of the areas within their ambit. He points out the deficiencies in the
various statutes in terms of provisions therein and how they do not relate directly to MMT
and how the provisions could be amended to envisage MMT services within the particular
statutes.
In his examination of the banking laws which are specifically the Banking Act chapter 488
and the Central Bank of Kenya Act, he brings out clearly how these laws do not cover mobile
money transfer. He does this by examining the sections of the Banking Act and brings out
clearly how MMT does not qualify to be classified as banking services therefore not falling
within the ambit of the Act. It follows then that the Banking Act as bit is does not qualify to
regulate MMT services.25
The Central Bank of Kenya Act does not define mobile money
transfer services and mobile payment systems. It deals with traditional banking perhaps
because during the times of its enactment the legislature had not foreseen the development of
technology to the extent of it being used to pay for bills and transfer money especially
through mobile phone. He points out sections in the Central Bank of Kenya Act that if
amended would be of importance to MMT services and mobile payment services.26
When he explores technology laws he mentions the laws available and to the extent that they
address MMT services. For instance the National Information and Communication
Technology (ICT) Policy of March 2006 recognizes problems facing ICT departments in
Kenya but not provide any assistance in as far as MMT services and mobile payment services
are concerned. The policy has set goals yet to be achieved but he notes that in so far as legal
issues are concerned, little, if any, is addressed.
However, in his work only majors in what is provided for under the existing laws, but does
not address other issues unrelated to the scope of the relevant statute examined which perhaps
would warrant new legislation in light of MMT service provision, for instance setting total
transfer amount per each service provider per day, tackling money laundering brought about
by existence of mobile money transfer and which is not handled under the Proceeds of Crime
and Anti-Money Laundering Act of 2009, and any others as shall be brought about by this
study. In this respect his book fails to mention other vices that could be outside the scope of
the existing legal regime on MMT.
25 Njaramba Gichuki (2013) supra, p 247. 26 Njaramba Gichuki (2013) supra, p 248.
13
Another area I will seek to fill by this study is that he point out clearly some of the areas of
deficiency but fails to make any recommendations on how these defects could be cured. I aim
to make recommendations
Lorretta Michaels, in his report27
submits that in Kenya, mobile financial services have
evolved in a largely undefined regulatory space. The Central Bank of Kenya (CBK) has been
informed and watchful, and has provided oversight and deliberate guidance from the very
beginning of the industry. The relationship between the CBK and MMT service providers has
evolved through willing collaboration and innovation in an entirely new domain in financial
services. In this context, the CBK and MMT Service providers have addressed emerging
challenges in introduction of mobile payments services as well as consumer protection that
have attracted international interest and recognition.
However, he observes, the consumer protection measures that exist are as yet not codified in
law or regulation in the industry. The CBK provides guidance to mobile money under Article
4 of the Banking Act, which covers Payment Systems, rather than banks. As such, it is the
National Payment Systems Division (NPSD) of the CBK that provides oversight, not the
Banking Supervision Department.28
As a safeguard, however, CBK exercises full supervisory
oversight over the trust accounts for mobile financial services providers, which are held at
commercial banks. This effectively sequesters the float and protects it against any eventual
financial failure of MMT services. This also precludes operators from earning the interest on
the float.29
He notes that at the end of 2008, with the huge success of M-Pesa and the growing concern of
the Kenya Bankers Association, the Ministry of Finance asked that the CBK conduct a risk
assessment of M-Pesa, which was done and published in the newspapers and Kenya Gazette
in early 2009, basically saying that the CBK is satisfied with the risk situation and that they
don‟t consider MMT services and mobile payment systems to be a banking business. In the
last few years, with the introduction of three additional mobile money service providers30
and
the huge growth of the sector, the CBK has chosen to introduce a more formal regulatory
27 Lorreate Michaels, “Better Than Cash: The Kenya Mobile Money Assessment,” appendix IV, Kenyan Mobile
Money Regulatory Framework.” November 2011. This report was produced for review by the United States agency for international development. It was prepared by Accenture development partners under the global
broadband initiative. The author of the report is Lorretta Michaels. 28 The NPSD traditionally focuses on the integrity of the IT platforms and service delivery
Systems in line with BIS guidelines, rather than consumer protection and risk. 29 The interest on the float is channelled into a charitable account. 30 The new mobile money services were approved and supervised under individual Letters of No Objection.
14
framework over the entire branchless banking sector. He sites the actions taken to date,
actions which shall be explored further in ensuing chapters.
According to Tonny Omwansa,31
The growth in the mobile sector was primarily a result of
the friendly regulatory environment the Kenya Communications Act (KCA) created in 1998.
However, KCA only regulates communications services; it does not address electronic
commerce, mobile commerce, or mobile banking.
In 2006, the Kenya ICT Policy was published to promote electronic commerce and other
electronic services such as mobile banking and mobile transactions. But the country still
lacked a clear framework for electronic transactions, which it needed to participate
effectively in the new internet economy. It needed an appropriate and comprehensive
information bill to address the specific details of electronic transactions including the critical
laws for this sector.
He notes that though Kenya‟s government did publish the Electronic Transactions Bill of
2007 to address electronic commerce issues such as recognition of electronic transactions and
electronic signatures it has not enacted the Kenya Information and Communications Bill of
2007.Many interested parties including mobile operators, merchants, banks, entrepreneurs
and consumers want to see the accurate and inclusive ICT enacted soon, to enhance trust in
electronic transactions and more specifically, mobile transactions.
1.10 CHAPTER BREAKDOWN
This research paper will be organised in the following manner.
1.10.1 Chapter 1:
The Background to the Study
In this Chapter there is discussed the background to the study. This includes the background
to the research topic, the statement of the problem, the theoretical and conceptual framework,
literature review of some of the written work done related to the research topic and the
justifications of carrying out the research.
1.10.2 Chapter 2:
31 Tonny Omwanza (2009), “Progress and Prospects: Innovations Case Discussion,” P. 109-110.
15
An Analysis of how MMT Operations Function and the Legal Implications
This one contains an analysis of how MMT operations function to bring out a clear
understanding of how these services are rendered. The legal impact of MMT services
including the vices that have come up due to the use of this technology will be also contained
in this chapter.
1.10.3 Chapter 3:
The Legal Framework for Regulation of MMT services
In this Chapter I will look at the present legal framework for regulation of various sectors of
the economy related to mobile money transfer among them the financial sector,
communication sector and electronic transactions regulations. I intend to explore these areas
in this chapter pointing out the shortcomings in the various legal instruments in light of how
they ought to contain provisions addressing issues concerning MMT services.
1.10.4 Chapter 4:
Recommendations for Necessary Reforms and Conclusion
This Chapter will contain recommendations for necessary reforms that need to be put in place
to ensure sufficient regulation of the services as required is provided. This I will do in light of
the impact and vices discussed in chapter two above. The conclusion will also be contained in
this chapter.
16
CHAPTER 2
AN ANALYSIS OF HOW MMT OPERATIONS FUNCTION AND THE
LEGAL IMPLICATIONS
2.1 INTRODUCTION
“Mobile Money” or “M-Money” is a form of electronic money and refers to services that
connect consumers financially through mobile phones. Mobile money allows for any mobile
phone subscriber, whether banked or unbanked, to deposit value into their mobile account,
send value via a simple handset to another mobile subscriber, and allow the recipient to turn
that value back into cash easily and cheaply.32
In this way, Mobile Money can be used for
both mobile money transfers33
and mobile payments.
In the last dozen years mobile technology has flourished throughout the developing world
faster than any other technology in history. The latest phenomenon spawned by mobile
technology is mobile money. This trend is providing money transfer services to millions of
previously under-served people in the developing world, allowing them to safely send money
and pay bills for the first time without having to rely exclusively on cash. The global leader in
mobile money is Kenya, where mobile network operator Safaricom launched M-Pesa in
2007.
The initial concept of M-Pesa was to create a service which allowed microfinance borrowers
to conveniently receive and repay loans using the network of Safaricom airtime
resellers.34
This would enable microfinance institutions (MFIs) to offer more competitive loan
rates to their users, as costs are lower than when dealing in cash. The users of the service
would gain through being able to track their finances more easily. When the service was
piloted, customers adopted the service for a variety of alternative uses and complications
arose with Faulu, the partnering MFI. In discussion with other parties, M-Pesa was re-focused
and launched with a different value proposition: sending remittances home across the country
and money. Users are charged a small fee for sending and withdrawing money using the
32
Commission on Payment and Settlement Systems[CPSS], “Survey of Developments in Electronic Money and
Internet and Mobile Payments 4” (2004), available at http://www.bis.org/publ/cpss62.pdf. Accessed on
13/02/2014. 33 “Mobile Money Transfers” are remittances using mobile phones. 34 Hughes, N., & Lonie, S. (2007). M-PESA: Mobile Money for the "Unbanked": Turning Cell phones into 24-
Hour Tellers in Kenya. Innovations: Technology, Governance, Globalization, 2(1–2), 63–81.
17
service. M-Pesa has spread quickly, and has become the most successful mobile phone based
financial service in the developing world.35
The continuing success of MMT in Kenya has
been due to the creation of a highly popular, affordable payment service with only limited
involvement of a bank.
Other mobile phone service providers ventured into the market on the realisation of how
Safaricom had succeeded. Orange Money launched IKO PESA, with its main mechanisms
being that it‟s able to retain money within circulation as it‟s a partnership between Orange
Telecoms and Equity Bank.36
Airtel offers Airtel money and YU has Yu cash.
2.2 HOW MMT OPERATIONS FUNCTION
The service allow users to deposit money into an account stored on their cell phones, to send
balances using SMS technology to other users (including sellers of goods and services), and
to redeem deposits for regular money. Users are charged a certain fee for sending and
withdrawing money using the service. For one to access these services he/she needs to own a
mobile phone functional with a SIM card and register for the service by providing
information about him/her that will be used to identify the account as his/hers. The
registration is done with and by the respective service provider after which the account is
open and the consumer can access the services.37
A customer may deposit money at a MMT outlet in return for e-float, called a "cashin"
transaction. The customer is required to show a valid identification document, and his
identity and the amount of the deposit are logged in a book kept at the outlet. Upon receipt of
the money, the agent at the outlet enters the customer's telephone number and deposit
information into his/her cell phone, and the customer waits at the outlet window until he/she
receives a confirmation text message that e-float has been deposited. Unless the system is
running slowly (which happens occasionally), the whole transaction takes about a minute or
less.38
A customer may exchange e-float for cash at a MMT outlet, called a "cash out" transaction.
Again, the customer must show a valid identification document, and the transaction is logged.
35
Jack, William; Suri, Tavneet (August, 2010), The Economics of M-PESA. 36 The East African, on 22nd Nov. 2010. 37 Jack, William; Suri, Tavneet (August, 2010), supra. 38 Isaac Mbiti, “Mobile Banking: The Impact of M-pesa in Kenya.” published by the National Bureau of
Economic Research,1050 Massachusetts Avenue. Available at http://www.nber.org/papers/w17129 accessed
on 13/02/2014.
18
The customer tells the shop clerk how much cash he/she wants, then chooses "withdraw
cash" on the mobile money service menu on his phone, enters the amount to be withdrawn
(plus the relevant fee), and enters the agent number and his/her personal identification
number (PIN). The agent then receives a text indicating that the transaction is complete, and
the agent then gives the appropriate amount of cash to the customer. This whole transaction
takes about one minute.39
Finally, a user may transfer e-float from his/her phone to another phone referred to as a
“person-to-person transfer,” even though one or both of the parties may be an institution or
firm. The user enters the phone number of the recipient and the amount to be transferred on
his/her cell phone. The sender and recipient each receive a text message stating that money
has been transferred.40
These three basic transactions can be combined in a number of ways. For example, a user
may deposit cash and send the full amount deposited to another user, who can then withdraw
the full amount transferred. We refer to this use as "deposit-transfer-withdraw." Alternatively,
a user who receives a transfer from one person may transfer the e-float to some other user
instead of withdrawing cash. E-float could circulate in this manner indefinitely, like
conventional cash. A third usage possibility is where a user deposits cash and then later
withdraws it him/herself without having transferred it. Anecdotally, it is said that people do
this for safety when they are travelling.41
MMT service providers also operate in conjunction with specific providers of services and
goods which enable consumers to pay for the bills through their mobile phones by obtaining
pay bill numbers. This enables consumers to transfer funds to the mobile account or bank
account of the person they are paying the bill to.42
2.3 THE MOBILE MONEY TRANSFER PLAYERS
2.3.1 The Mobile Network Operator
A Mobile Network Operator (MNO) is the telecommunications company that provides and
extends the wireless network messaging functionality to provide mobile money services that
39 Ibid. 40 Ibid. 41 Jack, William; Suri, Tavneet (August, 2010) supra. 42 Ibid.
19
enable customers to remit funds to each other that can be settled through its own established
agent network. Individual payment transactions occur entirely within the MNO and do not
require the service user to have a bank account.43
The funds in transit paid in by the remitter but not yet withdrawn by the recipient are within
the formal financial system. Since the service provider is only executing client payment
instructions and is not performing the credit evaluation and risk management function of a
bank, these services do not, according to the Banking Act,44
constitute “banking.”45
Therefore
the MNOs do not require the level of regulatory oversight needed for deposits held in banks.
The MNOs provide the infrastructure and communications service while providing agent
oversight and quality control.46
Mobile payments in Kenya are carried out through the use of MNOs and this is defined as a
MNO-led mobile payment system as opposed to a bank-led. In the MNO-led payment model,
the MNOs offer mobile payment services as a means to add value to their core
communications services. This however presents legal challenges that this research will
highlight in ensuing parts.47
2.3.2 The Bank
In the mobile payment context, banks offer banking services via the mobile device. They hold
the e-float on behalf of the MNOs and handle cross-border transactions while managing
foreign exchange risk. In Kenya, retail payments are dominated by banks whose primary
function is to gather deposits for deployment in loans and other permissible investments.
Banks are best positioned to employ risk management programs that ensure regulatory
compliance.48
The banks‟ role in the mobile payment value chain is important as the mobile payment
system in exchange for e-float is deposited in bank accounts held by the mobile network
43 Cynthia merit (2010), Mobile Money Transfer Services: The Next Phase in the Evolution in Person-to-Person
Payments, Retail Payments Risk Forum White Paper, Federal Reserve Bank of Atlanta , p.8 44 The Banking Act Section 2(1) (a). 45
The Act defines banking business as accepting from members of the public of money on deposit repayable on
demand or at the expiry of a fixed period after notice45. The act does not provide for a definition of mobile money transfer services. 46 Cynthia merit (2010) supra, P.8 47
For instance, customer funds are commonly held in a prepaid account by the MNO or a subsidiary. Although
in some jurisdictions even if the MNO is the business owner (the entity which assumes the bulk of the financial
risk and operational responsibility of offering the service), a partner bank formally holds the license. 48 Cynthia merit (2010) supra, P.11.
20
operator. In efforts to diversify their risk, MNOs hold such deposits in different banks. These
accounts are regular current accounts where MNOs have no restrictions of access. In turn, the
banks face no special reserve requirements with regard to the MNO‟s‟ deposits. Similarly,
there are no explicit requirements for the MNO to give notice of their intention to withdraw
“large” quantities of cash at a given point in time, which shows that these trusts are treated as
any other current account deposit in terms of regulatory policy by the Central Bank. This then
shows the vulnerability that exists within the framework which mobile payments is currently
operating under as there are no legal obligations between the MNOs and the banks and if
there are any these obligations are one of the banks and account holders.49
2.3.3 Agents
Agents are nonbank entities such as retailers that handle customer registration and liquidity
needs for the mobile money users, on behalf of the MNOs. The primary role of an agent is to
accept and disburse cash and in essence providing cash-in and cash-out services from the
consumer‟s mobile device. In this role, the agents serve as branches for the mobile network
operators and act as the point of sale for the customer relationship. As the liaison between the
MNO and the consumer, the agent bears responsibility for account opening, customer due
diligence, and Know-Your-Customer (KYC) program compliance. The most typical
candidates for agents are the retail sales stores and airtime resellers because they tend to have
sufficient liquidity to satisfy consumers‟ needs to deposit and withdraw cash. This network of
local agents expands the mobile operator‟s reach to rural areas in order to achieve a higher
level of penetration in unbanked markets where there is no physical bank presence, which has
also been one of the main advantages to mobile payments essentially enabling a branchless
payment system, outside the traditional bank-led business model.50
Agents typically provide liquidity with funding from other business activities including
selling airtime in addition to other merchandise. They receive commissions for transactions
and hold balances on their own mobile phones. These mobile airtime balances and cash on
premises are the critical elements of the agents‟ liquidity management system. Agents are
also required to perform minimal customer due diligence which this paper will challenge as
49 Ibid. 50 Cynthia merit (2010) supra, P.7.
21
this due diligence is only limited to the provision of a postal address which this paper posits
is not enough.51
Agents also report suspicious transactions in accordance with Anti-Money Laundering and
Combating the Financing of Terrorist requirements as stipulated by the MNO they are
attached to.52
The agent is therefore the MNOs, interface between the cash flow and the
consumer. Registered mobile money users can make deposits and withdrawals of cash (i.e.,
make purchases and sales of e-float) with the agents who receive a commission on a sliding
scale for both deposits and withdrawals.53
The agents hold e-float balances on their own mobile devices, purchased either from the
mobile network operator or from customers, and maintain cash on their premises. Agents
therefore face a non-trivial inventory management problem, having to predict the time profile
of net e-float needs, while maintaining the security of their operations. Their function is to
provide cash in cash out transactions which cannot be executed without sufficient reserves of
both mobile money and cash at the agent outlets. Mobile money liquidity and cash liquidity
are therefore key areas of concern in a mobile money deployment. 54
2.3.4 The Consumer
The „consumer‟ in this study is the MMT service user. The MMT service users have created a
specific demand for the services in Kenya. Their adoption and trust in the system has been
one of the characteristics of mobile money success.
2.3.5 Regulators
Regulators also fill a critical role in the ecosystem, as they work to strike a balance between
providing prudential, risk-based oversight and encouraging innovation, efficiency, and
financial inclusion. Regulators will be challenged by the pace of innovation in mobile
payment services and the increasing opaqueness in payment transactions from a regulatory
51
Ibid. 52 Agent Requirements for example are detailed on Safaricom‟s website,
http://www.safaricom.co.ke/personal/m-pesa/m-pesa-agents accessed on 11/02/2014. 53Registration and deposits are free and most other transactions are priced based on a tiered structure to allow
even the poorest users to be able to use the system at a reasonable cost. Transaction values are typically small. 54 Cynthia merit (2010) supra, P.7.
22
oversight perspective. Mobile transfer systems are giving rise to new challenges in how to
establish effective regulatory infrastructures to provide oversight. 55
2.4 LEGAL IMPLICATIONS OF MMT SERVICES
2.4.1 Proceeds of Crime and Money Laundering
Money laundering refers to any action deliberately taken to conceal the proceeds of crime. It
differs from tax evasion in the sense that the money is considered tainted at the outset, and
the goal of those engaged in money laundering is to process these funds so as to make them
appear legitimate, or clean. Typically, money laundering cases involve a number of
transactions between businesses setup for the purpose, often via banking houses that may be
unaware of what is being done.56
According to John Cassara, who spent 26 years as a covert CIA case officer and US Treasury
agent investigating financial crimes;57
“Mobile money transfer is one of the big laundering methodologies that law
enforcers have to confront. It's difficult for law enforcement around the world to
get a handle on this problem because there is a lack of understanding and
reporting about it. There are 5 billion cellphones around the world that could be
used as virtual wallets, or personal ATMs. By 2020, some experts predict, there
will be 50 billion connected devices, and Mobile money payments will be most
likely be the most popular form of financial transfer services in much of Africa,
Asia and Latin America. However, the places where mobile money services are
skyrocketing also happen to be where corrupt governments, transnational crime
syndicates and traffickers of all stripes flourish. People use their phones to carry
and transfer cash and this has had a major impact on how money is hidden and
laundered and criminals are taking advantage of this."
The best example is Kenya; M-Pesa (Pesa means "money" in Swahili) now has over 15
million users, who transfer more than $1 billion a month in East Africa. Its model has been
imitated in more than 50 other countries, including much of Africa, Brazil, Afghanistan and
India. Thousands of street-corner shops in Kenya sell mobile-phone airtime, with more than
60% of them registered as M-Pesa agents, outnumbering the bank branches in the country by
far. Annual transactions on M-Pesa are equivalent to over 20% of the country's GDP.
55
Cynthia merit (2010) supra, P.8. 56 Josh Meyer (2013), “How mobile payments might be the global money-laundering machine
criminals have dreamed about.”
http://qz.com/94570/how-mobile-payments-might-be-the-global-money-laundering-machine-criminals-have-
dreamed-about/-accessed on 3rd April 2014. 57 Josh Meyer, June 17, 2013, supra.
23
Customers exchange cash for virtual value that goes into their phone, which becomes an
electronic wallet. They can then pay bills, buy things, transfer money and, receive credit on
the card.58
Besides being easy to use, it's usually cheaper than traditional money-transfer services.
Foreign workers can be paid by phone, and then transmit the money to their family back
home in seconds. Travellers can deposit lots of cash and then simply withdraw it in
another country. Many big banks are now rushing to incorporate mobile payments.
The system breaks down here: M-payments are most popular in countries with weak laws and
enforcement against financial fraud and money-laundering. Customers often need little in the
way of identification. The whole process often bypasses a country's financial reporting
system. That makes it almost impossible for authorities to monitor m-payments, even if they
had the expertise, which they don't. And because transactions are made via mobile phones
and text messages, there's usually no way to trace them or secure evidence for prosecutions.59
Mobile money solutions can be exploited by generating large numbers of low value
transactions, possibly using automated tools or software. This type of attack is difficult to
police and so regulators tend to set low maximum transaction values to minimise this risk
thus inconveniencing honest users of the payment system.60
In Kenya, MMT Services have been used to launder fake currencies, to bribe corrupt
officials, and to facilitate kidnapping and extortion and a range of other crimes. In response,
the service providers started requiring more customer information last year, especially for
those using prepaid cards for their phone service. But such stories aside, there isn't much
evidence of MMT facilitating crime.61
.Financial authorities seem to agree, and have been
raising concerns in recent reports, official testimony and public speeches.62
2.4.2 Privacy and Security
The concerns for securing the mobile channel mirror the risks seen in the online environment,
including authenticating the consumer‟s identity and protecting transmission of data from
interception enabled by viruses, malware, and phishing attacks. Anecdotally, the mobile
58
Josh Meyer (2013) supra, p.8. 59 Josh Meyer (2013) supra.- As John Cassara testified before Congress in May 2012, criminals always gravitate
toward the weak link in the financial system, and they've now glommed onto m-Payments. 60 Josh Meyer (2013) supra. 61 John Cassara says that's only because no one is monitoring the transactions for criminal activity. 62 Josh Meyer (2013) supra.
24
environment to date has been relatively secure compared to the online channel where privacy
and security of personal and business data is frequently compromised through the use of
malicious computer viruses, identity theft, and phishing schemes. The diversity of platforms
and wide range of operating systems make mobile phones less vulnerable to attack than
personal computers. The recent surge in smart phone applications may introduce
vulnerabilities to malware attacks, which may increase payments risk going forward as bad
actors gain access to personal information stored in the handset or accessed through a phone
application.
Security specialists say the swift growth of smartphone use inevitably is going to attract
fraud. And as more consumers use their mobile phones as payment devices, the potential
risks can increase. Malware and phony app sites can direct unsuspecting phone users to sites
where they give up sensitive personal information, such as account passwords. The same
technology also makes it easier for data analytics companies to get a better fix on where they
spend their time and where and what they buy. Data analytics companies already pore
through massive amounts of consumer data to give retailers and lenders a better idea of how
to market to them.63
Jeff Chester64
writes;
“Mobile payment services is about exposing your financial behaviour to a daisy
chain of financial and other marketers who have a very detailed understanding of
where you are, how you spend your time and money. At present there are no such
protections to the new kinds of data, which will proliferate with mobile payments.
The collection of data needs to be transparent and accountable. All these new,
non-traditional data services are unregulated, and they need to be regulated.
There should not be any kind of financial profile on a consumer that he or she
can’t have access to review and to challenge.’’
Shoulder surfing and device theft is another predominant type of card fraud. It provides the
main justification for biometric security controls. It involves a thief viewing the PIN entered
and then stealing the device or card then proceeding to transact disguised as the legitimate
holder of the account.
Finally, the growing use of SMS as a common technology for sending a transactions
message demands further examination of the need to strengthen data encryption technology.
63
Kirk Ladendorf, “Mobile payments raise security concerns,” available at
http://www.bostonglobe.com/business/2013/04/11/mobile-payments-field-grows-security-
concerns/54cV5GDvhHyjm3Qj3YYdlI/story.html - (accessed on 12/02/2014). Bebeto Matthews/Associated
Press/File. 64 A privacy advocate with the Center for Digital Democracy in Washington in an interview with McClatchy
Newspapers.
25
The optimal solutions to devising a secure and resilient transfer channel should be put in
place. Creating transparency is a key consideration in addressing security issues, when
consumers have the ready ability to view transaction histories on their handsets, the risk of
account fraud and other risks can be avoided or mitigated.65
2.4.3 Consumer Protections
Mobile money-specific consumer protections were not created with the need for financial
services regulation in mind. The limitations of the existing financial regulation to emerging
mobile financial services have resulted in gaps in legal governance and ambiguity with
respect to the responsibilities and liability among parties involved in the services. New
regulatory policy will require a comprehensive understanding of the new risks that mobile
transactions introduce to consumers, including lost payments through faulty transmissions,
fraudulent transactions, identity theft, or criminal activity on the part of the mobile operator,
agent, or other mobile money service provider.66
2.4.4 Credit Risk
Credit risk may emerge whereby the transaction is applied to the user‟s phone bill to be paid
later. Possibly because of their lack of experience in managing credit risk associated with
financial services, service providers have largely focused on providing prepaid services in
order to manage liquidity and mitigate risk. For example, Safaricom‟s M-Pesa mitigates
credit risk by collecting prepaid funds from agents. Safaricom deposits into a trust account
managed by a leading Kenyan Commercial Bank, which provides the legal protection for
consumers.67
2.4.5 Fraud
Recent successes in global-standards setting to promote interoperability among carriers have
simplified the ability for mobile users to roam across geographic markets. The roaming
agreements used by international operators to facilitate voice transfers can now be used to
end data in the form of cross-border payments. However, wireless data transmissions may be 65
Josh Meyer (2013), supra. 66 Cynthia Merritt (2010), “Mobile Money Transfer Services: The Next Phase in the Evolution in Person-to-
Person Payments,” Extracted from Retail Payments Risk Forum White Paper, Federal Reserve Bank of Atlanta,
pg 20.
https://www.frbatlanta.org/documents/rprf/rprf_resources/wp_0810.pdf - accessed on 3rd April 2014 67 Cynthia Merritt (2010), supra, pg 21.
26
vulnerable to access by unauthorized parties who identify some means to intercept the
communication between mobile devices. The growth in wireless telecom services has led to
an increasing number of roaming agreements between telecommunications companies in
different countries, enabling the transmission of international remittances via mobile phones.
Roaming fraud represents a potential threat to the security of cross-border mobile payments.68
Fraud has also been witnessed by service users using a false identity to obtain a line of credit
or using false information to set up an account or in some else‟s name and to obtain more
credit than the situation warrants is currently a widespread problem.69
Repudiation fraud by
subscribers i.e. “I didn‟t make that transfer – my phone was stolen” is also another problem
that Banks and EMV providers are trying to use their Terms and Conditions to place the
burden of proof on the shoulders of the customer. However regulators are increasingly
unwilling to allow these arrangements to continue and the burden of proof is again being
shifted to the providers.70
Fraud against subscribers, e.g. possible theft of their balances through staff involvement or
technical means is another indicator of fraud.
2.5 IMPLICATION TO THE BANKING SECTOR
2.5.1 At the Initial Stages of Development
Kenyan banks fought tooth and nail to have M-Pesa shut down one year after its launch as its
popularity was spreading like bushfire and posed a threat to their operations, a new book
launched last evening reveals.
This is according to the book titled 'Money, Real Quick: Kenya's Disruptive Mobile Money,
Innovation" which says that the Central Bank was forced to hire an IT consultant one year
after the launch of M-Pesa to conduct an operational risk audit before allowing the mobile
money transfer platform to continue operating. The banks argued that the mobile money
service was free to skirt onerous 'know you customer' regulations which made it easier to sign
68 Cynthia Merritt (2010) supra, pg 21. 69
“The Top 10 Risks for Mobile Payments; the Risk Management Group March 2012,” pg 9. Extracted from
TRMG's “Fraud and Revenue Assurance Guideline” |
https://www.google.com/search?q=The+Top+10+Risks+For+Mobile+Payments%3B+The+Risk+Managemen
t+ Group+March+2012&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-
a&channel=sb – accessed on 3rd April 2014. 70 Josh Meyer (2013) supra.
27
up subscribers with marginal background checks. "Cash merchants weren't even employees
of Safaricom and were total wildcards."71
CBK hired UK and US based Consult Hyperion to conduct a thorough audit on M-Pesa
which had been launched in April 2007 with just 54, 000 customers but spread as a wild fire
causing panic in the banking industry.72
It currently has more than 10 million customers which is more than the combined customer
base of all the local banks. Bankers felt that M-Pesa was not properly regulated thus had an
unfair competitive advantage which was putting the entire financial system at risk. Banks also
felt that they were absorbing costs to help M-Pesa run smoothly since they were supposed to
meet the demands of agents flush with e-float as more money flowed from urban areas to
rural areas.73
Bankers also questioned why Safaricom was allowed to have agents while banks could not
use them. At that time, agent banking regulations had not been effected but they have since
come into place. They accused the Central Bank of operating with a double standard of
giving Safaricom a free ride to undercut their long established business. There was also a
perception that M-Pesa customers' money might fall victim to money laundering and pyramid
schemes as well as potential fraud by agents.74
The Kenya Bankers Association representing 43 banks claimed that Safaricom had no
mechanism to compensate customer in case of loss, they created the impression that M-Pesa
was a disaster waiting to happen, adding that it was a gamble with people's money and the
government was not being proactive in protecting the public interest. In December 2008, a
group of banks reportedly lobbied the Kenyan finance minister to audit M-Pesa, in an effort
to at least slow the growth of the service.75
This ploy failed, as the CBK audit cleared M-Pesa
to operate after assurance that all its systems allowed for comprehensive reporting and
management so every transaction could be monitored individually and enmasse. Another
71 Peter Kiragu , “Authors reveal how banks fought hard to kill M-Pesa,” Wednesday,February 5, 2014,found at
http://www.the-star.co.ke/news/article-153875/authors-reveal-how-banks-fought-hard-kill-m-pesa - accessed on
3rd April. 72
Peter Kiragu, supra. 73 Ibid. 74 Ibid. 75 “Cash Transfers Pose Threat to Banks: Philanthropy Action,” 26 February 2009 found at
http://philanthropyaction.com/nc/mobile_cash_transfers_pose_threat_to_banks/Mobile - accessed on 3rd april
2014.
28
Financial Access survey had shown that 80 per cent of M-Pesa users were satisfied with the
service. 76
2.5.2 The Present Situation
The use of mobile money in the country has grown sharply in the last five years to overtake
banks according to a new study. According to the latest Fin Access National Survey (2013),
more than double the number of adults use mobile phone financial services compared with
banks. The use of mobile phone financial services has more than doubled to 62 per cent in
2013, up from 28 per cent in 2009. The use of commercial banks has also been rising over
time from 13.5 per cent in 2006 to 29.2 per cent in 2013 while use of micro-finance
institutions (MFIs) has remained at 3.5 per cent between 2009 and 2013. Use of SACCOs has
decreased since 2006. In most regions usage of mobile money exceeds 50 per cent, according
to the report compiled by among others Central bank, Financial Sector Deepening Kenya and
Kenya National Bureau of Statistics.77
This shows how MMT has rapidly grown to surpass all the other financial service providers
in the market. The players in the banking sector have realized this business threatening trend
and devised innovation ideas in effort to curb the competition posed by MMT and also to
capitalise on the dominance of the MMT services to boost their own returns and to retain
their stake in the market. This is after the banking industry players realised that there was
little or nothing else they could do to the rapidly rising globally-acclaimed innovation.
For instance, Equity Bank Ltd. Kenya‟s largest provider of small loans formed a partnership
with Safaricom Ltd to more than double the number of accountholders through an initiative
where Kenyans would be able to open bank accounts through Safaricom‟s mobile money
transfer service known as M-pesa,78
Equity Bank and Safaricom also rolled out "an ultimate
bank account that would let customers transfer money to and from their M-PESA accounts
via their mobile handsets while enjoying other benefits that come with the bank account." 79
76 Peter Kiragu, supra. 77 James Anyanzwa, “More Kenyans using mobile money transfer than banks,”
Updated Monday, December 9th 2013, found at
https://www.standardmedia.co.ke/business/article/2000099737/more-kenyans-using-mobile-money-transfer-than-banks?pageNo=2, accessed on 17/02/2014. 78 Equity Bank of Kenya Aims to More Than Double Accounts in 2010, found at
http://www.bloomberg.com/news/2010-06-30/equity-bank-of-kenya-aims-to-more-than-double-accounts-in-
2010-ceo-says.html. accessed on 17/02/2014. 79 The then Safaricom Chief Executive Officer Michael Joseph said, “M-PESA is proud to launch another new
initiative with our partners Equity Bank by offering a new service that will target customers who are looking for
29
An M-KESHO account would offer short term loan facilities as well as pay interest on
mobile account deposits. Credit evaluation for loans will be based on scoring using 6 months
of history of the consumers M-PESA balances. There is no application form to fill - the loan
request is made by the consumer using the mobile phone.80
Another instance of co-operation
between the globally-acclaimed innovation and banking industry players happened when
Barclays Bank of Kenya joined the M-Pesa bandwagon where account holders who are
individuals would be able to deposit and withdraw directly from their phones while
Safaricom‟s M-Pesa agents who bank with Barclays would be able to buy the e-float for their
daily operations.81
In a similar fit Airtel money and equity bank rolled out a a service that would be available to
all Equity Bank customers with Airtel lines. That would enable customers from both Airtel
and Equity Bank to access Airtel mobile banking platforms, perform agency cash transactions
at Equity Bank branches and also enable Airtel Money customers to withdraw and deposit
money at any Equity Bank countrywide.82
equity bank and YuCash rolled out an agreement
that would enables account holders to move money from their Equity Bank Accounts to their
yuCash account instantly and vice versa, enables one to send money from a YuCash account
to other mobile numbers (any network in Kenya), both registered on YuCash and
unregistered. One has a unique option of inserting a free short message (SMS) as they send
money.83
These are just but a few examples of the collaboration between mobile money operators and
banking industry players in a bid to mutually benefit from each other on the one hand and
also to curb competition on the part of the banking industry posed by MMT services.
the convenience of a bank account that uses M-PESA as the tool to deposit money into their accounts. This is a
great idea that will drive customers to save into their bank accounts and enjoy the benefits of having the value
added services of both M-PESA and an Equity bank account." 80“M-PESA Meets Microsavings with Equity Bank Deal in Kenya,” on the CGAP blog.
Posted: May 18, 2010 |found at http://www.paymentsnews.com/2010/05/safaricom-equity-bank-bring-banking-
to-m-pesa-users-in-kenya.html. 81
“Barclays Bank and Safaricom Rolls Out Collaborative M-PESA Services,” Wednesday, October 13th,
2010,found at http://www.techmtaa.com/2010/10/13/barclays-bank-and-safaricom-rolls-out-collaborative-m-
pesa-services/ Acccessed on 18/02/2014. 82 http://www.equitybank.co.ke/index.php/self-service/mobile-banking/airtel-money accessed on 19/02/2014 83 “The Equity Bank -yuCashLinked Bank Account Services.”
http://www.yu.co.ke/index.php/yucash-equity-partnership , accessed on 19/02/2014.
30
2.6 CONCLUSION
In conclusion, MMT services has had varied legal implications to the economy in Kenya. It
has led to criminals exploiting the gaps in the existing legal regime to conduct fraud and other
related criminal activities using the technology that brought up the innovation. The law
enforcers have had very little they can do about it either because of their limited know-how in
sophisticated technology and cyber crimes, or the offenders are aware of the loopholes in the
laws regulating and have become elusive therefore very hard to bring them to book.
Moreover, as has been discussed, the existing legal regime is inadequate and most enacted
laws and regulations do not directly address MMT services.
Lastly the banking sector has eventually realised benefits out of the innovation, contrary to
their initial position they held that MMT would „kill‟ the banking sector. The collaborations
created between the banking sector players and MMT service providers, and the continuing
of the same is an indicator that it is an innovation of mutual benefit between the banking
sector and the MMT service providing companies.
31
CHAPTER 3
THE LEGAL FRAMEWORK FOR REGULATION OF MMT
3.1 INTRODUCTION
Innovation has been at the forefront of development in Kenya, primarily through the
integration of mobile telephony and retail financial services. Mobile payments have
transformed the way financial services have been delivered in Kenya, through bringing a
large number of „unbanked‟ and „under banked‟ persons into the financial realm. These new
technologies have almost always outpaced governments‟ regulatory responses to them. The
lack of specific legislation in this area has consequently left the Kenyan regulatory
environment open to various risks. As mobile payments comprise both banking and
telecommunications activities, differing perspectives exist on the appropriate regulatory
framework as well as which authority should regulate it. To enhance the potential benefits
from innovations in this area, governments need to make complementary adjustments to
domestic banking and financial regulations by offering specific regulation for Mobile Money
services. In so doing, certain questions should be asked in establishing a strong regulatory
regime as the Mobile Money system has brought forth new entrants and various stakeholders.
Therefore, this chapter discusses the current regulatory framework, the gaps that have been
left by the current regulatory framework and justifications for establishing a specific and
appropriate regulatory framework for mobile money transfer services and payments in
Kenya.
The growth in the mobile sector was primarily a result of the friendly regulatory environment
the Kenya Communications Act, (KCA), created in 1998. However, KCA only regulates
communications services; it does not address electronic commerce, mobile commerce, or
mobile banking.
Mobile phone business is regulated by the Communications Commission of Kenya (CCK)
under the authority of the KCA. So far, there are no laws in Kenya specifically regulating
Mobile Money Transfer Services. This is despite the fact that these two services are widely
used in Kenya by a large number of consumers which definitely necessitates adequate
regulation by legislation.
32
CCK is neither sufficiently competent nor qualified to regulate the Mobile Money Transfer
Services and Mobile Payment Services sector on its own. This is because the two services
involve some banking aspects and information and technological aspects that may be beyond
the expertise of CCK.84
Although both services are very instrumental in commercial transactions today, it should be
governed and regulated by our laws so as to curb the vices that are bound to be associated
with Mobile Money Transfer Services. As it is now, there are rampant cases of such
transactions being targeted by rogues implying that the peril is imminent. This chapter,
besides exploring the current legal regime and important areas that are not addressed by the
regime, will also look at the challenges that regulators might be faced with in the process of
trying to come up with a satisfactory regulatory reform.
3.2 THE CURRENT REGULATORY FRAMEWORK
The Central of Kenya Bank Act is involved in the traditional banking as defined by section 2(2) of the
Banking Act85
which defines as;
(a) The accepting from members of the public of money on deposit repayable on
demand or at the expiry of a fixed period after notice;
(b) The accepting from members of the public of money on current account and
payment on and acceptance of enemies; and
(c) The employing of money held on deposit or on current account, or any part of
the money, by lending, investment or in any other manner for the account and at
the risk of the person so employing the money;
Although the act does not define mobile money transfer under the interpretations section86
, it
serves the object of Licensing and supervising authorized dealers in financial services.87
This
serves as an important provision viewed from the point of regulation of mobile money as a
financial service. It limits the mobile money transfer service providers to acquiring of a
licence if they wish to carry out any banking services and to get that license, then, some
conditions ought to be met.88
84 Njaramba Gichuki (2013) supra, p. 236. 85
Cap 488 of the Laws of Kenya. 86 This is because when this act was enacted, the mobile phone technology to pay bills and transfer money
through the mobile phone was not in existence and was equally not foreseeable to the law makers. As such it
was only meant to regulate the traditional banking system. 87 The Central Bank of Kenya Act, Cap 491, section 4A (c) 88 Njaramba Gichuki (2013) supra, p 246.
33
Under the act there is established the General Reserve Fund,89
to which shall be transferred at
the end of each financial year at least ten per centum or any other amount as the Board, in
consultation with the Minister, may determine, of the net annual profits of the Bank after
allowing for the expenses of operation and after provision has been made for bad and
doubtful debts, depreciation in assets, contributions to staff benefit funds, and such other
contingencies and accounting provisions is the Bank deems appropriate.
Consumers would feel safe in the awareness that their deposits with the mobile phones
account, a percentage of the same has been deposited in a General reserve Fund every year.
This is advantageous to the consumers because, with the allowance of the Central Bank and
the Communication Commission of Kenya, the money can be invested and also, in the case
of collapse of the business, they can then get a refund of their deposit with their service
provider to a certain percentage if not all.90
When banks collaborate with telecommunication companies offering the mobile money
transfer services, the central bank has to approve of the collaboration and therefore has to
ensure that the telecommunication company is stable and as such, Under section 32 the
Central Bank of Kenya, by inference can cause an inspection on the management of a MNO‟s
money transfer services, its records and books of accounts to ensure that there is transparency
and that the consumers can trust the management of their service providers.
The Banking Act Act defines banking business as the accepting from members of the public
of money on deposit repayable on demand or at the expiry of a fixed period or after notice;
the accepting from members of the public of money on current account and payment on and
acceptance of cheques; and the employing of money held on deposit or on current account, or
any part of the money, by lending, investment or in any other manner for the account and at
the risk of the person so employing the money.91
Under part II of the Act, there is a restriction that no person or an institution in Kenya shall
transact any financial business unless duly licensed or is a duly approved agency conducting
business on behalf of validly licensed institution. Every institution intending to transact
financial business has to, before commencing that business, apply in writing, to the Central
Bank for a license.
89 The Central Bank of Kenya Act, Cap 491, Section 9. 90 Njaramba Gichuki (2013) , supra p.248. 91 Banking Act cap 488, section 2 (2).
34
The Central Bank then assesses the professional and moral suitability of persons proposed to
control the institution to certify whether they are fit and proper to manage or control the
institution. The central bank also considers other issues as laid down under section 4 (5)92
.
This is done to cater for the consumers‟ welfare.
Under section 7, a license shall not be granted to an institution unless the institution meets the
minimum capital requirements specified in the Second Schedule. The mobile network
operator as such must have a good capital basis so that once it starts business it will not
collapse.93
Under section 32 of the banking act, the Central Bank of Kenya, by inference can cause an
inspection on the management of a MNO‟s money transfer services, its records and books of
accounts to ensure that there is transparency and that the consumers can trust the management
of their service providers.
The Central Bank of Kenya has been granted the power to advise and direct institutions94
in
different situations for example where the institution is being run in a manner that does not
comply with the law or not in the best interest of the consumers. This is by making
recommendations, issuing directions on measures to be taken by the institution to improve on
the management of the institution or even appointing suitable persons to conduct the
management of the institution.95
The auditing of the accounts of the MNO‟s may be done under the directions of the Central
Bank to ensure that they are in order. These are provided for under part V of the Act. The
Central Bank may, at any time, issue directions to an institution requiring it to maintain such
books, records or information, in addition to any books, records or information then already
maintained by it, as the Central Bank may consider to be necessary.96
Also, the transparency in management is put to the test here since a report of every audit done
is supposed to be published for the public to see.97
This therefore means that the consumers
92 The Central Bank of Kenya Act. 93 Ibid. 94 Ibid, section 33. 95 The Central Bank of Kenya Act. 96
Ibid. 97
Ibid.
35
can trust the management with their deposited money in their mobile accounts since they will
not only have to be accountable, but the accountability has to be seen.
The Banking Act was basically enacted to regulate banking business and other connected
services. The position at law is that there are no specific laws to regulate mobile money
transfer services in Kenya. The question has to be asked whether they may fall under
„connected services‟ of banking businesses as envisaged by the act. Section 2(1)(a) defines
banking business as accepting from members of the public of money on deposit repayable on
demand or at the expiry of a fixed period after notice. Section 2(1) does not define mobile
money transfer services.98
Despite there being some similarity between banking and MMT services, MMT services
cannot be said to fully and completely fall within the ambit of The Banking Act. If mobile
money transfer services and mobile payment systems are to be considered as falling within
the scope of Banking Act on basis that they may be seen to be carrying out banking business,
they will be taken to be in contravention to sections 3(1) (a) and 4 of the Banking Act which
require that no one is to transact banking business unless they are an institution holding a
valid licence and which licence is to be applied to the Minister of Finance through the Central
Bank.99
None of the requirements of which have been met.
The Kenya Communications Regulations, 2001 recognize electronic transactions by defining
the terms electronic mail services, electronic mail services, electronic mail, electronic
document interchange and electronic voice mail but it does not have provisions regulating the
use of MMT services the above. The Regulations do not define Mobile Money Transfer
Services.100
Under regulation 51, all telecommunications equipments shall prior to their installation or
connection to any public switched telecommunication network be submitted to the
Commission for type-approval which shall be granted for each type of equipment once and
subsequent users of the same model of equipment shall not apply to the Commission for type
approval Provided that any changes in models, design or specification of any equipment
which has been type approved by the Commission shall be resubmitted for type approval.
This is to ensure that the equipment is in good condition. The categories of network and
98 Banking Act cap 488 99 Ibid. 100 Kenya Communications Regulations, 2001
36
terminal equipment that require type approval include any customer premises equipment to
be attached to any part of licensed telecommunications.101
The Commission may conduct investigations regarding the working or use of any equipment
or apparatus which has been given approval or final type approval and may cancel such type
approval where it is of the view that a licensee has violated provisional type approval
conditions or the equipment or apparatus is causing or is likely to cause harmful interference
to telecommunications network or is a risk to human health or the environment. This may be
done upon its‟ own motion or upon a complaint by any person.102
Any person may make a representation in respect of working of any equipment that has been
approved or may object to the type approval of any equipment. This section gives persons
who are in doubt about working condition of any equipment to submit a complaint to the
Commission.103
The regulations do not provide for Mobile Money Transfer Services. The Commission may
type–approve the equipment used by the telecommunication companies but there are no
provisions on a body to type – approve the equipment (mobile phone) used by the consumer.
The National Information and Communications Technology (ICT) Policy does recognize that
there is need for comprehensive policy, legal and regulatory framework on ICT in dealing
with issues of convergence, electronic commerce and e-Government. It states that there is
need to Support ICT development, investment and application; Promote competition in the
industry where appropriate; Address issues of privacy, e-security, ICT legislation, cyber
crimes, ethical and moral conduct; Support research and development in ICT and; Develop an
institutional framework for policy development and review.104
Further it acknowledges the lack of adequate infrastructure in ICT that has hampered
provision of efficient and affordable ICT services in the country but does not provide for the
solutions. It just states what the government intends to do, which includes Provision of
support infrastructure, such as, energy and roads; supporting software development;
101 Ibid. 102 Regulation 58, Kenya Communications Regulations, 2001. 103 Ibid, regulation 59. 104 National Information and Communications Technology (ICT) Policy
37
Promotion of local manufacture and assembly of ICT equipment and accessories; and
Provision of incentives for the provision of ICT infrastructure.105
The paper also does acknowledge that there is a challenge is for the country to establish an
adequate legal framework and capacity to deal with national security, network security,
cyber-crime and terrorism; and to establish mechanisms for international cooperation to
combat cross-border crimes. It proposes an e-security structure be developed in collaboration
with the relevant institutions.106
The policy paper also mentions Encouraging and accelerating investments and growth in IT
hardware, software, Internet, training, IT enabled services, telecommunications and electronic
commerce as one of its broad objectives.107
This policy does not offer any assistance in as far as Mobile Transfer Services are concerned.
This may perhaps be available if the Policy achieves its goals and strategies such as
promoting competition, increased customer choice and accelerated investment through
liberalization of sector and licensing of new players in the various telecommunication
service, the MMT services will be faster, more efficient and easily accessible.108
Under the Evidence Act to adduce sufficient evidence to support facts in issue involving
Mobile Money Transfer Services and Mobile Money Payment Services can a very tricky and
difficult task because the transactions are conducted through media and there are no paper
records to adduce in courts. Moreover, information on some transactions is deleted
immediately. For example some banks advice their customers to delete their financial
information from their mobile phones immediately after reading their message. For example
information relating to PIN numbers or even account balances. This advice aims at protecting
consumers‟ privacy since unauthorized persons may read this message in the mobile phone.
On the other hand it raises a dispute since the consumer will not have evidence to adduce in
court, partly because there are ways and phone applications of retrieving lost information on
mobile phones but it is sometimes expensive.109
105
Ibid. 106 Ibid. 107 Ibid. 108 Njaramba Gichuki (2013) , supra p.250. 109 Evidence Act.
38
Where hackers, password stealers, key loggers and the like are involved it becomes difficult
for the consumers to prove that they are not the ones involved in or authorized the transaction
more so where the consumers password and authorization codes have been used.
The Evidence Act110
provides documents printed computer are admissible without the
production of the original document. The only alternative to a consumer here is therefore to
ask the telecommunication company or bank to issue him with a copy of the transaction he
wants to rely on from the computers. This will not help much where the consumer seeks to
rely on the information to prove that he did not partake in the transaction. In situations where
the consumer is suing the bank or mobile service provider, getting the copy from either could
be cumbersome.
It also provides that any information contained in an electronic record is admissible as
evidence without the requirement of producing the original if the information is produced by
a computer.111
Again the word computer has been used hence having a limiting effect to
mobile phone. The word „produced‟ is not clear since it could be implying that as long as the
information was gathered, created or printed by a computer. Information could be gathered
from other sources say a mobile phone or could be sourced from a mobile phone but printed
by a computer.
For electronic records to be admissible, the following conditions shall be met;112
(a)the computer print-out containing the statement must have been produced by
the computer during the period in which the computer was regularly used to store
or process information for the purposes of any activities regularly carried on over
that period by a person having lawful control over the use of the computer;
(b) the computer was, during the period to which the proceedings relate, used in
the ordinary course of business regularly and was supplied with information of the
kind contained in the document;
(c) the computer was operating properly or, if not, that any respect in which it was
not operating properly was not such as to affect the production of the document or
the accuracy of its content;
(d) the information contained in the statement reproduces or is derived from
information supplied to the computer in the ordinary course of business.
110Ibid, section 65(5) (c). 111 Ibid, section 106. 112 Ibid, section 65(6)(a).
39
The evidence Act thus does not expressly provide for admission of evidence from mobile
phones. It only mentions a „computer‟. This limits the use of technology. This should be
amended to include electronic gadgets like mobile phones.
According to the Kenya Information and Communications (Dispute Resolution) Regulations
2010 the disputes that the CCK will adjudicate upon include disputes between a consumer
and a service provider (a licensee of the CCK) and between a service provider and another
service provider.113
The commission also has the power to hold hearings, inquiries and
investigations where it considers appropriate. After which it shall make a decision in writing
stating reasons for the decision, which shall be dated and signed.114
There is a provision for appeal if one is not satisfied with the decision of the Commission, to
the Appeals Tribunal established under regulation 102 of the Regulations within 15days of
the decision. The procedure for instituting a complaint with the Commission is very similar to
that in civil proceedings, though the Commission has the power to disregard technicalities if
it deems it appropriate and if in so doing it will not cause injustice to either of the parties.
The definition of "dispute" for the purposes of the Regulations is: any matter that is in
contention between a licensee and another, a consumer and a licensee, where one or both
parties is aggrieved by the conduct of the other and the parties have failed to reach an
amicable resolution after due effort has been made.115
The Kenya Communications (Electronic Transactions) Regulations, 2009were made by the
Minister of Information and Communications in consultation with the Communications
Commission of Kenya , in exercise of powers conferred by sec 83R of the Kenya
Communications (Amendments) Act, 2009 which is an amendment to the Kenya
Communications Act of 1998.
A Certification Service Provider will be licensed in accordance with the Kenya
Communications (Licensing and Quality of Service Provider Service) Regulations, 2009 and
shall operate and provide advanced electronic signature certificate management services to
the terms and conditions set out in the licence and under these Regulations.116
113 The Kenya Information and Communications (Dispute Resolution) Regulations 2010, Regulation 3. 114 Ibid, regulation 8. 115 Ibid, regulation 2. 116 Kenya Communications (Electronic Transactions) Regulations, 2009 regulation 3.
40
An applicant for a license must have a certification practice statement approved by the
Commission; and undergo and pass an initial audit before grant of the licence.117
An applicant for a license should be a company registered in Kenya; take out adequate
insurance, in accordance with guidelines published by the Commission from time to time,
against liability for loss for claims arising out of any error or omission on the part of the
applicant, its officers or employees; have a paid-up capital of not less than amounts to be
determined by the Commission from time to time and provide a performance bond or
banker‟s guarantee in favour of the Commission as determined by the Commission.118
A Certification Service Provider (personnel) shall take all reasonable measures to ensure that
every certification personnel is fit and qualified for the services provided; has not been
convicted of fraud, theft or any offence under the Act, Amendment Act or these Regulations;
is not an undischarged bankrupt or has entered into a composition or scheme of arrangement
with his creditors; has knowledge of the relevant provisions of the Act and these Regulations.
He should also be conversant with the Certification Service Provider's certification practice
statement; in possession of the relevant technical qualifications, expertise and experience to
effectively carry out his duties; and be in possession of any other qualifications that the
Commission may prescribe.119
Every licensed Certification Service Provider shall ensure that in the provision of its services
it materially satisfies the security guidelines that may be issued by the Commission from time
to time. In determining whether a departure from the security guidelines has occurred,
reasonable professional judgment shall be exercised as to whether a condition that does not
strictly comply with the guidelines is or is not material, taking into consideration the
circumstances and the system as a whole.120
There is the provision of a banker‟s guarantee or a performance bond in favour of the
commission as may be determined by it. A banker‟s guarantee is a commitment by the
guarantor to pay a certain sum of money to the beneficiary within a specified period of time if
those subscribing to its services fail to fulfil their contractual obligations under a given
transaction whereas a performance bond goes towards guaranteeing satisfaction and
117 Ibid, 2009 regulation 4. 118 Ibid, regulation 5. 119 Ibid, regulation 6. 120 Ibid, regulation 14.
41
completion of service provided as such there should be compensation for loss arising from
anything to the contrary.
The Kenya Communication (Consumer Protection) Regulations 2009 are aimed at protecting
consumers of telecommunication services from injury resulting from their dealings with the
telecommunication service providers.
They provide that the licensee is to inform subscribers about a particular risk of a breach of
security of the network.121
The regulations seek to protect consumers‟ rights which are not backed by the consumer
protection legislations although the Commission has not set out these consumer rights in the
Regulations.122
Regulation 10 provides for the licensee to establish content blocking systems that creates a
high duty of care for a licensee to ensure that no unlawful data passes through its system.
This ensures that the consumers‟ information is secure and private.
There is an Obligation on the service provider to submit a system of outage credits to be paid
to a subscriber for a period of time when his service is not operating for reasons not caused
by the subscriber.123
It also requires the service providers to deliver a code of commercial practice to all
subscribers within 3(three) months; to ensure that consumers are aware of how commercial
business is conducted by their service providers hence they will be capable of knowing when
they are wrong and when the service providers are wrong. This reduces liability on the part of
the service providers for a consumer‟s ignorance in case of a dispute.124
The regulations also require service providers to submit their subscribers‟ service agreements
to the Commission for approval.125
This aims at protecting consumers from unfair contractual
agreements especially in relation to Mobile Money Transfer Services and Mobile Money
Payment services which are at present mainly regulated by contractual terms between the
service providers and the consumers due to lack of laws and regulations to regulate them.
121 The Kenya Communication (Consumer Protection) Regulations 2009, regulation 4. 122 Ibid, regulation 7(5) (a). 123 Ibid, regulation 12. 124 Ibid, regulation 13(4). 125 Ibid, regulation 14(1).
42
Regulation 15(2) requires each licensee to establish a system to inform subscribers that
information is being collected about them. The subscribers have to approve this and are at
liberty to decline such collection of information about them.
The regulations also require the service providers to install billing systems to issue bills with
detailed rates, durations, charges and discounts for each call so that the consumers can know
when they are being over charged.126
This also forms a record on the transactions the
consumer undertook and forms part of the evidence required to be adduced in case of a
dispute.
Under the Kenya Communications (Importation, Type Approval and Distribution of
Communication Equipment) Regulations 2010, Regulation 2 which is the interpretation
section, while attempting to define “type approval” gives an impression that there are national
standards which the equipment must meet for the equipment to be specifically approved. It is
imperative that the “national standards” referred to be specifically stated as a matter of fact so
that there can be certainty. For example, the regulations can state that the equipment must
meet the standards of Kenya Bureau of Standards (KEBS).127
It defines “type approval”
means a method of checking the compatibility of communications equipment with any
operating communication network and the conformance of such equipment to national
standards.
Regulation 3 lists the type of equipment subject to type approval and includes all network
equipment and communications equipment. The Commission shall grant type-approval for
each type of equipment once and subsequent users of the same model of equipment shall not
apply to the Commission for type approval:
Regulation 5 provides that the Commission is under no obligation to return to the applicant
any samples of equipment submitted for the purposes of type approval and acceptance. This
has implications that will be discussed in the ensuing parts of this chapter.
Regulation 6 provides that The Commission may, conduct inquiries to determine whether
technical standards from other countries or jurisdictions should be recognized in Kenya for
purposes of exempting any equipment from type approval or testing requirements.
126 Ibid, regulation 20. 127 Njaramba Gichuki (2013), supra p.241.
43
Under regulation 9, the samples of equipment submitted should be in a good working
condition; properly configured for testing and complete with the necessary test adapters; and
clearly marked with the trade name, model and serial number.
According to regulation 23 an authoritatively officer of the Commission may at any
reasonable time enter any premises on which a supplier, importer or distributor is keeping the
importer communications equipment for purposes of inspecting the equipment if this
provisions is practiced, it is will ensure that the equipment that is faulty and does not meet the
required standards is not distributed in Kenya. This in a way protects consumers. The
regulations cover other important aspects like, display of type approval label for terminal or
equipment, revocation of type approval of device, conditions for importation and distribution
and import and sale restrictions.
The 1998 Kenya Communications Act was amended in part IV to include electronic
transactions. This was in the Kenya Communication (amendment) Act 2009. Both the 1998
and the 2009 Kenya Communications Act outlaws the operations of the Communication
systems and the provision of communication services without a license from CCK.
The systems and services targeted here include Telecommunication, Postal/ courier,
Broadcasting and Electronic transactions
This will imply that banks require licensing from CCK to conduct electronic transactions. But
disquiet arises as to whether banks require CCK license to conduct Mobile Money Transfer
Services and Mobile Payment Services this being so because the regulation of banks is not
within the ambits of the CCK‟s jurisdiction.
The previous 1998 Act did not provide for regulation of electronic transactions and neither
does it provide for Mobile Money Transfer Services and Mobile Payment Services.
It is through the amendment that led to the 2009 Kenya Communications (amendment) Act
that electronic transactions are provided for. In its definitions section, mobile phones and
Mobile Money Transfer Services have not been offered a definition. It‟s the definition of a
computer that has been provided instead128
and the Act thereby goes on to limit itself to
128 Section 4,“computer” means any electronic, magnetic, optical or other high-speed data processing device or
system which performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or
optical impulses, and includes all input, output, processing, storage, software and communication facilities
which are connected or related as a system or network.
44
electronic materials in computers as opposed to those in mobile phones. This is why the
Mobile Money Transfer Services remain unregulated by the Act. The Act also defines
computer service and computer system.
Some sub-sections under section 83 in part IV will give an insight as to how and whether
Mobile Money Transfer Services are covered within it.
The functions of the commission in relation to electronic transactions include;129
1. Facilitating electronic transactions by ensuring the use of reliable electronic
records.
2. Facilitating electronic commerce and eliminate barriers to electronic
commerce.
3. Promoting and facilitating efficient delivery of public sector services by
means of reliable electronic records.
These functions are general to commerce. Section 83 J recognizes the formation and validity
of contracts electronically. Mobile Money Transfer Services are contracts that are performed
electronically, it is unfortunate, and however, that the section does not refer to mobile phones
so as to cover these transactions.
The act offers the recognition of parties of electronic messages for the acknowledgement of
receipt in electronic form. It also provides for legal recognition of electronic signatures.
All these sections and many more do not specifically cover mobile phones as they restrict
themselves to computers alone. If, however, these provisions were amended to cover mobile
phones too, then both Mobile Money Transfer Services and Mobile Payment Services would
be adequately covered.
Only two sections specifically refer to mobile phones, section 83 G makes it an offence for a
person not being a manufacturer to reprogram mobile phones while Section 83 H makes it an
offence for a person to unlawfully posses any material that can be used for reprogramming a
mobile phone. The section also makes it an offence for a person to distribute or manufacture
equipment specifically meant for interfering with the operations of a mobile phone.
Section 16(1) of the Banking Act is seen to restrict taking of deposits only to licensed
institutions. They will be in contravention of this provision too. Section 16(5) raises a
contradiction on whether mobile money transfer service providers can be seen to be in the
129 Kenya Communications (Amendment) Act 2009, section 83C.
45
deposit-taking business as it clarifies that such a business should be one that lends money to
others from the deposit or one that uses the deposit wholly or partly to finance its activities.
This provision operates to exclude mobile money transfer service providers and mobile
payment systems from the scope of The Banking Act as they don‟t lend out money / deposits
to other persons.
3.3 SHORTCOMINGS IN THE REGIME
3.3.1 The Existing Laws
The CCK regulates mobile phone business in Kenya. However, it is neither sufficiently
competent nor qualified to regulate the Mobile Money Transfer Services sector on its own.
This is because the services involve some banking aspects and information and technological
aspects that may be beyond the expertise of CCK. Besides, the convenience of the services
might have made the financial service regulators to overlook the legal risk issues involved.130
Although the services are very instrumental in commercial transactions today, it should be
governed and regulated by our laws so as to curb the vices that are bound to be associated
with Mobile Money Transfer Services. However the current regulatory regime has its own
deficiencies and loopholes that regulatory reform need to address, as discussed below.
In Kenya communications (Amendment) Act 2009, Mobile Money Transfer Services are
unregulated. Amendments to the Act are required to provide for the same. The previous 1998
Act did not provide for regulation of electronic transactions and neither does it provide for
Mobile Money Transfer. In its definitions section, mobile phones, Mobile Money Transfer
Services and Mobile Payment Services have not been offered a definition. It‟s the definition
of a computer that has been provided instead and the Act thereby goes on to limit itself to
electronic materials in computes as opposed to those in mobile phones.
The act also fails to define the term commerce. The communications commission has not
fulfilled all its functions as there is no even legal framework established by the commission
to minimise incidences of forged electronic records and fraud in electronic commerce and
other transactions.
130 Njaramba Gichuki (2013) supra, p. 236.
46
The Kenya Communications Regulations, 2001, besides recognizing electronic transactions
in the definitions section, it does not have provisions regulating the use of MMT service nor
its definitions.
The regulations do not set minimum standards which the equipment used by the
telecommunication companies must meet for it to be type-approved, a process done only once
on the equipment. If company buys old equipment it need not apply for another type approval
on the equipment as long as the equipment has been approved before. This is a loophole
because equipment does become faulty with age. There is also the normal wear and tear of
equipment that the regulations overlook. The regulations do not either provide for inspection
due to the fact that equipment does wear out after a long time of use, and the fact that the
equipment requires proper maintenance which should be inspected to ascertain.
The Regulations also give persons who are in doubt about working condition of any
equipment to submit a complaint to the Commission. Here the ordinary consumers are not in
a position to have knowledge about the working conditions of the equipment used. The
employees are in better positioned to have this knowledge but very few are willing to act
against their employer‟s wishes. The Commission should regularly conduct inspections of the
equipment.131
Moreover there are no provisions on a body to type – approve the equipment (mobile phone)
used by the consumer, only the equipment used by telecommunication companies.
The Kenya Communication (Consumer Protection) Regulations 2009 seeks to protect
consumers‟ rights which are not backed by the consumer protection legislations although the
Commission has not set out these consumer rights in the regulations. It requires the service
providers to establish a content blocking system, which ensures that the consumers‟
information is secure and private. This has been criticized by the telecommunication service
providers as setting a high duty of care on them.
In the Evidence Act, it can be a very difficult task to adduce sufficient evidence to support
facts in issue involving MMT Services because the transactions are conducted through media
and there are no paper records to adduce in courts. Moreover, information on some
transactions is deleted immediately with an aim of protecting consumers‟ privacy since
131 Njaramba Gichuki (2013) , supra p.240.
47
unauthorized persons may read this message in the mobile phone. On the other hand it raises
a dispute since the consumer will not have evidence to adduce in court.
Where hackers, password stealers, key loggers and the like are involved it becomes difficult
for the consumers to prove that they are not the ones involved in or authorized the transaction
more so where the consumers password and authorization codes have been used.
The act also provides that any information contained in an electronic record is admissible as
evidence without the requirement of producing the original if the information is produced by
a computer.132
Again the word computer has been used hence having a limiting effect to
mobile phone. The word „produced‟ is not clear since it could be implying that as long as the
information was gathered, created or printed by a computer. Information could be gathered
from other sources say a mobile phone or could be sourced from a mobile phone but printed
by a computer.
In the Kenya Communications (Importation, Type Approval and Distribution of
Communication Equipment) Regulations 2010, provides that the Commission is under no
obligation to return to the applicant any samples of equipment submitted for the purposes of
type approval and acceptance. In some circumstances this might be really unfair since some
equipment may be very expensive. This also means that telecommunication companies may
be required to buy equipment in pairs, one to be submitted as a sample for type approval and
the other for their personal use since there is likelihood that the equipment they handed to the
Commission as a sample will not be returned to them. The companies will incur a lot of
expenses in such a situation and their only alternatives is to increase their so as to recover
their cost and this will affect the consumers greatly.133
Even though the dispute resolution powers are with the commission and maybe faster than
ordinary courts, it would have been made faster by removing the intricate and detailed
procedure since some of the laid down procedure maybe unnecessary due to the fact that it‟s
meant to be speedy, convenient and simple dispute resolution. The parties may not prefer the
commission in place of court because the difference is insignificant.
In 2006, the Kenya ICT Policy was published to promote electronic commerce and other
electronic services such as mobile banking and mobile transactions. But the country still
132 Evidence Act section 106. 133 Njaramba Gichuki (2013) , supra p.241.
48
lacked a clear framework for electronic transactions, which it needed to participate
effectively in the new internet economy. It needed an appropriate and comprehensive
information bill to address the specific details of electronic transactions including the critical
laws for this sector. Though Kenya‟s government did publish the Electronic Transactions Bill
of 2007 to address electronic commerce issues such as recognition of electronic transactions
and electronic signatures, it has not enacted the Kenya Information and Communications Bill
of 2007. Many interested parties including mobile operators, merchants, banks, entrepreneurs
and consumers want to see the accurate and inclusive ICT enacted soon, to enhance trust in
electronic transactions and more specifically, mobile transactions.
3.3.2 Privacy and Data Protection
Due to the convergence of the industries i.e., mobile money and banking, consumer
protection policies are not specific to the needs of mobile transfer services. In this case
privacy is of great concern although not one that the Kenyan market has highlighted.
Transactions and personal data are transmitted through mobile phone networks, handled more
often by third parties such as agents, and accessed remotely by customers and financial
institution employees, the risk of inappropriate access and usage rises.134
The main concern has been over the users Identification, geographic location and the value of
their transaction. Kenya‟s current legislation does not define who can get access to a mobile
money trail and how, when or under what conditions such access may be obtained. This
complicates efforts to keep consumer information private while at the same time conflicts
with the desire for regulators to keep customer funds safe against financial crimes. In
addition, the privacy regulations that apply to banks in respect of customer financial records
do not extend to Mobile Network Operators.135
While MNOs report having instituted internal controls to minimize unauthorized access to
consumer information, consumers simply have to trust the MNO to ensure that these are
observed. In this context, simple and transparent mechanisms are needed through which users
can authorize an entity to access this kind of information. Proper data protection laws need to
134 Joy Malala (2013), Consumer Protection for Mobile Payments In Kenya: An Examination of the Fragmented
Legislation and The Complexities it Presents For Mobile Payments , P.34. 135 Ibid.
49
integrate mobile money data or other information emanating from money transfers and ensure
that such data are not used for undesirable activities in the framework of general legislation
on data retention and privacy. Currently, the licensing requirements for communication
services mandate MNOs to provide access to user phone records in response to a legal court
order, but this does not explicitly cover mobile money records. As a result, who can access an
individual‟s mobile money records, when and for what purpose is not clear. Kenya‟s Draft
Regulation for the Provision of Electronic Retail Transfers attempts to address the issue of
privacy by mandating a provider to maintain confidentiality of all consumer information.136
3.3.3 Prudential regulatory issues in mobile money
Prudential regulations are aimed at dealing with risks to individual financial institutions and
systemic financial risks. Have a liquidity problem, save in the case of massive fraud.
However, the banks and the banking system can generate risks to users of mobile money
services.
The fact that a large total deposit of all the mobile money users is placed in a commercial
bank means that the system depends on the quality of the bank. MNOs are required to have
deposit insurance to protect their aggregate deposits. In the case where deposits exceed the
total deposit insurance, then there may be an issue as to who would repay depositors in the
case of a bank failure. A direct solution would be to require MNOs to maintain deposit
insurance up to the total value of all deposits. Moreover restrictions are not placed on what
these deposits can be invested in by the bank that is tied to the aggregate deposit nor is there
the rule that split their deposits across multiple banks to diversify bank risk.
Mobile money deposits are already operationally ring-fenced from the MNOs accounts but a
legal framework to protect these deposits from bankruptcy of the MNO is not yet in place.
The legal and accounting treatment should require that the overall deposit be protected both
from the MNO and its creditors. Adequate financial controls and regular audit are important
to enforce this.
3.3.4 The Monetary Policy
136 Ibid.
50
Developments in the mobile money can affect the outstanding supply of money. To the extent
that increases in mobile money balances represent a shift away from cash to deposits as
opposed to a shift from bank deposits to mobile money deposits, which seems unlikely, this
will increase the monetary multiplier. Such changes in the deposits, which are likely to occur
around holidays and harvests could affect the outstanding supply of money.
It is possible that mobile money could lead to an increase in the velocity of money. If mobile
money allows users to make transactions at a faster pace than usual, perhaps due to reducing
the logistical constraints of distance, then this could increase the velocity of money.
Reporting of monthly transaction and deposits into mobile money is required by the current
legislation, so the information required to monitor this is already at the MNO for use by the
regulator.
More generally, trends in the development of mobile money may in future need to be
included in estimates and forecasts of money growth and demand, and taken into account in
monetary policy through the central bank‟s management of the money base. This may affect
total money or inflation directly, given its size.
3.3.4.1 International Money Transfer
One of the frontier topics in mobile money is the emergence of cross-border interoperability
to facilitate international remittances. If not well regulated this is one avenue for money
laundering and terrorism financing which is a serious vice associated with mobile money
transfer. Moreover, The EAC with its increasing economic integration is well placed to tackle
these challenges to further facilitate international remittances at low costs. However, the
issues are not simple, involving limits on transactions, and currency controls.
3.4 THE CHALLENGES FOR REGULATORS
A common justification for the regulation of financial services is the need to protect the
consumer and other players in the economy. Such protection is wide and diverse and presents
the authorities with a range of challenges. One challenge is to design policies which take
appropriate account of the interests of those consumers who might be described as
disadvantaged.137
The convergence,138
of telecommunications and finance has given rise to
137 Peter Cartwright, „ The Vulnerable Consumer of Financial Services: Law, Policy and Regulation‟, T
Wilhelmsson “The Informed Consumer v the Vulnerable Consumer in European Unfair Commercial Practices
51
regulatory challenges for regulators. The limited regulatory intervention in these hybrid
business models has been left to market forces with only minimal general product regulation
such as consumer safety. In marked contrast, both telecommunications and financial firms
have been subjected to significant sector specific regulations. The ownership of MNOs is
restricted to multinational corporations, who have to invest heavily in getting their services to
serve the Kenyan population and on the other hand, banks have to raise the minimum capital
requirements.
The beginning of this convergence raises questions about the regulatory regime the industry
will face. The split in responsibility makes it difficult for regulators to take a strategic view of
priorities across the entire retail financial services sector. Decisions are driven by different
legal duties and powers of individual regulators. The existing laws do not provide a sufficient
legal setting for the mobile money sphere. These are some of the challenges that regulators
will face when establishing regulations in a jurisdiction that does not have consolidated
consumer protection legislation such as Kenya.139
3.4.1 Different Objectives for Regulation of the Sectors
The main objective of regulating MNOs is to ensure that consumers are protected from
operators reducing output to increase prices on low quality services.140
The other objective
should be to ensure that the new population included in the mobile money ecosystem is
protected. A third objective would be for financial institutions to ensure that the money
pooled in the mobile money ecosystem does not cause systemic risks in the long run. The
convergence of these industries makes regulation more difficult as there is a need to
determine which objectives to pursue and how to accomplish them now that several
industries provide multiple services.141
3.4.2 Inconsistencies in Regulation Resulting from Traditional Separation
Law – A Comment” in G Howells, a Nordhausen, D Parry and C Twigg-Flesner (eds) Yearbook of Consumer
Law 2007 (Ashgate, 2007) 211 at p 213. Convergence here shall be used to mean the hybridised business model where two sector specific industries
are merged to provide a service. 139 Joy Malala (2013) supra p.34. 140 Blackman, C. (1998). Convergence Between Telecommunications And Other Media: How Should
Regulation Adapt? Telecommunications Policy, p. 163-170. 141 Joy Malala (2013) supra p.35.
52
A regulatory vacuum is created due to the interconnectedness of telecommunications and
finance. When none of the existing government agencies has issued regulations on the new
services, the regulations could fall under the jurisdiction of two or more agencies which leads
to jurisdictional conflicts. MNOs are supervised by the CCK while retail payments provided
by banks are regulated by the CBK. In trying to resolve this, in the UK, for instance wired
television was under the jurisdiction of Oftel142
while the independent Television
Commission (ITC) regulated wireless television. When a service such as British Interactive
Broadcasting emerged conflicts arose,143
this type of problem eventually led to the creation of
the converged regulator Ofcom.144
3.4.3 Regulatory Arbitrage
When there are multiple regulators, companies can select the ones that advance their interest
the most. This could mean they select, for example, the most lenient regulator or take
advantage of the rules that most benefit them. This is problematic when regulation does not
yet exist for emerging convergent services that could fall under the supervision of more than
one regulator. In the presence of these alternatives they can choose the one that would entail
the least regulation, which may not necessarily be the best option for society or the industry
as a whole. It could be argued that multiple regulators are desirable because they can foster
institutional learning by eliminating obsolete legal models and expanding desirable ones. This
argument, although theoretically feasible, may not be practically possible. This is because the
interests of companies are not aligned with those of the government. Companies want to
maximize profits while governments aim to maximize societal welfare. The rules that
companies may wish to have applied to them do not necessarily lead to benefits for society.145
3.4.4 Uncertainty
The inability to reliably forecast the future due to rapidly changing technology, which has
given rise to unforeseen new products and services is another challenge for regulators.
142 The Office of Telecommunications (Oftel) (the telecommunications regulator) was a department in the
United Kingdom government, under civil service control, charged with promoting competition and maintaining
the interests of consumers in the UK telecommunications market. It was set up under the Telecommunications
Act 1984 after privatisation of the nationalised operator BT. 143
Collins, R., „Back To the Future: Digital Television and Convergence in The United Kingdom.‟
Telecommunications Policy (1998), 22:4-5, 383-96. 144 Ibid, The Office of Communications, commonly known as Ofcom, is the government-approved regulatory
and competition authority for the broadcasting, telecommunications and postal industries of the United
Kingdom. 145 Joy Malala (2013) supra, p. 35.
53
Regulators can only issue rules for the problems faced today, but it is always possible that
these rules will cause problems when new technologies become available. This is what
mobile money services have brought forth. The regulator then has to decide whether to do
nothing or to intervene. In light of this continuous innovation, regulators need to find
regulatory frameworks that allow them to cope better with uncertainty.146
3.4.5 Which authority should regulate what?
The current regulatory environment is immature in terms of how its governing and providing
guidance to the MMT industry. Regulators are still debating the fundamentals. How will such
transactions be taxed? What is the legal status of “money” that is stored on a mobile phone,
awaiting redemption by a local merchant, whose contract is with a telecom? How will “know
your customer”147
rules apply to people who may have no official government document
establishing identity? How can regulators assure a level playing field for all companies that
wish to compete? How will consumers be protected from possible fraud? In the event of a
technology failure, who is responsible for losses, the maker of the technology or the
organization that uses it to make transactions?148
A major issue in many nations, for example, is simply how to classify mobile-money activity
for regulatory purposes: If the system is run by a telecom, should it be regulated by
telecommunications authorities? Or by those who otherwise would supervise banks? Not only
do the answers vary, but so do ideas about how to ask the question.149
Perlman, of the South African Wireless Application Service Providers Association, agrees
and says,
“When it comes to regulatory ideas and practices, what we’ve got now are islands of
excellence that don’t talk to each other.”
146 Ibid. 147 Know your customer (KYC) refers to relevant information from their clients for the purpose of doing
business with them. The term is also used to refer to the bank regulation which governs these activities. Know
Your Customer processes are also employed by companies of all sizes for the purpose of ensuring their
proposed agents', consultants' or distributors' anti-bribery compliance. Banks, insurers and export credit agencies
are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify
their probity and integrity. 148 “A Continuing Challenge: Regulating Mobile Money and Keeping It Secure,” found at http://mobile.banking.s3-website-us-east-1.amazonaws.com/chap128227.html- accessed on 8/04/2014. 149 Ibid.
54
Some argue that mobile money should be regulated according to the companies involved, that
it should be institution based telecommunications regulators should deal with mobile phone
operators, bank regulators should supervise financial institutions, and so on. Others, however,
believe that regulation should be transaction based. As Michael Klein and Colin Mayer wrote
in 2011 in their working paper for the World Bank,150
“Whether a telecommunications company or a bank is leading the effort sheds little
light on the precise risks associated with a particular mobile-money scheme.”
With the situation in Kenya there are lots of questions about compliance as standards are
being set. Compliance with laws aimed at preventing money laundering or aid to terrorism
can be very expensive.151
3.5 CONCLUSION
It is clear that the current regime, as this chapter brings out, does not support nor adequately
regulate MMT services together with other mobile money services. There is a huge
deficiency that creates loopholes that might be taken advantage of by those with criminal
intent. Such rogue individuals often exploit the loopholes by taking advantage of them to
propagate vices related to mobile money as discussed in the previous chapter. The regulators
need to be well informed of this areas that are exploited to help them put in place adequate
measures to seal them. However in the process there are a number of challenges involved as
has been discussed under this chapter. The following chapter will thus provide
recommendations on what should be done in what area so as to adequately put MMT services
properly in the realms of regulation.
150 Ibid. 151 Ibid.
55
CHAPTER 4
RECOMMENDATIONS FOR NECESSARY REFORMS AND
CONCLUSION
4.1 INTRODUCTION; ATTEMPTS TO REGULATE
In Kenya, mobile financial services have evolved in a largely undefined regulatory space.
The Central Bank of Kenya (CBK) has been informed and watchful, and has provided
oversight and deliberate guidance from the very beginning of the industry. The relationship
between the CBK and Mobile Money Service Providers has evolved through willing
collaboration and innovation in an entirely new domain in financial services. In this context,
the two parties have addressed emerging challenges in introduction of mobile payments
services as well as consumer protection that have attracted international interest and
recognition.
However, the consumer protection measures that exist are as yet not codified in law or
regulation in the industry. In the last few years, with the introduction of three additional
mobile money service providers152
and the huge growth of the sector, the CBK has chosen to
introduce a more formal regulatory framework over the entire branchless banking sector. The
actions taken to date include the following:153
The Proceeds of Crime & Anti-Money Laundering Act of 2009 was passed, and went into
effect July 2010;
In late 2010, the MOF and the Consumer Protection Task Force (CPT), in conjunction with
CGAP, conducted a study into consumer protection across all financial services in Kenya154
.
Their final report recommendations included: better disclosure with regard to pricing and
plain language, dispute resolution mechanisms and third-party recourse, regulations
clarifying liability and responsibility for third party agents, and public reporting of
performance;
152
The new mobile money services were approved and supervised under individual Letters of No
Objection. 153 FSD Kenya (2011), “Consumer Protection Diagnostic Study Kenya.”
http://www.fsdkenya.org/pdf_documents/11-02-22_Consumer_diagnostic_study.pdf - accessed on 3rd April
2014 154 Ibid.
56
In 2010, the telecoms regulator, CCK, issued its own consumer protection guidelines for the
telecommunications sector, which would include mobile money services;
In March 2011, the CBK issued a draft of the Retail Transfer Regulation 2011, which is a set
of comprehensive regulations for all e-money providers, including mobile money. It was the
main regulatory guideline for the sector, and further defined the players, increased the
capitalization requirements for non-bank providers, changed some of the transfer caps, etc;
Finally, in 2011, the CBK submitted the National Payments System Bill 2011, which would
put into law the framework under which all the new regulations would be governed. (This
Bill has been in the works for a few years, but opposition from the media sector has
prevented it from being put forward). The Bill covered all electronic payment systems and
instruments, including the RTGS, online and mobile money payment services, and aimed to
tighten consumer protections if a mobile or online service provider became insolvent.
In 2006, the Kenya ICT Policy was published to promote electronic commerce and other
electronic services such as mobile banking and mobile transactions. However, the country
still lacked a clear framework for electronic transactions, which it needed to participate
effectively in the new internet economy. It needed an appropriate and comprehensive
information bill to address the specific details of electronic transactions including the critical
laws for this sector. Though Kenya‟s government did publish the Electronic Transactions Bill
of 2007 to address electronic commerce issues such as recognition of electronic transactions
and electronic signatures, it has not enacted the Kenya Information and Communications Bill
of 2007. Many interested parties including mobile operators, merchants, banks, entrepreneurs
and consumers want to see the accurate and inclusive ICT enacted soon, to enhance trust in
electronic transactions and more specifically, mobile transactions.155
4.2 RECOMMENDATIONS
4.2.1 MONEY LAUNDERING AND TERRORISM FINANCING
The ease with which money moves around the world makes it easy to commit financial
crimes by those with such criminal intentions. There should be formulated a policy and
regulatory authority to establish, support, and enforce best practices against money
155 The National Information and Communications Technology (ICT) Policy of March 2006.
57
laundering and terrorist financing domestically, bilaterally, and through multilateral bodies.156
Special recommendations as adopted by the financial action task force FATF in September
2011 should be adopted by our policy makers to address terrorist financing and money
laundering. These recommendations cover money laundering, terrorist financing and the
financing of the proliferation of weapons of mass destruction.
According to the Recommendations the country should undertake a national risk assessment
to understand the money laundering and terrorist financing risks in the country and come up
with national risk-based policies, responsive to the risk assessment.157
Commercializing money laundering and facilitation of the forfeiture of illicit assets is another
step towards the same objective, and customer identification and record keeping obligations
as well as filing suspicious transaction reports and conducting enhanced due diligence when
opening an account.158
Registration of legal entities and opening an account for a legal entity
at a financial institution and the requirement to understand who owns or controls an entity is
another vital step that should be implemented.159
The final category of recommendations brought about by FATF addresses international
cooperation, including requirements to implement four international conventions.160
These
also include criteria addressing cross-border cooperation for civil and criminal investigations,
the freezing and confiscation of assets, extradition, and cooperation among supervisory
authorities.161
However a challenge for many countries is limited resources for supervision,
examination and enforcement.
4.2.2 CONSUMER PRIVACY AND DATA PROTECTION
Privacy and data protection concerns are distinct issues that arise in any electronic platform.
Due to the convergence of the industries, consumer protection policies are not specific to the
needs of MMT. In this case privacy is of great concern although not one that the Kenyan
market has highlighted. However, despite this fact, regulators have been confronted with the
156 Emery S. Kobor (2013), The Role of Anti-Money Laundering Law in Mobile Money Systems in
Developing Countries , P. 311. 157
Ibid. 158 Emery S. Kobor (2013), supra P. 312. 159 Ibid. 160 “The Vienna Convention, 1988; the Palermo Convention, 2000; The United Nations Convention against
Corruption, 2003; and the Terrorist Financing Convention, 1999.” 161 Emery S. Kobor (2013), P. 313.
58
question of how to regulate in such a manner that balances consumer rights to privacy with
the objectives of law enforcement officials who wish to combat money laundering.
Transactions and personal data are transmitted through mobile phone networks, handled more
often by third parties such as agents, and accessed remotely by customers and financial
institution employees. Here the risk of inappropriate access and usage arises. Also consumers
lack of education and lack of experience with formal financial services and technology may
raise security risks. In addition the privacy regulations that apply to banks in respect of
customer financial records do not extend to MNOs.
The MNOs need strict internal controls to minimize unauthorized access to consumer
information, simple and transparent mechanism are needed through which users can authorize
an entity to access this kind of information. Proper data and protection laws need to integrate
mobile money data or other information emanating from money transfers and ensure that
such data are not used for undesirable activities in the framework of general legislation on
data retention and policy.162
Currently, the mandate of MNOs to provide access to user phone records in response to a
legal court order makes it hard to tell who can access an individual‟s mobile money records,
when and for what purpose. Kenya‟s Draft Regulation for the Provision of Electronic Retail
Transfers (2011)163
attempted to address this issue by mandating a provider to maintain
confidentiality of all consumer information.164
Regulations should be consistent and robust enough to hold providers responsible for data
privacy, and they should be liable for privacy breaches and misuse of customer data.
Supervisors should evaluate the provider‟s risk management and mitigation systems and its
procedures to handle cases of privacy and security breach. There is need to work together to
understand security concerns and maintain the integrity of customer data.165
Organizations
should identify the data which are considered personal and sensitive and should ensure that
appropriate mechanisms are in place. In the case of financial data, data integrity should be
162 Joy Malala (2013), Consumer Protection for Mobile Payments In Kenya: An Examination of the Fragmented
Legislation and The Complexities it Presents For Mobile Payments , P.35 163 May be cited as the Retail Transfers Regulation, 2011, issued in terms of section 57(1) read with section 4A
of the Central Bank of Kenya Act which requires the Central Bank (the Bank) to formulate and implement policies to promote the establishment, regulation and supervision of efficient and effective payment, clearing
and settlement systems. 164 It stated that, “A provider is allowed to share any consumer information only with the consumers or their
authorised agent (authorized in writing), the Central Bank, in the public interest or in response to formal legal
requests.” 165 Joy Malala (2013) supra, p. 35
59
taken into account. Organizations should be found liable for unfair business practices if they
utilize customer data for purposes not included in the customer notices.166
Consumer education in Kenya has helped reduce breaches of privacy, and most mobile
money providers have taken initiative to build customer awareness and capacity to prevent
fraud by employees or third parties.
It should, however, be borne in mind that regulation should be technology neutral, since
imposition of specific standards and protocols in a rapidly evolving industry is likely to
hinder innovation. Only problems in existing businesses should be identified and
addressed.167
However a challenge arises where there is a trade-off between enhancing data security and
keeping the costs down to allow profitability of low-value financial transactions. here
providers and regulators must agree on technological platforms and business models that
align each other‟s goals and to achieve this an open dialogue between them is necessary,
particularly when there are major current regulatory obstacles to overcome.168
4.2.3 FRAUD MANAGEMENT
In order to manage fraud, mobile banking companies should implement strong fraud
prevention and detection services. This fraud service should include customer education,
strong authentication, secure mobile applications, strict account set up and management
processes, real time detective services, and round the clock customer support. Customers
should be educated on their options to prevent fraud and what to do if they suspect fraud.
Customers should be able to opt into strict process rules include limiting transaction value,
requiring dual approvers on high risk transactions, and not allowing changes to customer
sensitive data such as address or authorized transfer to individuals without strong restrictions.
Dual approver is a process that requires one person to initiate the transaction and a second
approver on a different device to authorize the transaction. Customers should be encouraged
to enrol in predefined alerts that will help in the area of fraud prevention. Other key data
166 Mobile Payments: Risk, Security and Assurance Issues, An ISACA Emerging Technology (November
2011), P. 12 167 Joy Malala (2013) , supra p. 35 168 Ibid.
60
points used in fraud prevention include IP reputation, endpoint identity, geo-location, user
history and behaviour.169
Additionally, the service should provide controls based on the transactional risk score such as
step up authentication where the customer is prompted for additional information as the
transaction initiated is more risky. Strong authentication is critical in the mobile space since
devices are easily lost and stolen. The most mature and widely deployed method is
knowledge based authentication which includes passwords, question and answer, and image
recognition. Another form of authentication can come from establishing a device identity.
There are many methods by which this can be accomplished but the essential element is to
authenticate to an ID from that specific device that is derived from attributes of that device.
While authentication through biometrics is not new, it is still challenged with issues related to
false positives. With advanced mobile device hardware such as cameras and voice
recognition, there will be increased use of biometric authentication in the use of mobile
money transfer.
4.2.4 CUSTOMER EDUCATION
One of the less technical areas of risk mitigation includes an effort around strong customer
education. There should be an established and well understood method of communication
with customers. Customers should understand that any deviations from this established
communication channel cannot be trusted. This will reduce the risks of customers falling
victim to attacks such as phishing. Customers should also have an established way to
communicate relative to suspected fraud and understand how their MNO will communicate to
them.170
There should be a basic customer education program relative to security including addressing
issues such as the importance of passwords, the structure of strong passwords, ensuring that
their device locks after a designated period of time, importance of updating their operating
system and the installed applications and implementing encryption and anti-virus whenever
possible. Additionally, if remote wipe is implemented by their carrier, the customer should be
169 Vanessa Pegueros (2012), “Security of Mobile Banking and Payments.” P.21
https://www.sans.org/reading-room/whitepapers/ecommerce/security-mobile-banking-payments-34062-
accessed on 3rd April 2014 170 Vanessa Pegueros (2012), supra p. 22
61
encouraged to implement the ability to remotely wipe their device in the event that it is lost or
stolen.171
Finally, customers should be educated on the importance of downloading from reputable sites
as well as understanding the behaviour of the application in terms of what data is gathered
and shared with potentially other services or applications.172
4.2.5 AMENDMENTS
Under the Kenya Communications Regulations, 2001, the CCK has taken the mandate of
approving the equipment used by the telecommunications companies to ensure it‟s is in good
condition. Unfortunately do not set minimum standards which the equipment used by the
telecommunication companies must meet. The type approval is done once on the equipment.
If company buys old equipment from another company it need not apply for another type
approval on the equipment as long as the equipment has been approved before. This is a
loophole because equipment does become faulty with age. There is also the normal wear and
tear of equipment and the regulations seem not to put this into consideration. The regulations
should also provide for inspection in use due to the fact that equipment does wear out after a
long time of use. They should also provide for inspection on the proper maintenance of
equipment and not merely on type approval only.173
The Kenya Information and Communications (dispute resolution) Regulations, 2010,
provides for dispute resolution through the tribunal which ought to be speedy, convenient and
simpler in approach as compared to the Courts. Thus, before the CCK has jurisdiction to
intervene, the parties must have made a good faith effort to resolve the dispute on their own
which could be achieved through mediation, arbitration or reconciliation for small disputes
with less financial implications. For detailed disputes, it could provide for direct access to the
tribunal without following the alternative dispute resolution mechanisms. This would help
maintain the commercial relationship between the parties to the dispute.174
The National Information and Communications Technology (ICT) policy of march 2006 does
recognize that there is need for comprehensive policy, legal and regulatory framework on
171 Ibid. 172 Ibid. 173 Njaramba Gichuki (2013), supra p.240. 174 Njaramba Gichuki (2013), supra p.243.
62
ICT. Further it acknowledges the lack of adequate infrastructure in ICT but does not provide
for the solutions, this should be looked into instead of it just stating what the government
intends to do. In as far as Mobile Transfer Services are concerned this policy does not offer
any assistance. However if the National Information and Communications Technology (ICT)
Policy of March 2006, achieves its goals and strategies such as promoting competition,
increased customer choice and accelerated investment through liberalization of sector and
licensing of new players in the various telecommunication service, the MMT‟S and Money
Payment Services will be faster, more efficient and easily accessible.175
4.2.6 LIABILITY
One of the unregulated issues in this sector is the matter of liability that is, who bears liability
on the incidence of a mistake. This is important to tell who should compensate in case where
a mistake has been done by either of the players in the MMT operations. Liability is not
defined in any legislation or regulations to which parties it will fall on or either the means of
determining it. It should be clearly laid down on whether the consumers will claim liability
falls on the bank or the telecommunication company; whether the bank will claim that
liability falls on the consumers or the telecommunication company and whether the
telecommunication company now will place liability on the bank or the consumers.176
Another determinant of where liability falls is the agents. However, they are not regulated by
any law and this should also be considered for reform.177
4.3 CONCLUSION
The regulatory reform should thus encompass these recommendations. These should be done
through three possible ways: thee first is by amending the existing laws so as to incorporate
these recommendations; the second is through enacting new statutes that tackle the
unregulated areas and; the last is through drafting of regulations that will deal with
deficiencies sited.
175
Ibid. 176
Njaramba Gichuki (2013), supra p.252. 177
Ibid.
63
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