Mobile Banking and Financial Inclusion: The Regulatory Lessons

This paper gives an overview of mobile banking and describes the mobile banking model using the example of M-PESA in Kenya. It describes alternative regulatory approaches to risks inherent in financial services, discusses issues related to competition and suggests a framework for regulation of mobile banking.

The paper highlights the significance of mobile banking as a means for financial inclusion. It identifies four major components of the mobile banking model, namely exchange, storage, transfer and investment of money. It mentions the basic regulations required to counter risks corresponding to each component.

The paper states that M-PESA has demonstrated the power of mobile banking to expand financial outreach. Regulatory authorities play a crucial role in promoting innovative financial services and providing the appropriate regulatory environment. Recommendations include:

• “Cash merchants” should be allowed to enter the market freely and charge market based fees for services;
• Regulatory treatment of agents depends on that of the principal;
• System integrity is the major concern regarding account providers;
• Regulators may need to inspect operational integrity of platform providers.