Kenya stands on the brink of a potential revolution in its mobile money landscape, as lawmakers debate a bill that could reshape the industry. Last Wednesday, Members of Parliament engaged in spirited discussions over the Kenya Information and Communications (Amendment) Bill 2022, a piece of legislation that aims to separate mobile money services from their parent telecommunications companies.
The bill, introduced by Elisha Odhiambo of the Orange Democratic Movement party, seeks to enhance the quality and oversight of mobile money services. If passed, it would require these financial arms to obtain separate licenses from the Central Bank of Kenya (CBK), a move that proponents argue will improve regulation and foster fair competition in a sector dominated by a few major players.
At the heart of this legislative push is the recognition of mobile money’s immense impact on Kenya’s economy. Every day, these services facilitate transactions worth billions of shillings, underscoring their critical role in the country’s financial ecosystem. The proposed changes would mandate the creation of separate accounts and reports for mobile money services, allowing for greater scrutiny and transparency.
The bill’s journey through Parliament is far from over. After its second reading, MPs will vote on whether to move it to the committee stage, where each clause will be meticulously analyzed. This process will determine which provisions remain and which might be struck down, shaping the final form of this potentially transformative legislation.
This move towards splitting mobile money services from telcos isn’t entirely unexpected. It was, in fact, a key promise in the Kenya Kwanza coalition’s election manifesto leading up to the 2022 elections. The manifesto explicitly stated the intention to break up Safaricom, the country’s largest telecom provider, into two distinct entities – one for telecommunications under the Communications Authority, and another for financial services under the CBK’s jurisdiction.
Unsurprisingly, this proposal has met with resistance from industry giants. Safaricom, whose M-Pesa service commands a staggering 95% of the mobile money market share in Kenya, expressed dissatisfaction with the idea back in April. The company argues that such a split could disrupt their operations and potentially hinder innovation in the sector.
However, regulators see potential benefits in this separation. The CBK, a strong advocate for the bill, believes it could lead to a more competitive landscape. They suggest that if controlled by the CBK, services like M-Pesa could evolve into digital banks, competing more directly with traditional financial institutions and potentially offering expanded services to consumers.
The financial stakes are enormous. M-Pesa alone processed over 35 trillion Kenyan shillings in transactions in 2023, up from 29.6 trillion the previous year. These figures underscore the service’s critical role in Kenya’s economy and highlight why any changes to the regulatory landscape are being watched so closely.
For Safaricom, M-Pesa represents a crucial revenue stream, surpassing even its voice services by nearly 40 billion shillings last year. This reliance on mobile money income comes at a time when the company’s core business is maturing, and its pace of innovation has slowed.
The proposed changes aren’t without their challenges. Telcos may face pressure to lower transaction costs, potentially impacting their revenue streams. Safaricom, for instance, has already raised concerns about a potential 75 billion shilling tax liability. In response, the CBK has indicated that the Treasury is willing to discuss potential tax waiver plans to smooth the transition.
The outcome of this legislative process could have far-reaching implications. It may set a precedent for other countries grappling with similar regulatory challenges in the rapidly evolving fintech sector.