Ethiopia has created enabling regulations in advance of Safaricom’s M.Pesa launch

To make Safaricom’s popular mobile payment platform M-Pesa available to its 110 million users, Ethiopia has begun to amend its national payments law.

According to reports, Ethiopia’s central bank has drafted a Bill that will allow foreign investors to offer mobile money services, boosting firms such as Safaricom that are seeking to start operations in the country this year.

“Foreign nationals may be allowed to invest in a payment instrument issuer or a payment system operator business, or establish a subsidiary which shall be licensed as a payment instrument issuer or payment system operator.” the State-backed Bill states.

M-Pesa was launched in 2007 and has since established a strong presence throughout East Africa. Safaricom’s head Bob Collymore has in the past noted M-Pesa needed to be more innovative or risk dying, and looked to Ethiopia as a favorite destination for expansion.

Safaricom’s launch in Ethiopia of M-Pesa would be a coup for Kenyan telecom. The firm is particularly attracted by the growth potential Ethiopia’s massive population offers, the second-largest in Africa behind Nigeria. The country’s 114.1-million people currently only have a mobile phone penetration rate of 51.4 percent.

Through the Bill, which was published last month, the National Bank of Ethiopia (NBE), is trying to remove any legal obstacles for Safaricom. “So far, there is no law that enables foreign operators like M-Pesa to acquire a licence in Ethiopia. If the new amendment is approved, it will allow M-Pesa to get a licence in Ethiopia,” Marta Hailemariam, the head of payment settlement at NBE stated.

Mobile money services were often blocked by countries with strict regulations in the past. Industry watchdogs are sometimes cautious about digital transactions and their effect on economies.

As nations see the benefits of a mobile-first approach to banking, they are becoming more aware. Besides, replicating Kenya’s widespread agent network in Ethiopia and quickly doing so will be a critical issue Ethio Telecom will have to sort out.

Mukhisa Kituyi is the UN Conference on Trade and Development’s secretary-general in 2018. said that in some African countries, the failure to recognize and address non-bank-led service growth has led to financial stagnation.

Operator-led services are often praised for providing access to financial services to unbanked people in countries like Kenya. However, regulations and adoption vary widely within Sub-Saharan Africa.

Understanding the CBN Regulatory Framework for Mobile Money Services

The Regulatory Guidelines and Framework to Mobile Money Services in Nigeria were released by the Central Bank of Nigeria (CBN) in 2021. CBN stated that mobile telephony’s rapid growth and adoption in Nigeria, among other factors, prompted it to release the framework. This will allow for the efficient introduction and management of mobile money services in Nigeria.

The Framework defines the regulatory framework as a policy approach towards accepting, using and enabling mobile payment services. However, the Guidelines on Mobile Money Services stated that the  Mobile Money Operators (MMOs) shall not carry out certain activities.

Such as, granting any form of loans, advances and guarantees (directly or indirectly); Accepting foreign currency deposits; Deal in the foreign exchange market except as prescribed in Section 4.1 (ii & iii) of the extant Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria; Insurance underwriting;  Accept any closed scheme electronic value (e.g. Airtime can be used to deposit money or pay for it; You can also set up a subsidiary.

Two models were identified by the framework for MMS operation in Nigeria.

  • Bank Led – wherein a bank or a consortium of banks is the lead initiator with the goal to leverage on MMS to provide banking services.
  • Non-Bank Led – wherein a corporate body duly licensed by the CBN shall act as the lead initiator.

The following objectives are identified in the framework

  1. A favorable environment is created for MMS adoption, which reduces cash dominance in Nigeria’s Economy.
  2. Mobile money services should be developed in a well-organized and ordered manner. This includes clear definitions of participants, roles and responsibilities.
  3. To determine the minimum technical requirements and business requirements for all industry participants
  4. To provide guidance for MMS operation from implementation until completion
  5. To improve the safety and effectiveness of mobile cash services and user confidence

While the framework acknowledges that Mobile Network Operators are initiators in this model, it also says that the model cannot be implemented in Nigeria. This is to ensure full control by the CBN over monetary policies operations, risk minimization and to make sure that MMS can only be provided by licensed organizations.

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