An Evaluation Of The Framework And Guidelines For Mobile Money Services In Nigeria

By Akorede Folarin

Introduction

In its bid to enhance financial inclusion and financial development in Nigeria, the Central Bank of Nigeria (CBN) recently released Regulatory Framework and Guidelines for Mobile Money Services in Nigeria (The Framework). According to the CBN, the success of mobile telephony in Nigeria and the quick adoption of person-to-person payments have made it critical to adopt mobile telephony as a channel to drive financial inclusion and create an enabling regulatory framework for mobile money services in Nigeria.

Scope of the Framework

The Framework (a) provides the structure for the operation of mobile money services in Nigeria, (b) specifies the basic functionalities expected of any mobile money service and solution in Nigeria, and (c) identifies and defines the roles and responsibilities of the participants in the mobile money services ecosystem, including delimiting the minimum technical and business requirements for them to operate.

The Framework specifies two models for the implementation of mobile money services provision in Nigeria, namely:

1. the Bank-Led model, with a bank or consortium of banks as Lead Initiator; and
2. the Non-Bank-Led model, with corporate organizations duly licensed by the CBN to provide mobile money services as Lead Initiator.

As such, while the CBN appreciates the importance of Mobile Network Operators (MNOs) and the infrastructure they provide in the operations of mobile money services, the Framework does not recognize the telco-led model where MNOs are the lead initiator. According to the CBN, this exclusion has been made to give the apex bank full regulatory control over monetary policies, minimize risks and ensure that financial services are driven only by organizations within the CBN’s regulatory purview. This is rather curious, as mobile money services in Africa was popularised by Safaricom and Vodafone, which are MNOs.

Operation of Mobile Money Services

Upon duly acquiring the relevant licence from the CBN, Mobile Money Operators (MMOs) can engage in the following activities, namely: (a) wallet creation and management; (b) e-money issuing; (c) agent recruitment and management; (d) pool account management; (e) non-bank acquiring; (f) card acquiring; and (g) any other activities that may be permitted by the CBN.

On the other hand, they are not allowed to (a) grant any form of loans, advances and guarantees (directly or indirectly); (b) accept foreign currency deposits; (c) deal in the foreign exchange market except as prescribed in Section 4.1 (ii & iii) of the extant Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria; (d) deal in Insurance underwriting;  (e) accept any closed scheme electronic value (e.g. airtime) as a form of deposit or payment; (f) establish any subsidiary; (g) undertake any other transaction which is not prescribed by the Guidelines; nor (h) carry out any other activities that may be prohibited by the CBN.

Savings Wallet

If an MMO intends to provide a savings wallet service i.e., a wallet earning interest, it shall notify the CBN and obtain a “no objection” approval before proceeding with setting it up. Where an MMO operates a savings wallet, on no account whatsoever shall a savings wallet account holder suffer diminution in the principal sum on his/her wallet as a result of fees or charges. Also, fees for the management of the investment shall not be more than 10 per cent of interest income on savings wallet funds investment.

With regards to the operation of the savings wallet, the MMO must expressly inform subscribers of the following: (a) the minimum balance on the savings wallet that qualifies to earn interest; (b) the allowable number of withdrawals to be entitled to earn interest; (c) the minimum savings period to earn interest; (d) the applicable balance that would earn interest; (e) the procedure for determining interest amount distributable to subscribers, which should stipulate the minimum percentage of interest income to be distributed to subscribers and the proportion to be retained by the MMO, if applicable; and (f) that the applications of the above provisions in distributing interest shall be automated.

In addition, funds on saving wallets must be invested in only the Nigerian Treasury Bills (NTB) in which case MMOs shall be treated as mandate customers of CBN for NTB subscription through the CBN NTB window.

MMOs must have a process to determine the appropriate cash balance on their Savings Wallet Principal Pool Account to meet their savings wallets customers’ withdrawal requirements at every point in time.

MMOs are also required to comply with the minimum disclosure requirements on their financial statements as stipulated by the CBN and with the relevant Know Your Customer (KYC), Customer Due Diligence (CDD) and Anti-Money Laundering (AML) requirements.

Consumer Protection

In line with the objectives of the Framework which includes ensuring user confidence in the services, the Framework contains minimum requirements that are geared towards protecting the interest of the consumers of the MMO services. Another provision of the Framework that should further protect consumers is the fact that the CBN has powers to order any MMO exiting from the mobile payments system to meet its outstanding obligations.

Reporting Requirements

MMOs are required to submit monthly reports to the CBN which include the nature, value, and volume of transactions; incidents of fraud; nature and number of customer complaints and remedial measures taken; and any other information as may be prescribed by the CBN. Furthermore, audited annual returns of the MMOs must be filed with the CBN within the first three months after the year-end or 31^st of March.

Enforcement and Sanctions

The Framework gives the CBN a wide array of powers to ensure compliance. Section 24.0 specifically provides that “the CBN may take any corrective action against the MMOs as may be prescribed from time to time”. In addition to this, the CBN may withhold corporate approvals, impose financial penalties, suspend the MMO from operation, and revoke the MMO’s license.

Conclusion

According to the Access to Financial Services in Nigeria Report 2021, at least 55% of the Nigerian population remains unbanked as of 2020. Financial inclusion is a critical ambition for many of Africa’s developing economies and the introduction of the Framework and Guidelines for Mobile Money Services in Nigeria is certainly a monumental step forward towards achieving that for the continent’s most populous nation. For a country with over 187 million mobile or SIM connections and over 104 million mobile internet users according to DataReportal, the Framework and Guidelines will no doubt go a long way to promote financial development and financial inclusion in the country.

***Akorede Folarin is a corporate/commercial lawyer with Olajide Oyewole LLP (A Member of DLA Piper Africa). He has a keen interest and developing expertise in Fintech, Capital Markets, Private Equity and Mergers & Acquisitions. He can be reached at [email protected]