The regulation of mobile money in Malawi. (III. Enabling Approach B. Regulatory Mandates through V. Conclusion, with footnotes and appendices, p. 464-497)

• Published date: 22 September 2015
• Author: Buckley, Ross,Greenacre, Jonathan,Malady, Louise
• Date: 22 September 2015

B. Regulatory Mandates

1. Best Practice

One of the best means for promoting cooperation between agencies is the establishment of strong regulatory mandates that are clear, consistent, and transparent. The responsibilities of different agencies should be discrete and clearly delineated, with well-defined roles for leadership and coordination. Terminology should remain consistent across different documents and regulatory instruments, and underlying concepts should be defined in a way that is technology-neutral in order to ensure mandates are general enough to accommodate future innovation. Roadmaps for future regulatory activity should be developed and shared between agencies to ensure that new developments can be accommodated within existing frameworks.

2. In Practice

As has been outlined above, there are a range of regulators, government departments, and coordinating groups involved in mobile money policy and regulation in Malawi including: RBM, FIU, MOF, NPC, CFTC, and MMCG. (154) The RBM takes the lead role in the supervision and regulation of mobile money, primarily through its administration of the Mobile Guidelines and its role in coordinating groups such as the E-Banking Task Force, the MMCG, and the NPC. (155) The RBM has assumed this role based on its broader mandate to regulate payments and promote the national payments system under the RBM Act. Two provisions of the RBM Act have been specifically used in relation to RBM's oversight of the mobile money sector: section 4(e) states that RBM shall be responsible for promoting a sound financial structure in Malawi, including payments systems, clearing systems, and adequate financial services; (156) and section 56 states that the Minister of Finance may, after consultation with RBM, make regulations necessary for carrying out the objectives and purposes of the RBM Act, to give force or effect to its provisions or for its better administration. (157) The E-Money Regulations will initially be mandated and gazetted by the Minister of Finance, pursuant to this section of the RBM Act.

The RBM, in collaboration with the NPC, has also outlined a clear roadmap for payments system development in the draft document Payment System Vision for 2014-2018. (158) In it, the RBM's existing mandate is made clear from the outset. Section 1 states:

 The RBM is mandated to promote and oversee the national payment
                 system in the country. The mandate is entrenched in the RBM Act
                 (1989) which empowers the RBM to promote a sound financial
                 infrastructure in Malawi, including payment systems, clearing
                 systems and adequate financial services. Based on this mandate, the
                 RBM plays a leading role in transforming the country's NPS. (159)
                

RBM proposes to provide a follow-up report on the strategies outlined in the Payment System Vision for 2014-2018 using RBM's Annual Payment Systems Report. (160) The Payment System Vision for 2014-2018 provides greater clarity, certainty, and transparency on the oversight framework for RBM for mobile money and payments systems more broadly. It is also noteworthy that the vision and strategy is considered to be a shared responsibility of all stakeholders, and that consultation with stakeholders will occur through the NPC. (161)

Plans are underway to clarify and strengthen RBM's mandate for conducting the oversight of the mobile money sector and payments systems more broadly using payments system legislation and the E-Money Regulations. (162) Payments system legislation provides transparency with respect to the oversight role of a central bank for payments systems and payments system providers, including new payments players such as mobile money providers, and can be designed to assist the central bank in meeting broader oversight objectives such as ensuring financial system stability. Payments system legislation is also a means of providing a level playing field for providers of payments services, as the legislation can be designed to be activity-focused rather than entity-focused. The enactment of payments system legislation for these reasons is now accepted as international best practice and supportive of promoting financial inclusion. (163)

3. Analysis

The Payment System Vision for 2014-2018 could be expanded to provide more detail on the proposed Payments Bill and the E-Money Regulations, both of which are in their final drafting stage. (164) In particular, the Payment System Vision for 2014-2018 refers to the Mobile Guidelines as relevant to regulating and guiding the mobile payments market. (165) However, it is planned that these guidelines will be superseded by the E-Money Regulations. (166) This development could be reflected in the Payment System Vision for 2014-2018.

Further, a draft version of the Payments Bill refers to 'mobile payments', which appears to be referring to the same concept as 'e-money' as defined under the E-Money Regulations. The term 'mobile payments' can be more restrictive than the term 'e-money' and it is recommended that the terminology in the Payments Bill be made consistent with terminology used in the E-Money Regulations. This would provide clarity in regard to what RBM is overseeing, supervising, and regulating. Mobile payments generally refer to the payments access method--i.e. e-money (which represents an underlying stored value) or deposits which can be accessed via a mobile phone; however, it is primarily the activity of issuing the e-money (or stored value) which is being regulated and supervised. Stored value can be accessed and transferred using payment methods other than mobile phones (e.g. online access via the internet or via prepaid cards). Technological innovations will continue through time, resulting in the development of new possible access channels or payment methods which have not yet been contemplated. In so far as legislation and regulations are concerned with payments access methods, legislation and regulations should be designed to operate independently of the type of technology used. This can be done by focusing on the activity itself, not on the specific payment access method used.

The Payments Bill and the E-Money Regulations should therefore be drafted so as to capture the activity of issuing e-money, where that e-money represents an underlying stored value. (167) The Payments Bill may be an appropriate place to include such provisions regarding the issuance of stored value because this stored value is accessed using payment instruments and payment systems. (168) It is common practice to issue more detailed regulations with respect to stored value pursuant to the payments law. (169)

Moreover, it is the authors' understanding that the intention is to pass the E-Money Regulations pursuant to the Payments Bill once it is enacted. We support this approach. However, we also understand that as an interim measure, the E-Money Regulations will be mandated pursuant to section 56 of the RBM Act because the E-Money Regulations may be ready for implementation prior to the Payments Bill being passed by Parliament. Should this be the case, consideration could be given to explaining these interim arrangements to all stakeholders by, for instance, providing details of these plans in the Payment System Vision for 2014-2018. This approach would clarify the path ahead for oversight arrangements for mobile money and stored value more broadly, and in particular would make it clear that RBM's regulatory mandate extends to include the oversight of mobile money.

Strong regulatory mandates will help to ensure the clear and coordinated development of mobile money regulation. Malawi's E-Money Regulations and Payments Bill are an important step in the furtherance of this aim. However, the draft provisions appear to contain inconsistent uses of certain important terms such as 'mobile money' and 'e-money.' This potentially creates a lack of clarity regarding RBM's mandate over mobile money. The Alliance for Financial Inclusion's (AFI) document, titled Mobile Financial Services: Basic Terminology (2013), may be useful to reduce inconsistencies in terminology. (170)

C. Understanding and Building Consumer Demand for Mobile Money

1. Best Practice

While mobile money has been very successful in many countries, particularly Kenya and the Philippines, mobile money roll-outs in other developing countries have been characterised by low uptake and inactive users. (171) This situation may have occurred due to a focus on broadening accessibility (i.e. through developing agent networks and mass sign-ups of end-users) rather than understanding the needs of end-users. As a consequence, development partners are now encouraging a greater focus on the demand side of mobile money, i.e. understanding the needs of end-users. (172) 172 To develop successful mobile money ecosystems, and digital financial services (DFS) (173) ecosystems more broadly, it is recognised there is a need to go beyond ensuring these products are simply available, accessible, and affordable. There is a need to ensure they have an effect, are used, and become sustainable. (174)

Financial regulators can work with industry players to understand and build consumer demand so as to better identify which market developments need to be encouraged or facilitated through policy and regulatory changes. Problems have arisen when payment providers assume that the building of a network will in and of itself lead to sufficient consumer demand for mobile money, and regulators respond only to the immediate problem of how to regulate new types of entities rolling out new payments products and services. (175) By focusing on the need to understand and promote consumer demand, regulators will assist in avoiding those problems.

Regulators can assess a mobile money product's potential for promoting financial inclusion by considering how well the initiative focuses on local context and the customer value proposition. Emphasising these two aspects in mobile money initiatives will ensure...