7 January 2013

Ethiopia: Mobile Banking Legal At Last

Without much deviation from its draft state, the long awaited directive that will allow banks and Micro Financial Institutions (MFI) to provide transaction-based mobile and agent banking services was issued, on January 1, 2013.

Now clients of banks and MFI's, offering mobile banking services, will be able to make deposits and withdrawals through their mobile phones. They can also make payments to businesses or transfer money to clients using their mobile phones.

In previous years, the NBE had turned down requests from banks to launch transaction based mobile banking, stating it needed to issue this regulatory directive.

Instead those that had the technology were limited to providing clients with mobile services, such as; book transfers, viewing balance, mini-statements, notifications and alerts, on their phones. United, Zemen and Brehan banks were among those that offered such services.

Since these features were non-transaction based, the National Bank frowned upon calling the service 'mobile banking'.

This led many banks, who had already acquired the technology to provide mobile banking, either along with their Centralised Online Realtime and Efficient (CORE) banking solutions or separately, in anticipation of the issuance of the directive.

As were mobile banking technology vendors, who had already set up shop inEthiopia, including Ireland-based M-Birr, which has signed a memorandum of understanding with ethio telecom, through its local branch. Bell Cash, an Irish company, is also in the process of setting up mobile banking with Bunna, Lion International, Oromia Cooperative and Wegagen banks.

Regulating this new system and building the capacity to regulate capital has taken time, according to National Bank officials.

The kind of mobile banking offered inEthiopiais one which makes use of agents that provide mobile banking services on behalf of mobile banking institutions. These services include; opening regular savings accounts for clients and performing 'cash in cash out' payments and transfer of funds, on behalf of the bank.

A client will have a 'mobile account' into which money is credited or debited, when using mobile banking services, according to the draft directive. The maximum balance that should be available in a mobile account, of an individual, is limited to 25,000 Br, and daily mobile banking transactions shall not exceed 6,000 Br, according to the directive.

This provision was, at one point, taken out of the draft directive, after some banks suggested that the limits should be raised to 30,000 Br and 10,000 Br, for balance and transactions respectively, according to a management team from one of the private banks.

However, the National Bank stuck to its original limits in the end.

The directive also places heavy responsibility on banks to make sure that agents comply with existing bank laws, including the 'prevention and suppression of money laundering and financing of terrorism proclamation' and 'customers due diligence of banks' directive.

Five banks, that Fortune talked to, have expressed pleasure at the issuance of the directive. They see it a great opportunity to reach 'un-banked' communities, in rural areas, and increase their deposit mobilisation.

The total amount of branches, from all fifteen banks existing in the country, is only 1,251, according to 2011/12 data.

"This is a meagre number when compared to neighbouringKenya, where the mobile service provider MPESA alone has 25,000 branches," Berhanu Getaneh, president of both United Bank and the Bankers Association told Fortune. "The directive would bring an immense contribution towards increasing the number of people with access to banking services."

Banks planning to provide mobile banking should first apply to the NBE, according to the directive. The application documents should include a detailed business plan, operational policy and procedure manual, and a risk management policy. The agents that the bank will use, and the type of agreement it will enter into, should also be clearly stated.

If the NBE approves the application, then the bank can start a pilot run that is limited to a specific area.

"It could start out with the main branch or use its own employees to test the system first," Solomon Desta, Banking Supervision Directorate director, said.

Only after 2 to 3 months of pilot testing, and prevision a detailed report to the National Bank, could the bank launch full mobile banking services. This is if NBE allows the continuation of mobile banking services based on the results of the pilot project.

Banks that previously applied for mobile banking solutions would have to reapply accordingly, according to Solomon.

Already, interested banks are putting their minds to selecting appropriate agents.

"Supermarkets, gas stations and chain businesses are especially ideal to perform agency services for mobile banking," Dagnachew Gessese, business development manager at Addis Bank told Fortune.

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