According to its Maya Declaration the Central Bank of Nigeria (CBN) has committed to reduce “the percentage of adult Nigerians that are excluded from financial services from the current 46.3% (39.2 million adult Nigerians) to 20% by the year 2020.” Mobile financial services are a core component of the national financial inclusion strategy (FIS) the CBN launched on October 23, 2012, to achieve this objective.

Two weeks ago The Nation asked a CBN official why the CBN bet on the bank-led Mobile Money Payment (MMP) model against a growing body of evidence that shows the effective role that mobile network operators (MNOs) have proven themselves the most capable entities of launching and scaling mobile money services and to lead the partnership with banks that in most cases is needed to fulfil regulatory requirements and commercial efficiency. Reportedly, the CBN official answered: “If you want me to tell you the truth, there are two ways to answer that question. I can tell you the truth and I can tell you the politically correct answer. The politically correct answer is that they do not need to get involved in MMP, but the truth is that the telcos have close to 90 million customers, banks only have 15 million. If you give them the power to do this, then you must have inadvertently given them the national economy.”

In a number of countries (Nigeria, but also Colombia, Ghana, Guatemala, India, and South-Africa, among others) financial regulators have been reluctant to grant MNOs mobile money licenses because they are

• afraid that the MNOs could scale very quickly and dominate the formal financial sector, leaving regulators unable to control such  growth and unable to use that potential to deepen access to finance.
• nervous about allowing MNOs to offer mobile money services, given they believe that only banks can adequately safeguard customer money. But in many other markets, the regulator has been able to design prudential regulation and market conduct frameworks which help to make non-bank e-money providers sound and effective. Such regulations are described in MMU’s recent regulatory paper:

Some regulators have also argued that given the goal of financial inclusion, the bank-led model must be preferred because in that way providers will offer customers a broader range of financial services. Unfortunately there is no evidence that bank-led models lead to earlier adoption of a broad range of financial services. Instead, the there is a growing body of evidence that non-bank providers, particularly MNOs, are needed to develop sound mobile payments and transfers services (and storage of value) which then can be used by a range of financial providers to offer more complex financial services that benefit customers, such as credit, savings, insurance, etc. This is because MNOs have assets, expertize, and incentives that banks don’t have. Also, as David Porteus wrote recently “Evidence from places like Kenya, which has seen rapid increases in formal financial inclusion as the result of the application of mobile technology, suggests that mobile payments have not so far led to much greater use of other formal financial services, but they have made a profound difference in people’s their lives through enabling, supporting, and resourcing familial and other social networks.”

Also, in Ghana, India, and Nigeria, three market where regulators have adopted regulatory approaches that are slowing the development of the mobile money industry we see that MTN and Airtel, two MNO groups, have taken the lead in the implementation of those mobile money deployments that are growing more rapidly (even though their partner bank holds the licence). Formally they comply with the regulation, while showing the contradictions of its rationale.

What the CBN official is reporting in the quoted interview is an inconvenient truth that rarely is openly debated: Despite the evidence that exists around how mobile network operators can contribute to financial inclusion via mobile money, some regulators are still highly resistant. So what can we do to help create an enabling regulatory environment for mobile money?

In cases where the regulator is moving slowly, or not at all, to improve the policy climate for mobile money and remove regulatory barriers, in my opinion the priorities for MNOs are:

1. Educate the regulator: We shall share with the regulator positive examples of enabling approaches that result in market development, provide them with more opportunities to learn from the most progressive peers, and share with them more information about the operational aspects of mobile money, as well as the risk mitigation measures put in place by the providers.
2. Show the negative impact that conservative policies have on people life and economic growth, and the positive impact of enabling policies: I believe the most effective way to tackle the political motivations mentioned above is to hold the regulators responsible for the harm that is being done to consumers in the status quo. This is possible only if the negative impact of those decisions is quantitatively appraised and compared with the likely impact of different approaches. The pressure of the donor community, peer networks, and the press could do the rest to advocate for reforms.
3. Be a responsible industry: MNOs should lead the development of a mobile money industry that embraces key principles of responsibility toward customers (e.g., the transparency of fees) and take seriously compliance with important rules such as those aimed to protect the integrity of the financial system against the risk of money laundering and financial terrorism.
4. Broadly engage with constituents beyond the financial regulator: Mobile payments are a key asset to enable the development of provision of other services in areas such as health, agriculture, welfare, etc. Influencers can be found in different ministries and regulatory authorities because they need mobile money to be developed in order to support the achievement of other important public goals such as women empowerment and the digitalization of government to people (G2P) transfers.
5. Build more alliances within the private sector: MNOs need to do a better job not just of coordinating their advocacy efforts with each other, but also aligning with other private sector players who also stand to benefit from the reform of financial sector regulation that would enable mobile money, such as merchants, utilities providers, and financial service providers (e.g. MFI’s and banks).

The other stakeholders (donor agencies, development partners, etc.) can contribute in many ways to achieve some of the above. Furthermore, they can certainly support policy makers introducing the culture of “better regulation”: There are ways to maximise public policy benefits whilst minimising the costs regulation may impose on the economy. “Better regulation” is a framework that can be adapted to different countries and sectors to prepare, follow-up and implement regulation, reinforcing the constructive dialogue between all public authorities as well as with stakeholders. The five principles of better regulation are: a) transparency, b) accountability, c) consistency, d) proportionality, and e) being targeted. These principles are translated into a range of regulatory instruments (from enhanced consultations and impact assessment to specific implementation monitoring) that would greatly improve the quality of regulation.

P.S.: These tools are not only limited to circumstances such as those in Nigeria. All markets and all MNO’s should be doing similar things.