The Central Bank Of Nigeria Enacts Regulations Prohibiting Mobile Money Operators From Providing Lending And Remittance Services
The Central Bank of Nigeria enacts regulations prohibiting mobile money operators from providing lending and remittance services
Financial inclusion is a critical objective for a large number of Africa's developing nations. Only 67.5 million of Nigeria's 105.5 million adults have a bank account with which to conduct financial transactions. This means that 64% of adults in the country are banked, while 36% are unbanked.
Mobile money operators, or Mobile Network Operators (MNOs), as the Central Bank of Nigeria (CBN) refers to them, are critical agents in ensuring that more people can access financial services in areas where banks are unavailable.
Mobile money is a service that allows users to store funds in a secure electronic account connected to their mobile phone number. The service enables users to store, send, and receive money via mobile devices. They can use this money to purchase goods offline or online, pay bills and school fees, top up mobile airtime, and withdraw cash from authorised agents.
The primary distinction between mobile money services and other forms of banking is the absence of the need for a bank account. The only stipulation is that you have a basic mobile phone and a telephone connection.
Due to the requirement for mobile phone numbers, telecommunications operators have been among Africa's leading operators in the MoMo space. MTN Mobile Money and Airtel Money are two of these telco operators in Nigeria.
However, the CBN is redefining the telcos' roles in this space. The apex bank published a document outlining a set of regulations that will govern all mobile money operator activities in Nigeria.
The regulatory environment for mobile money operators
According to the document, "The CBN recognizes the critical role of Mobile Network Operators (MNOs) in the operation of mobile money services and the critical nature of the infrastructure they provide." However, the telco-led model (in which an MNO serves as the primary initiator) shall not be operational in Nigeria.”
The regulation categorizes mobile money into two categories: bank-led and non-bank-led. The first model allows for the provision of mobile money services by a bank or a consortium of banks, whereas the second model allows for the provision of those services by non-bank organizations such as Paga.
Regardless of the model, MNOs must obtain a license from the CBN, obtain unique shortcodes, and adhere to Know-Your-Customer requirements during the customer registration process.
Operators can now create and manage wallets, as well as issue electronic money, under the new regulations. Additionally, they can recruit and manage agents and engage in other activities permitted by the CBN.
Additionally, they are prohibited from making loans, advances, and guarantees; accepting foreign currency deposits; or dealing in the foreign exchange market. They may, however, conduct payments and remittances through domestic channels and sell foreign currencies received from inbound cross-border remittances to authorized forex dealers.
The exponential growth of mobile money use in Africa has prompted regulators to act. Apart from providing a framework for operators, it also imposes new restrictions on their operations in Nigeria. The following are the major ones.
Protecting Nigerian Banks from MNO’s
Additionally, operators in Nigeria are unable to convert airtime to cash. In countries where MTN Mobile Money is available, users can convert their airtime to cash. Allowing telcos to do so, on the other hand, means that subscribers can recharge airtime and use it as money without incurring bank fees.
For example, MTN's sizeable customer base of nearly 60 million people in Nigeria gives it an advantage over banks, as subscribers will be able to conduct transactions using airtime and avoid bank fees.
According to Businessdaily, telcos with mobile money operations reaped significant profits in 2020 as a result of transactions conducted on their network. Nigeria recorded $428 billion in e-transactions in 2020, up 42 percent from 2019, while MoMo transactions outnumbered cheque transactions in Ghana by $40 billion in Q1 2021, according to a report by Ghanaian ICT industrialist Eric Osiakwan.
M-Pesa transactions in Kenya increased by 32.9 percent year on year to $82 billion in 2020, while the volume of transactions increased by 14.9 percent to 5.12 billion. Additionally, Orange's MoMo service saw an 18.9 percent increase in active users, reaching 19.6 million customers by the end of June 2020.
These trends in Africa indicate an increase in the use of mobile money and agency banking services due to their convenience. These figures are also concerning for traditional banks, and may explain why the CBN has restricted the provision of certain banking services by MoMo operators in Nigeria.
New limitations to banking the unbanked
Without a bank account, individuals lack access to banking services such as credit. As people continue to use mobile money services, they are accumulating a financial record that can be used to determine their creditworthiness, which in turn can be used to determine their eligibility for certain loans.
This is no longer possible because MNOs are not permitted to make loans or guarantee them, which means that the financial records built by each user are useless for lending purposes.
In other countries, such as Ghana, MTN MoMo and other mobile network operators can offer customers mobile money loans based on their financial worthiness. Additionally, users can request quick loans regardless of whether they have a bank account or not, as long as they have the MoMo pin. This is one of the reasons for Ghana's explosive growth in the space sector. Nigeria, on the other hand, does not appear to be towing this line, as regulators have stated that the telco-led model will not be viable in the country.
Possible loss of revenue for mobile money operators
The framework also limits MoMo operators to their core function, which is to provide an alternative method for people without bank accounts to access financial services. Due to the restrictions on foreign currency trade, operators such as Paga will be unable to facilitate customers' outbound remittances of foreign currency. This effectively eliminates any revenue generated by that segment of the business.
While fintechs such as Carbon, Paylater, Kiakia, and Aella Credit are permitted to offer loans to users, mobile money operators such as Paga, MTN MoMo, Airtel Money, and Firstbank's Firstmonie are not. As previously stated, MTN MoMo provides loans to Ghanaian consumers and earns revenue from them.
However, the regulations in place here have nipped that idea in the bud, ensuring that MNOs will be unable to compete with banks in that space. As the mobile money space continues to grow, the CBN's regulations will ensure that the focus remains on the fundamentals of financial inclusion and not on anything that would pit them directly against the traditional banking sector.
