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About this book

The emergence of mobile money and other new forms of payment has changed the sovereign foundations of money. Starting as a Department for International Development funded project in Kenya, mobile money has now spread to many developing countries. This book looks at the regulatory issues that mobile money poses, and the potential risks to the financial system. It undertakes a comparative study of mobile money regimes in Kenya, Malaŵi, Tanzania, and South Africa. Although the main study is on Malaŵi, the lessons learnt are valuable to Sub Saharan Africa in understanding the regulatory issues surrounding mobile money. The main argument that this book makes is that the traditional regulatory architecture of supervising the financial services is ill-suited to supervise new forms of money like mobile money. With no requirement for a bank account, mobile money is not subject to prudential regulation. Mobile money is now considered a key developmental tool to achieve financial inclusion among the poor, rural based, unbanked, and underbanked. As opposed to traditional additive forms of financial inclusion, mobile money is transformative. In most jurisdictions where it has been launched, mobile money has largely been regulated using light-touch, with regulation following innovation. This work, however, proposes an approach based on the concept of really responsive regulation. This approach is best suited to embrace mobile money as it passes from the pre-financial inclusion to the post-financial inclusion phases of its evolution. This book will appeal to students and academics in the financial regulation field.

Table of Contents

Frontmatter

Chapter 1. Introduction

Abstract
This chapter provides a background to the book. In sub-Saharan Africa, it is not electricity, water and food that come first but the mobile phone. The mobile money service rides on the mobile phone platform. Kenya’s M-Pesa is the industry standard. It is a revolutionary form of payment which does not require a bank account. The mobile phone is used as the payment device and unlike plastic money, there is an instantaneous transfer of value. Mobile network operators are uniquely placed to offer the service as they already are in the mobile telephone business. However, existing regulatory frameworks for mobile money, which are based on the traditional architecture of financial service regulation, do not address the specific issues and challenges posed by mobile money.
Sunduzwayo Madise

Chapter 2. Introduction to Money

Abstract
This chapter provides an introduction to money. The chapter analyses the origins and nature of money, evolution of central banks and the transition from the gold standard to fiat money. The chapter then analyses the standards and qualities of money, making a distinction between economic money and legal money. The chapter also discusses the nature of the payment system and the role of its various players. Apart from providing an overview of the historical development of money, the chapter also looks at emerging forms of money and the challenges these new forms of money present. For example, most forms of digital forms of money like Bitcoin are private money and not state-regulated. Is this a signal of a shift in the sovereign foundations of money?
Sunduzwayo Madise

Chapter 3. Developments in Mobile Technology and the Emergence of Mobile Money

Abstract
This chapter analyses the development of the mobile phone and how this has uniquely led to the success of the mobile money service in sub-Saharan Africa. It provides a brief overview of the development of the telephone and the challenges faced by the landline in sub-Saharan Africa. The chapter looks at how mobile network operators developed a revolutionary solution to the remittance dilemma facing most parts of sub-Saharan Africa by developing the mobile service, as an add-on service based on the small messaging service. Using the framework developed in Chapter 2, it analyses mobile money and airtime credit as emerging forms of money. The chapter also examines how the mobile money payment system interacts with the national payment system.
Sunduzwayo Madise

Chapter 4. Different Types of Regulation

Abstract
This chapter analyses different approaches to regulation and the role of regulatory theory in the financial services. Regulation aims at correcting information asymmetry, maintaining trust in the financial system and avoiding systemic risk, or contagion, all which are considered public goods. The chapter also discusses regulatory capture and how decentralising regulatory power and can prevent capture. The chapter argues that from an economic point of view, regulation is a cost. As such that market players always undertake a cost-benefit analysis in their adherence to regulation. The chapter also analyses the concept of the regulatory space and argues that within this space, there is always an ongoing contestation for advantage. Regulation must, therefore, be responsive and reflexive considering complexities in space, time and power.
Sunduzwayo Madise

Chapter 5. Regulating Money

Abstract
This chapter analyses the regulation of money. It looks at regulation of the financial sector and the roles of central banks and financial regulators especially post the 2007 financial crisis. It looks at approaches useful in regulating mobile money and the unique challenges that regulating such an emerging service may pose. Mobile money is a financial service and a telecommunications service, straddling between the financial and communications regulators. The hybrid nature of the mobile money services therefore requires a different regulatory approach. The chapter notes that light-touch regulation has been used as the preferred model for mobile money. The chapter however argues that real responsive regulation is the approach that embraces the evolution of mobile money and its ecosystem.
Sunduzwayo Madise

Chapter 6. The Concept of Financial Inclusion

Abstract
This chapter discusses the concept of financial inclusion. Financial exclusion usually affects people on the margins of society, especially in sub-Saharan Africa. Financial exclusion is a manifestation of social exclusion. The chapter, however, argues that financial inclusion as a concept suffers from being associated with the formal financial system. Using the study of a local village bank, it calls for a redefinition of the concept to reflect local contexts existing in most parts of sub-Saharan Africa. In most parts of sub-Saharan Africa, which are not served by banks or other financial services providers, because of the proliferation of mobile phones, mobile money may provide the important interlink between the informal and formal financial system and be a driver towards attaining financial inclusion.
Sunduzwayo Madise

Chapter 7. Comparative Study of Mobile Money in Kenya and Malaŵi

Abstract
This chapter undertakes a comparative study of mobile money services in Kenya and Malaŵi (Malawi). It provides a background to the development of the M-Pesa in Kenya as a remittance system that rode on the simple and yet powerful slogan Send Home. In most parts of sub-Saharan Africa, where migrant labour still exists, remittance to families and relatives in rural areas remained a key challenge which mobile money seems to have solved. The chapter examines factors that have led M-Pesa to be very successful in Kenya but not in other jurisdictions like Tanzania. It also examines the differences in operation between telco-led and bank-led models. While telco-led models are regulated as quasi-financial services, bank-led come under the prudential ambit of financial services regulation.
Sunduzwayo Madise

Chapter 8. Malaŵi’s Existing Regulatory Framework of Mobile Money

Abstract
This chapter analyses the existing regulatory framework around mobile money in Malaŵi (Malawi) and argues that the issues faced by Malaŵi are representative of sub-Saharan Africa. In analysing the plurality of regulators involved with mobile money, it concludes that the traditional banking architecture is ill-suited for mobile money and that the plurality of regulators may lead to a lack of regulatory focus and regulatory arbitrage. The hybrid nature of mobile money is at the centre of the regulatory incoherence. Mobile money while being a financial service also is a service that rides on the rail of the telecommunication service. Since in most countries, mobile money is offered by mobile network operators, regulating it offers a challenge to the financial regulator and the communications regulator.
Sunduzwayo Madise

Chapter 9. An Alternative Regulatory Framework for Mobile Money

Abstract
This chapter proposes an alternative regulatory framework for mobile money. It emphasises the need to first delineate and delimit the regulatory arena and the key participants (mobile network operators, mobile money issuers, banks, regulators, consumers, the legal and political institutions). The chapter also argues that having a plethora of regulators is not ideal. It calls for a coherent regulatory framework where regulation can be an enabler to achieve financial inclusion. The chapter provides two possible solutions, an independent agency or streamlining existing regulators, and undertakes an analysis of the advantages and disadvantages of each. The chapter proposes setting up an autonomous agency within the central bank to regulator not only mobile money, but all forms of electronic money which are outside banking supervision.
Sunduzwayo Madise

Chapter 10. Conclusions

Abstract
This chapter analyses challenges of setting up an autonomous agency and how these can be overcome. It also outlines issues which are likely to affect mobile money, post-financial inclusion, such as service interoperability, competition and collaboration. It examines whether interest may be payable on mobile money accounts. It also looks at how the mobile money service may diversify and scale up after attaining saturation. Already there are cross links between the mobile money services and other financial products including bank accounts. The regulatory environment also needs to be ready for the emergence of multi-sector players, such as a telecommunication provider diversifying into the banking sector or vice versa. The chapter also considers consumer protection and proposes setting up a form of deposit insurance scheme.
Sunduzwayo Madise

Backmatter

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