Kenya is a world leader when it comes to fostering mobile phone banking and other “branchless” banking services. Officials there have an excellent opportunity to create regulations that will support the development of a variety of branchless banking models. The Government of Kenya and the Central Bank have shown a strong interest in branchless banking and have expressed their commitment to institute legal and regulatory changes that will support new technology-based products and services and enable increased outreach.

Read the full report at http://cgap.org/portal/site/Technology/policy/diagnostics/

Branchless banking in Kenya is in its early stages, with a limited number of providers that are operational and at least one additional provider expected to enter the market in the very near future. Thus far, these initial forays into branchless banking have been undertaken with the tacit acceptance of the government and financial regulators. As demonstrated by Kenyan regulators’ approach to the pioneer of branchless banking in Kenya—mobile phone operator Safaricom and its M-PESA service—the nonbank-based model appears to be free of any financial regulation as long as services provided are not deemed to fall within the definition of banking business under the Banking Act.

In contrast, the primary hindrance to the use and growth of the bank-based model is the Central Bank’s ad hoc approach to outsourcing: the Central Bank approves a bank’s use of agents on a case-by-case basis without clear guidance on which activities may be outsourced and without articulated standards or criteria for agents or their oversight. And, although the law and regulations applicable to microfinance institutions (MFIs) are not yet in force, MFIs will face a similar situation.

Finally, although the current regime for anti-money laundering (AML) and combating financing of terrorism (CFT) is thin and generally not problematic for branchless banking, a draft AML/CFT bill would impose burdensome requirements on small-value transactions and remote account openings. Ideally, these requirements will be revised to provide a risk-based approach that will permit both the bank-based and nonbank-based models to thrive.

These notes offer further detail on CGAP’s findings as a result of its branchless banking diagnostic assessment in Kenya. Similar notes will be released on Brazil, India, the Philippines, Russia, and South Africa, and notes from Pakistan were released earlier this year.
 Kenya is a world leader when it comes to fostering mobile phone banking and other branchless banking services. Officials there have an excellent opportunity to create regulations that will support the development of a variety of branchless banking models. The Government of Kenya and the Central Bank have shown a strong interest in branchless banking and have expressed their commitment to institute legal and regulatory changes that will support new technology-based products and services and enable increased outreach.