Resolving liquidity problems in mobile money

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What Regulatory Problems Arise When Fintech Lending Expands into Fledgling Credit Markets?

This article argues that when moving into fledgling credit markets – namely communities in which a significant portion of the population has never had access to formal consumer loans – fintech lending can cause significant adverse economic consequences to the public and create significant regulatory gaps that require addressing. These economic consequences include inaccurate risk-pricing as firms determine how to accurately process and use the range of information at their disposal, as well as, potential behavioral problems leading to widespread default as members of low-income communities, particularly those without a bank account (the so-called ‘unbanked’), access formal credit for the first time. Regulatory gaps emerge because intellectual silos continue to focus on consumer credit emerging from the banking sector, not fintech. This article focuses on the spread of fintech lending in Kenya since 2012 as a case study for its broader argument and examines potential starting points for developing regulatory frameworks for fintech lending

Protecting mobile money customer funds in civil law jurisdictions

The provision of financial services through mobile phones is a powerful tool to foster financial inclusion, and thus economic growth, in developing countries. However, it raises important regulatory issues. Given the vulnerability of most potential customers of these services, the protection of customer funds is important. In common law countries, trust accounts are an effective response to these concerns. In civil law jurisdictions however, in the absence of trusts, protection of customer funds is more difficult. This paper identifies the theoretical and practical problems that regulators in civil law jurisdictions might face when trying to protect customer funds and explores how fiduciary contracts, mandate contracts and direct regulation might be used to achieve this goal. It offers a series of practical recommendations for policymakers in developing countries that provide a range of regulatory options that combine private law and regulation

Failure of mobile money services: standards for systemic risk

With an overview analysing the mobile money system, this article provides a preliminary criterion for determining potential systemic risk of collapse of a mobile money firm (MM firm). The article has two main components: first, defining systemic risk, it clarifies that systemic risk is likely to arise through a delay in returning customers’ funds from an MM firm in insolvency proceedings. Second, the article points out that determining whether this delay will have systemic consequences ought to consider diverse elements, particularly the range of components of the economy which could be impacted by the failure of an MM firm, the size of the failing MM firm, available substitutes for mobile money, and interconnections with the remainder of the economy. Future research should explore this topic in greater depth and begin developing regulatory tools that can address potential systemic consequences of failure, such as accelerated bankruptcy regimes.Accepted manuscrip

The Regulation of Mobile Money in Malawi

Mobile money describes the use of mobile phones to pay bills, remit funds, deposit cash, and make withdrawals using e-money issued by banks and non-bank providers such as telecommunication companies. This service currently exists in over 80 developing countries and is growing rapidly, particularly in Africa. It is enabling many people without access to financial services—known as the unbanked—to access an increasing range of financial services, from payments, to savings and loans. Regulatory frameworks need to respond to mobile money in two particular ways. First, regulators need to take an ‘enabling approach’, which involves a variety of activities that aim to help mobile money to grow safely. Second, regulators need to adopt a ‘proportionate approach’ when designing regulation. This means the costs of regulation to the regulator, market participants, and consumers should be proportionate to the benefits and risks of mobile money. This Article explores the challenges of translating an enabling proportionate regulatory approach into actual regulatory practices and substantive rules, using Malawi as a case study. In doing so, the Article aims to enrich our understanding of how we can design effective regulatory frameworks for mobile money

The Regulation of Mobile Money in Malawi

Mobile money describes the use of mobile phones to pay bills, remit funds, deposit cash, and make withdrawals using e-money issued by banks and non-bank providers such as telecommunication companies. This service currently exists in over 80 developing countries and is growing rapidly, particularly in Africa. It is enabling many people without access to financial services—known as the unbanked—to access an increasing range of financial services, from payments, to savings and loans. Regulatory frameworks need to respond to mobile money in two particular ways. First, regulators need to take an ‘enabling approach’, which involves a variety of activities that aim to help mobile money to grow safely. Second, regulators need to adopt a ‘proportionate approach’ when designing regulation. This means the costs of regulation to the regulator, market participants, and consumers should be proportionate to the benefits and risks of mobile money. This Article explores the challenges of translating an enabling proportionate regulatory approach into actual regulatory practices and substantive rules, using Malawi as a case study. In doing so, the Article aims to enrich our understanding of how we can design effective regulatory frameworks for mobile money

The regulation of mobile money

<p>This thesis examines the regulation of 'mobile money'. This is an electronic payment and storage service provided by phone companies ('mobile money firms' or 'MM firms'). The first mobile money service, M-Pesa, was launched in Kenya in 2007. Since then, mobile money has spread rapidly throughout the developing world, particularly across Africa. A novel feature of mobile money is its ability to serve large numbers of people who do not have bank accounts, commonly labelled 'the unbanked'.</p> <p>The thesis offers a framework, based on a functional approach, to analyse the key regulatory and policy issues that arise when customers’ funds are stored and transferred within mobile money platforms. The objectives of this framework are drawn from traditional financial regulation, such as financial stability and consumer protection, and 'financial inclusion', which involves connecting the unbanked to formal, electronic payment and storage functions.</p> <p>The thesis makes three main claims. First, mobile money operates as a shadow retail deposit system. Mobile money is 'shadow' because a customer contracts with a non-banking firm. It is 'retail' because the system meets the payment needs of individuals for ordinary transactions. And the service is a 'deposit' system because a mobile money account provides payment and storage functions which are functionally equivalent to a bank deposit.</p> <p>Second, mobile money provides these payment and storage functions, functionally equivalent to a bank deposit, through a different legal structure to that used by a bank to provide deposit account services. This structure, which is established through private ordering, comprises a set of mechanisms by which the MM firm (the 'agent' in the service) and its associates credibly commit to safeguard the funds of the mobile money customers (the 'principals') for the purposes of providing payment and storage functions.</p> <p>Collectively, these commitments require the MM firm to maintain a 1:1 relationship between cash received from customers, which is stored within the system as highly liquid assets, and 'e-money' which customers use in the mobile money service. As a result, mobile money customers face primarily operational risks, usually without the credit and liquidity risks associated with banking.</p> <p>Third, public ordering can increase the efficiency of MM firms' commitments in addressing risks in mobile money platforms through adopting an 'active' approach to regulation. In this approach, the policymaker monitors a greater range of risks and more closely than what might be expected in other comparable principal-agent relationships, such as retail investors and financial intermediaries, and depositors and banks. This approach is appropriate because unbanked customers are likely to face significant information asymmetries with MM firms and coordination problems amongst themselves. This means they are unlikely to effectively monitor a range of risks to the service caused by the MM firm and its associates.</p

Protecting mobile money customer funds in civil law jurisdictions

The provision of financial services through mobile phones is a powerful tool to foster financial inclusion, and thus economic growth, in developing countries. However, it raises important regulatory issues. Given the vulnerability of most potential customers of these services, the protection of customer funds is important. In common law countries, trust accounts are an effective response to these concerns. In civil law jurisdictions however, in the absence of trusts, protection of customer funds is more difficult. This paper identifies the theoretical and practical problems that regulators in civil law jurisdictions might face when trying to protect customer funds and explores how fiduciary contracts, mandate contracts and direct regulation might be used to achieve this goal. It offers a series of practical recommendations for policymakers in developing countries that provide a range of regulatory options that combine private law and regulation