Emmanuel Tumusiime-Mutebile: Regulatory challenges in the use of
ICTs to promote financial inclusion
Remarks by Mr Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda, at the
Digital Impact Awards Africa, Kampala, 21 August 2014.
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Management and Staff of Cyberplc and HiPipo (U) Ltd.
Invited Guests in your respective capacities
Ladies and Gentlemen
It gives me great pleasure to address you today on the topic of "Regulatory Challenges in
the use of ICTs to promote Financial Inclusion". At the outset, let me express my
gratitude to Cyberplc and Hipipo (U) Limited for organizing the Digital Impact Awards event.
The African Development Bank defines financial inclusion as the "provision of a broad range
of financial services such as deposits, loans, payment services, money transfers and
insurance to poor and low-income households and their Micro-enterprises". Beginning in
2006, three FinScope surveys have been undertaken in Uganda to establish the extent of
financial inclusion in the country. The latest survey, conducted in 2013, found that:
The percentage of the adult population with access to formal financial institutions has risen
from 28 percent in 2009 to 54 percent in 2013. This large increase in access to the formal
financial sector was almost entirely attributable to the spread of mobile banking.
Mobile banking has had a transformative effect on access to financial services since it was
first introduced in Uganda in 2009. There are now 17.6 million registered subscribers to the
six mobile money providers in Uganda. These customers are served by 64,000 mobile
money agents.
To date, however, the scope of financial services available through mobile banking has been
rather limited, in most cases to basic payment services, such as transferring money from one
customer to another or paying bills. Customers can also use mobile banking to save money,
as an alternative to holding cash. Money held in the form of electronic funds on a mobile
phone has analogies with a demand deposit in a bank; it is non interest bearing but
accessible on demand. However, there are undoubtedly opportunities for product innovation
within mobile banking, in particular to extend the type of services available beyond basic
payments to include savings products and possibly even loans.
In discussing the regulatory challenges which arise from growth of mobile banking, it is useful
to begin by clarifying why financial services require regulation. The main rationale for
financial regulation is prudential and involves two objectives. First, financial regulation aims
to protect the systemic stability of the banking system; that is to prevent financial crises.
Second, financial regulation aims to protect depositors, especially small depositors, whose
deposits could be put in jeopardy by reckless or fraudulent management. These objectives
underlie the provisions in the Financial Institutions Act, 2004 and the regulations issued by
the BOU under that Act, as well as the provision of deposit insurance.
The regulatory stance which the Bank of Uganda adopts towards mobile banking and other
innovations in the financial services sector must be guided by these prudential objectives.
Our basic approach is to encourage innovation in the provision of financial services provided,
and in particular to avoid stifling innovation through unnecessary regulation, provided that
such innovation does not pose any conflict with the two key objectives of prudential
regulation.
How relevant is mobile banking to the prudential objectives which motivate financial
regulation? In terms the systemic stability of the financial system, mobile banking does not
currently have the potential to pose any significant threat. This is because the magnitude of
mobile money is still very small in relation to the entire banking system in Uganda. As of
June 2014, there was a total of Shs 171 billion held on the mobile money accounts of
customers of the six mobile money operators in Uganda, but that is only 1.4 percent of the
total deposits in the banking system. Mobile money transactions constitute less than a tenth
of all the financial transactions which take place in the financial system. If one or more of the
mobile money operators were to close its operations, it would be a nuisance for its
customers, but it would hardly constitute a financial crisis.
A more serious concern is the protection of customers' money. As I noted earlier, electronic
money held on a mobile phone has similar characteristics to a demand deposit. Although the
basic transaction services offered by mobile money operators are relatively risk free, in
principle the electronic money held on mobile phones could be at risk unless there are
safeguards. The approach which the BOU has adopted, and which is similar to that of other
financial sector regulators in the region, such as the Central Bank of Kenya, is to require
mobile money operators to collaborate with a commercial bank and to hold in an escrow
account in their partner bank sufficient funds to cover all of the electronic money which they
have sold to their customers. As such, mobile money operators cannot themselves
intermediate the funds they have mobilized from their customers; they must instead transfer
these funds to a commercial bank which is subject to all the normal prudential regulations
applicable to deposit taking institutions. Hence even if a mobile money operator were to
collapse, the electronic money held by its customers could be reimbursed from the escrow
account in the partner commercial bank.
As mobile banking develops, we are likely to see a much wider diversity of financial products
made available through customers' mobile phones. Many of these products will involve
intermediation of funds rather than simply payment services. The principle which the BOU
will maintain is that only financial institutions which are licensed under the Financial
Institutions Act, 2004 can take deposits and intermediate these funds. These principles are
enshrined in the mobile money guidelines which were issued by the BOU in October 2013. If
we maintain this principle we can allow the mobile money industry to develop and innovate in
order to extend the range of services it can offer customers without putting at risk the funds
of its customers.
To conclude, I wish to congratulate all the recipients of the Digital Impact Awards today, and
wish you success in commercializing your innovations. We particularly look forward to
innovations that will promote financial inclusion, as well as the efficiency and safety of
financial transactions. I once again, thank Cyberplc and Hipipo (U) Limited for making the
arrangements for these awards.
Thank you for listening to me.