Regulators want to:

1. Ensure that licensed/authorized institutions are sufficiently capitalized to operate a mobile money business:  Offering mobile money services requires a willingness to incur initial losses and invest. Capital requirements should be high enough to discourage market entry by providers that will be unlikely to achieve scale.
2. Limit the number of entities that must be supervised:  All regulators have limited resources. While mobile money services play an important role in fostering financial inclusion and offer significant macroeconomic benefits with respect to inflation, macroeconomic stability, and economic growth, mobile money is not systemically important even in countries with widespread usage such as Kenya.  Regulators need to ensure that they effectively balance their desire to promote financial inclusion against their responsibilities with respect to the rest of the formal financial system. Important lessons can be learned from earlier efforts to promote financial inclusion through the creation of licenses for microfinance banks or rural banks. In some countries, low initial capital requirements combined with lax licensing requirements have resulted in the authorization of many weak institutions that have proven difficult to supervise.
3. Avoid establishing requirements that are so high that they discourage market entry:  At the same time, very high capital requirements discourage market entry and development. As a general rule, nonbank mobile money providers are prohibited from intermediating (lending or investing) customer funds. As a result, both the risks and potential rewards are more limited. Initial and/or ongoing capital requirements should be lower than those for banks and other financial institutions that can intermediate customer funds.
4. Ensure that customer funds will not be lost:  Virtually all jurisdictions require nonbank mobile money issuers to meet initial minimum capital requirements in order to receive a license to operate. In addition, some jurisdictions require issuers to meet ongoing minimum capital requirements as well. Ongoing requirements, which typically are calculated as a percentage of outstanding mobile money liabilities, are intended to ensure that the mobile money issuer’s capital continues to grow along with its obligations. If customer funds are lost (whether due to fraud, insolvency of a bank holding the funds, or another reason), the issuer will be expected to maintain sufficient capital to make up the difference. Click here for a detailed discussion of policies governing the safety of customer funds.

Mobile money providers need:

1. Capital requirements that make commercial sense given:
   1. The size and potential profitability of the addressable market: For example, start-up costs can be expected to be significantly lower for a provider in Namibia (approx. adult population 1.5 million) than for one in India (approx. adult population 900 million); and
   2. The types of services that may be offered: Typically, mobile money providers are not permitted to intermediate customer funds, so the risks and rewards are both lower. Therefore, many of the prudential requirements that apply to banks and other intermediating financial institutions will be inapplicable or unnecessarily stringent for mobile money business.

How can regulators address these issues?

Too restrictive:

Initial and/or ongoing capital requirements that are too high given the market context and permitted services:

• The Democratic Republic of the Congo requires an ongoing capital requirement equal to 100% of outstanding e-money liabilities (note that due to its impracticability, it is not enforced in practice).
• Malaysia applies an ongoing capital requirement equal to 8% of outstanding e-money liabilities, which is similar to what is required for banks that can intermediate funds.
• Mexico does not offer a license for providers wishing to offer e-money services. The lowest-tier banking institution license has an initial capital requirement of over USD 12 million and is designed for providers that wish to intermediate (lend and invest) customer funds.

Good balance:

Initial and ongoing capital requirements that are proportionate given the market context and permitted services. For example, in Afghanistan, the European Union, Namibia, and the West African Economic and Monetary Union, initial and ongoing capital requirements strike an appropriate balance that accounts for the specific risks of mobile money services.

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