What happens when regulation lags behind innovation?
By Charles Kamau Wanguhu
In the development of new legislation and regulations to keep pace with innovations and developments in a sector of the economy in whose interest are the regulations? Furthermore in keeping pace with innovation should regulation be geared to maintaining status quo or enabling new innovations? What are the opportunities for capture of regulatory authorities by those negatively affected by new innovation and technology?
The M-Pesa (M for mobile and Pesa is Swahili for money) money service is a mobile phone banking service begun under the stewardship of a development agency, mobile service provider and microfinance institution. It was borne as a product to tap into the un-banked population and has been very successful in tapping the rural urban money transfer market previously held by the post office (telegraphic transfers) and the long haul courier services. The key selling points of the service have been its affordability and convenience. In addition has been the security factor while traveling, instead of traveling with large amounts of money, one could place an amount in their M-Pesa account and then withdraw it at their destination.
It has grown to become the biggest electronic money transfer service in Kenya with a customer base of five million individuals with an average 13,800 transactions a day with a value of KSh53.9 Billion (approximately US $ 69 million). It involves the transfer of money through the use of an individual’s mobile phone and if one is a member the average cost is Kshs 30 ($ 40 cents)
Like with all stories there have been losers or those who feel they have been negatively affected by the Electronic money transfer services. The commercial banks have been largely influential for lobbying for the M Pesa service to be brought under the same strict obligations that is required of them. They intimate that the current system is unfair and in M Pesa’s favour and largely claim that the mobile service provider has been essentially providing bank services while not coming under the same stringent regulations.
With approximately 11 million Kenyans having access to a mobile phone, and only approximately 4.5 million banked, M-Pesa was indeed a product greatly needed in the Kenyan market. It is worth to note that the reason majority of Kenyan population remains unbanked is due to the high charges involved commercial banks commonly charge the equivalent of US$ 3 every month for maintenance of accounts, in addition to a myriad of other charges including ATM withdrawals, cheque books and transfers. All the while offering a meager amount in interest. Banking services therefore remain out of reach for majority of the Kenyan workers in the low income bracket.
The Central Bank of Kenya (CBK) is tasked with the regulatory of fiscal matters in Kenya and as such money transfers would be seen to fall under its docket. However, the CBK of its own volition recognises that regulation lags behind innovation. Therefore the money transfer services has not been regulated by the stringent banking regulations including regulatory audits, know your customer rules, governance, reporting and risk management requirements.
However if the M-Pesa service would fall under the ambit of the stricter commercial bank regulations, then the majority of its advantages to the unbanked will be lost. It will for example increase the cost of all transactions on the service and thereby isolate its main customers.
The outcome of the government inquiry into the operations of M-Pesa is due soon and then a review of the regulatory framework only then can it be determined in whose interest regulation falls.
Regulation of Mpesa would not only be in the interest of its users but it would also offer systemic protection to the Kenyan economy. As you have stated, billions of kenya shillings has been transacted through Mpesa. Mpesa therefore, if left unregulated, has the potential of causing adverse effects on the Kenyan economy.
The kind of regulatory mechanism however should be one that still makes the service affordable to the ordinary Kenyan.
Right on Wanguhu. Good stuff. Where’s the rest of the article?
lol
Talk soon
Cee: Thanks for the comment and it is greatly appreciated. Regulation offers great stability in markets and their value cannot be gainsaid.The main gist of the article was to question in whose interest regulation should be in. While being alive to the need for regulation we should not be blind to lobbying tactics of other players.
In our current economy there have been clear instances where new regulation was brought in which clearly favoured one competitor over another BAT vs Master Mind and KBL vs Keroche are just two instances that come to mind.
Innovations with great benefits to the common mwananchi need to be encouraged and protected, for the fear of strangulation under new regulation is a real one.