Ethiopia is creating enabling regulations ahead of Safaricom's M-Pesa launch

Ethiopia has started changing its national payments law to clear the way for Safaricom to introduce its popular mobile payment platform M-Pesa in the market of 110 million users.

According to reports, Ethiopia’s central bank has drafted a Bill that will allow foreign investors to offer mobile money services, boosting firms such as Safaricom that are seeking to start operations in the country this year.

“Foreign nationals may be allowed to invest in a payment instrument issuer or a payment system operator business, or establish a subsidiary which shall be licensed as a payment instrument issuer or payment system operator.” the State-backed Bill states.

Since its launch in 2007, M-Pesa has built a dominant base at home in Kenya and a strong presence across East Africa. Safaricom’s head Bob Collymore has in the past noted M-Pesa needed to be more innovative or risk dying, and looked to Ethiopia as a favorite destination for expansion.

Safaricom launching M-Pesa in Ethiopia would be a major coup for the Kenyan telecom. The firm is particularly attracted by the growth potential Ethiopia’s massive population offers, the second-largest in Africa behind Nigeria. The country’s 114.1-million people currently only have a mobile phone penetration rate of 51.4 percent.

The National Bank of Ethiopia (NBE) is seeking to remove the remaining legal hurdle for Safaricom through the Bill that was made public last month. “So far, there is no law that enables foreign operators like M-Pesa to acquire a licence in Ethiopia. If the new amendment is approved, it will allow M-Pesa to get a licence in Ethiopia,” Marta Hailemariam, the head of payment settlement at NBE stated.

Nations with tough regulations usually stifled the launch of mobile money services in the past, with industry watchdogs sometimes remaining wary of digital transactions and their impact on economies.

Gradually, nations are increasingly seeing how a mobile-first approach help banks in the long run. Besides, replicating Kenya’s widespread agent network in Ethiopia and quickly doing so will be a critical issue Ethio Telecom will have to sort out.

Also Read: MTN Nigeria's Momo Payment Service Bank to commence operations following CBN's final approval

In 2018, Mukhisa Kituyi, secretary general of the UN Conference on Trade and Development said that Central banks in some African countries hamper financial development by failing to get to grips with the emergence of non bank-led services.

Although operator-led services are hailed for driving access to financial services among unbanked populations in countries such as Kenya, regulation and adoption varies wildly within Sub-Saharan Africa.

Understanding the CBN Regulatory Framework on Mobile Money Services

In 2021, the Central Bank of Nigeria, CBN, released Regulatory Guidelines and Framework for Mobile Money Services in the country. According to CBN, the introduction of mobile telephony in Nigeria and its rapid growth and adoption among other factors have underscored its decision to issue the framework as it will create an enabling environment for the orderly introduction and management of mobile money services in Nigeria.

The Framework defines the regulatory environment as a policy path towards achieving availability, acceptance and usage of mobile payment services. However, the Guidelines on Mobile Money Services stated that the  Mobile Money Operators (MMOs) shall not carry out certain activities.

Such as, granting any form of loans, advances and guarantees (directly or indirectly); Accept foreign currency deposits; 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; Insurance underwriting;  Accept any closed scheme electronic value (e.g. airtime) as a form of deposit or payment; Establish any subsidiary; Undertake any other transaction which is not prescribed by these Guidelines; And any other activities that may be prohibited by the CBN.

The framework identified two models for the operation of MMS in Nigeria which are:

• Bank Led – wherein a bank or a consortium of banks are the lead initiator with the goal to leverage on MMS to provide banking services.
• Non-Bank Led – wherein a corporate body duly licensed by the CBN shall act as the lead initiator.

The framework identifies its objectives as:

1. The provision of an enabling environment for the adoption of MMS thereby reducing cash dominance in the Nigerian Economy
2. To ensure that mobile money services develop in a structured and orderly manner with a clear definition of the participants, their roles and responsibilities
3. To specify the minimum technical and business requirements for the various participants in the industry
4. To provide guidelines for the operation of MMS from implementation to completion
5. To promote safety and effectiveness of mobile money services and enhance user confidence in the services

The framework while recognizing the model wherein Mobile Network Operators (MNOs) act as initiators but it also states that model shall not be operational in Nigeria. This is to ensure the full control of the CBN over monetary policy operations, risk minimization, and to ensure that only organizations that have been licensed by the CBN are allowed to provide MMS.