African regulators are balancing innovation against risks of illicit money flows and the need to protect consumers.
Financial regulators such as central banks in Africa are caught in a delicate balancing act as they create workable regulatory platforms for digital remittances while guarding against illicit financial flows and money laundering.
Most countries in Africa have citizens living and working abroad to tap into employment opportunities in other economies.
Specialists at the World Bank Group believe that central banks in Africa have to more effectively promote digital cross-border remittances and link their countries to international digital finance platforms. These platforms are shaping up as tools for e-commerce, financial inclusion and payments across Africa. “When enabling regulations are in place,” digital finance systems in all their facets, including cross-border remittances and e-commerce payments, “are likely to flourish,” a World Bank spokesperson comments in an email to Global Finance.
African markets that are strengthening their regulatory protocols to encompass cross-border digital remittances include Ghana, which has seen rapid use of cross-border digital remittances after its central bank established regulations on e-money issuance and agent banking. “Effective interoperability requires good governance, practical economic agreements, and sufficient support from policymakers to ensure safe and reliable connections,” the World Bank spokesperson comments.
Central banks in Africa have been skeptical of loosening regulation around digital cross-border remittances. This has held back the development of mobile money platforms that could interact with regional and international platforms.
Claire Cranton, a spokesperson for GSMA, an association which represents the interests of mobile operators, says African “regulators and mobile money providers can work together to raise consumer awareness of their responsibilities” around digital finance and help consumers avoid default and heavy debts when it comes to digital loans.
Some central banks, such as the Reserve Bank of Zimbabwe, have not yet allowed digital cross-border remittances. But given the praise for those that have, they may not hold out for long.
“The regulators in Kenya are rightfully credited with allowing M-PESA to blossom originally,” says Hillary Miller-Wise, CEO of mobile-commerce company Tulaa.
Pan-African telecom operators running mobile money platforms in Africa, such as MTN Group and Bharti Airtel, have been pushing for these kinds of connections. The Central Bank of Nigeria has just allowed telecommunications companies to operate as payment service banks (see related story in this supplement).
In Uganda, the IMF has lauded the country’s central bank for its oversight of the mobile money industry, in which cross-border remittances are allowed into East Africa. The IMF also credited the East African country for making progress “in addressing technical compliance issues with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) standards.” Uganda was removed from the Financial Action Task Force’s gray list in 2018.
Other African central banks that have given the green light for cross-border digital remittances include South Africa, which now allows for digital remittances to regional countries such as Zimbabwe, Lesotho and Mozambique, among others.
It is expected that digital platforms will also help curb cross-border remittance costs in Africa. Digitally minded money-transfer companies such as Mukuru and WorldRemit are leveraging mobile phones for remittances; others are leveraging their widespread physical networks across the region to try to lower the costs of cash-based remittances. Cross-border digital remittances are also boosting e-commerce in Africa.
Central bankers in Africa are embracing e-commerce and digital remittances for the benefits, yet are keeping in mind the risks of electronic platforms.