Tanzania is one of the fastest growing mobile markets and mobile financial services are at the heart of this burgeoning sector. With upcoming regulation from the Bank of Tanzania seeking to tighten the legal and regulatory framework of the sector, this month’s updater looks at the current legal and regulatory status and its future.
Mobile financial services (M-Banking) is a term used to explain financial services delivered by way of mobile networks using mobile phones. In general, such services include depositing, withdrawing, sending, saving and transferring money as well as making payments. Tanzania has witnessed a material growth in relation to M-Banking over recent years and has been at the forefront of such services. With new legislation pending, we take a look at the current status of both the legal and regulatory framework that governs M-Banking and what one can expect from the future.
Current and future status of the legal and regulatory framework M-Banking has been touted as the solution to a large fraction of the population who have no access to customary retail banking services due to their geographical setting. Mobile phone money services in Tanzania developed in a regulatory environment without a National Payment Systems Act and the existing guidelines for electronic payment schemes are not sufficient to act as a comprehensive guide on mobile financial services. Policy and regulatory frameworks are essential when considering the M-Banking model with financial policies and regulations being areas that have shown to be quite critical, along with telecommunications, competition and e-commerce policies and regulations.
There have been recent developments in the field of M-Banking in Tanzania over the last couple of years, namely, the drafting of the Mobile Payment Regulations (MPR) and then, more recently, the signing of an interoperability agreement between three of the major Mobile Network Operators (MNOs). The
latter development is the first of its kind in Africa and further demonstrates the significance of how M-Banking is developing as an essential means of offering financial services, especially to those who do not have access to the traditional banking system.
Overview of framework
The legal and regulatory framework that governs mobile payments in Tanzania is comprised of:
- Bank of Tanzania Act 2006 (S. 6) (the BOT Act)
- Tanzania Communication and Regulatory Authority Act 2003 (the TCRAA)
- Tanzania Communication and Regulatory Authority (TCRA)
- Electronic and Postal Communications (Licensing) Regulations 2011 (EPCR)
- Electronic Payment Schemes Guidelines 2007 (the EPSG) – Mobile Payments Regulations (Draft) (MPR)
- Terms and conditions for agents and customers
Bank of Tanzania Regulations
The BOT Act was amended in 2006 to give the Bank of Tanzania (BOT) powers to administer and regulate non- bank entities in offering payment services. Section 6 of the BOT Act provides that the BOT is empowered to regulate, monitor, and supervise the payment, clearing and settlement system together with all products and services thereof as well as conduct oversight functions on the payment, clearing and settlement systems in any bank, financial institution or infrastructure service provider or company within Tanzania. In 2007 the BOT issued the EPSG which allowed MNOs to offer payment services through mobile transfer. However, these guidelines only covered risk management for banks and other financial institutions, largely ignoring the role of MNOs. From the beginning, MNOs were required to partner with banks to receive “letters of no objection” (LNOs), which enabled the BOT to guarantee that consumer funds are protected in the banking system, backed with a 100% liquidity prerequisite.
Since 2012 the BOT has taken a progressive approach to designing a regulatory framework that has considerably contributed to the growth of a competitive market where MNOs are contributing to the progression of electronic finance systems. This is considered in the MPR section below.
TCRA, TCRAA, and EPCR
Mobile phone companies in Tanzania are regulated by the TCRA, which was established by the TCRAA, and the EPCR. The main function of these two bodies, in relation to M-Banking, is to ensure that the mobile companies perform to their required standard whenever a financial transaction is carried out through their services. The TCRA and the EPCA are mainly concerned with the performance of the mobile companies alone1. The financial nature of the transaction is outside of their scope, and is usually left to the BOT to handle. Alone, these legislations would not be able to cover M-Banking as only the performance of the MNOs are considered under these frameworks.
The TCRA and the BOT enjoy a good working relationship as of this point. The TCRA and the BOT have a memorandum of understanding (MOU) between them as to the regulation of mobile money transfer services. This MOU was created purely from an administrative point of view and does not mean that they are co-regulators. However, the imminent MPR will be aimed at providing a system for regulatory and supervisory coordination between the two bodies.
Mobile Payment Regulations (MPR)
Over the past few years, with no specific regulation in place with regard to M-Banking, the BOT had adopted a “test and learn” approach in order to allow MNOs to provide mobile money services. The BOT also introduced LNOs to allow the MNOs and their relevant partner banks to provide these new services. These LNOs provided the mobile industry with regulatory support by containing performance requirements in relation to the market to guide industry players.
The BOT published the first draft MPR in March of 2012. The 2012 draft allowed MNOs to continue to receive LNOs to perform as mobile payment service providers. This early draft was critically reviewed and discussed by industry players within the country as well as abroad, which sought to improve the draft for its next alteration.
In May 2012, the BOT released a new version of the draft MPR. The main feature of this updated draft was the establishment of a licensing regime for non-banks, such as MNOs, who intend to provide mobile payments services. Future non-bank mobile payments providers will be required to obtain a licence as wholly owned subsidiary companies. As currently, the MNOs will also continue to be required to hold trust accounts with commercial banks at 100% cover.
The range of services that licensed providers will be allowed to provide is:
- account to account funds transfers;
- person to person funds transfer;
- person to business funds transfer;
- business to person funds transfer;
- business to business funds transfer;
- cash in and cash out services.
A key feature of the regulations is one of interoperability. The requirement within the draft regulations, is broadly worded and does not specify a particular mechanism for implementation, but is based on market demands. This is in line with the new interoperability agreement that has been signed in Tanzania by three leading MNO on the 4th of June 2014. This agreement is considered as one of the steps towards greater financial inclusion for the population of Tanzania. It precedes the publication of the final MPR but it demonstrates the direction that the mobile industry is headed.
The second draft of the MPR has already been reviewed and commented on and the final draft has been submitted to the Ministry of Finance. However, it will only be adopted once the National Payment Systems Act has been passed, which the BOT states is expected in late 2014. We will provide a further update in this area once the relevant legislation is finalised.
The current legal environment in Tanzania is still inadequate for M-Banking in the country. This
is because the existing laws were developed before the development of technology in relation to transactions through mobile phones, as well as failing to keep up with changes occurring in the industry. The laws were made to facilitate the traditional paper based business environment, as this was the only environment that existed at the time. Despite all this, the mobile money industry continues to progress at an unprecedented rate.
Going forward we are expecting to see the adoption of the MPR and the National Payment Systems Act, expected sometime by the end of 2014, which should alleviate some of the issues with the current system. MEBE