Mobile money and the law: a case study of Uganda
From 2009 to 2013, Uganda’s population with access to formal financial services increased from 28% to 54%. Mobile money services were the most significant part of this increase. Since 2006, the percentage of the adult population with access to formal financial services has more than doubled. However, the formal sector financial inclusion is dominated by the use of mobile money, which provides only a limited range of financial services, largely payments and the opportunity to save money on the mobile phone. In fact, only 11% of the adult population in Uganda uses a commercial bank or micro deposit taking financial institution and only 3% of the adult population in the country who borrow money do so from a commercial bank.
The mobile money boom in Uganda cannot be overstated. In June 2015, mobile money had 18 million accounts with an estimated UGX. 24 Trillion transactions, moving closer to . 44 Trillion by March 2017 while they now stand at UGX. 54 Trillion, representing half of the Gross Domestic Product (GDP). This easily makes mobile money the fastest growing money transaction platform in Uganda. Currently, there are more registered mobile money accounts than normal bank accounts (22 million as at December 2017). This phenomenal growth – by UGX. 10 trillion – is often in double digits each year, showing how popular mobile money has become.
The direct benefit of this boom has been bringing millions of Ugandans to the formal banking sector. Mobile money lessened the need for one to visit a physical bank branch to transact and registration is pretty basic with less paperwork involved. A mobile money account holder can transact within the proximity of his neighborhood with agents scattered on almost every block or local trading center.
How a typical Mobile Money Transaction Works
A typical mobile money transaction involves the following parties:
a) A licensed telecom operator
A mobile telecommunications company duly licensed by Uganda Communications Commission (UCC) develops the necessary infrastructure to sustain a mobile money platform. Once this platform is set up, the licensed telecom operator enters into an agreement with a bank licensed by the Bank of Uganda (BOU). This agreement allows for the issuance of an escrow account to the telecom operator where the funds collected on the mobile money platform will be held on behalf of the mobile money users who do not have access to this account. Mobile money and traditional banking are connected since the funds on the escrow account in the bank correspond to the e-money held by the mobile money users and agents. The telecom operator sells sim cards to the public. Before a member of the public can acquire a sim card, they are required to submit KYC information to the telecom operator such as full names, date of birth and known places of residence as described on an individual’s national identification card. Upon verification of the user’s registration details, a phone number is issued to the user and this phone number can be registered on the mobile money Platform.
b) A mobile network subscriber
Once a subscriber registers for mobile money with a telecom operator, they can now be referred to as mobile money user. Upon registering for mobile money, an individual is issued with a specific five character pin that will be used to protect their account much like the pin code one would have for their bank account. This pin will be used whenever the customer accesses their e-wallet to make mobile money transactions. The e-wallet is a virtual account in which a user can store his e-money for any future mobile money transactions. E-money is the virtual money a mobile money user can either exchange for physical cash with the mobile money agent, transfer to another mobile money user or make payments such as utility bills.When a registered mobile money user decides to send money to another registered mobile money user, he starts by depositing physical money with a mobile money agent. This physical money is exchanged for e-money that is loaded onto the e-wallet attached to the mobile money user’s number. The mobile money user can then use the e-money to pay utilities or to forward it to another mobile money user. Once another mobile money user receives the e-money, they can then take it to a mobile money agent who will accept the e-money in exchange for physical money.
c) A mobile money agent
A mobile money agent is a limited liability company duly registered with the telecom operator and authorized to transact mobile money agency business. The mobile money agent enters into an agreement with the telecom operator and is issued a bank account, which is linked to the telecom operator’s escrow account set up by a licensed bank. The mobile money agent then deposits a minimal amount equivalent to approximately USD. 300 on the escrow account. The same amount is transferred to the agent’s phone as e-money or float. The agent can then use this e-money to send to other mobile money users as instructed or exchange it for physical cash. Once the agent’s e-money is diminished, it then takes the physical money to the bank or another super-agent in exchange for more e-money or float to enable it take on more transactions.
d) The licensed bank
A bank licensed by Bank of Uganda enters into an agreement with a telecom operator to provide the escrow account that holds all the money collected by mobile money agents on behalf of the registered mobile money users. This escrow account is also connected to the accounts held by mobile money agents who deposit the physical cash collected from mobile money users. Before the bank can be authorized to participate in mobile money transactions by open such an account in favour of the telecom operator, it is required to obtain a letter of no-objection from the Bank of Uganda. Upon receipt of such an application, Bank of Uganda will take a view of the bank’s systems to confirm its ability to participate in mobile money transactions. Once Bank of Uganda is satisfied of the bank’s capabilities to participate in mobile money transactions, it shall issue a letter of no-objection.
e) Government regulatory bodies (Uganda Communications Commission and Bank of Uganda).
Mobile money transcends two areas namely, the telecom business and the banking business. These two areas are licensed by separate government regulatory bodies Uganda Communications Commission (UCC) and Bank of Uganda (BOU), respectively. BOU is the Central Bank of the Republic of Uganda whose primary purpose is to regulate, control and discipline all financial institutions. As mentioned above, before a licensed bank can open a mobile money escrow account for a telecom operator, it is required to obtain a letter of no objection. BOU also regulates the financial side of mobile money. To this end, it issued the Mobile Money Guidelines of 2010, primarily to protect mobile money users from exploitation by the telecom operators. UCC is the regulator tasked with regulating the communications sector in Uganda which includes telecommunications data communication and infrastructure. This mandate includes licensing, standards, spectrum management and tariff regulation.Mobile money is, therefore, not specifically regulated or licensed by one body. The mobile money platform is regulated by both bodies as the prompts used in the movement of the e-money are delivered through phone messages which are regulated by UCC and the escrow account that holds the mobile money for the mobile money users is held with a bank licensed by BOU.
What Does The Future Hold
Mobile Money has morphed from its traditional roots of just a money sending and receiving service to include other functions such as payments and now savings and loans. This evolution, and the multi-sectoral entanglements it throws up or shall throw up, will unravel a number of legal questions that must be answered.
As the technology continues to evolve, great care will have to be taken to protect the consumer, majority of whom are the average Ugandan. This consumer is attracted by the transactional ease that mobile money offers, but also desires the comforting arm of the law/regulator that he/she hopes is following the evolution closely behind.
Currently, a mobile money agent is integral to a typical mobile money transaction but it is anticipated to evolve to a peer-to-peer payments platform, thereby removing mobile money agents. The goal of the telecom operators is to move Uganda into a cashless economy by developing the mobile money platform into the go-to payments solution by allowing for payments for goods and services through mobile money. In fact, MTN Uganda Limited, Uganda’s leading telecom operator has made a move towards achieving this by introducing Momo Pay. Momo Pay is a service that enables merchants to receive payments for goods and services by mobile money. The platform is accessible to both customers and merchants. With MoMo Pay, merchants can sell airtime and earn commission, pay suppliers, pay salaries as well as transfer money to the bank all on the mobile money platform.
Mobile Money and Financial Inclusion
Statistics show that only 1 out of 6 Ugandans operates in the traditional Ugandan financial system and this proportion has not grown in recent years. In addition, less than 1 out of 6 has a debit card (14%) or an account with a SACCO (14%), and very few have an account with a microfinance institution (4%), a pension (2%), an insurance product (2%) or a credit card (1%). Although 1 out of 3 citizens have borrowed money in the past five years, these loans tend to be taken from informal groups (30%) rather than regulated financial institutions. In addition, men (40%) are more likely to borrow money than women (29%).
This state of affairs has been caused by the limited access to banks through physical infrastructure as most of the banks operate branches in the urban centres as opposed to the rural areas where majority of the Ugandan population resides. Furthermore, most of the account opening requirements such as KYC requirements and other similar considerations are quite stringent, thereby disenfranchising a large portion of Ugandans from financial inclusion.
On the other hand, mobile money is accessible to all that can afford to own a phone and the trend is that more adults are increasingly gaining access to phones. Mobile money enables an individual with a registered phone number to send and receive money without having to step foot inside a bank or own a bank account. Indeed, two out of three citizens report having a mobile money account (68%) and mobile money is available to demographics often left behind by other financial services and products, namely women and the young. This growth has challenged the traditional banks into launching creative products and seeking to take advantage of fintech innovations, some of which have resulted into mobile banking solutions of their own. Many are also venturing into agency banking after policies governing this were relaxed by BOU and a governing law enacted.
Note that mobile banking is different from mobile money since mobile money relates to transacting in and transferring e-money between mobile money subscribers whereas mobile banking refers to transacting ordinary banking transactions that would ordinarily be made in the banking hall using mobile phones or computers.
 2013 FINSCOPE survey
 Finscope Uganda 2018 report
 Dr. Louis Kasekende, Deputy Governor, Bank of Uganda, per Daily Monitor 1st December, 2017
 Finscope Uganda 2018 report
05 April 2019