Legal and Regulatory Framework for Mobile Banking in Kenya: a Case for a Regulatory Impact Assessment

Abstract

This research paper identifies and investigates the risk of regulatory failure on mobile banking industry in Kenya. The term ‘mobile banking’ is used in a liberal sense to include all mobile money services since as is being operated, mobile money services do not qualify to be categorized as a banking business under Kenya’s Banking Act. The research recognizes that mobile banking services are leveraged on cell phones which are operated by telecommunication corporations, traditionally non-banking institutions. The fact that this service involves transfer of money automatically brings the service providers under the ambit of financial regulations including the Central Bank’s financial regulations, prudential guidelines, payment system supervisors, anti-money laundering and terrorist financing prevention agencies. This is in addition to the telecommunications regulations issued by the Communications Authority. These disparate and overlapping regulatory domains pose the risk of regulatory failure which is likely to result in suffocation for this highly innovative service with the capability of providing financial access and inclusion to all, including the unbanked, the unreachable rural folk and women. The research focuses on M-Pesa service in Kenya but draws comparisons from other countries for purposes of showing the relationship between growth of mobile money services and the regulatory frameworks within which they operate. It concludes that unguarded regulatory measures may inhibit growth or encourage monopolistic tendencies. To save M-Pesa and other mobile money providers from the identified risks, this research recommends that Kenya should fully adopt and institutionalize Regulatory Impact Assessment (RIA) for all regulatory measures relating mobile money market. This is a tool for conducting a cost-benefit-analysis of the proposed regulation and assisting regulatory authorities to make the right regulatory decisions.