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"id": 180935,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/180935/?format=api",
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"type": "speech",
"speaker_name": "Mr. Michuki",
"speaker_title": "The Minister for Environment and Mineral Resources",
"speaker": {
"id": 183,
"legal_name": "John Njoroge Michuki",
"slug": "john-michuki"
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"content": " Mr. Deputy Speaker, Sir, thank you for granting me this opportunity to respond to a request by Mr. Mbadi, the hon. Member for Gwassi Constituency, who sought a Ministerial Statement on 21st October, 2008 from the Minister for Finance on the effects of involvement of mobile phone operators in cash deposit and transfer. In particular, he wanted to know whether the Central Bank of Kenya (CBK) is able to do the following:- (i) monitor the money in circulation as it does with individuals and commercial banks; (ii) maintain reserve targets, given that there is a lot of money, he alleged, in circulation from the two mobile phone-based money transfers; and, (iii) subject our financial system to prudent regulations for robust and secure movement of funds across the economy. The hon. Member further stated that the reason why he was seeking this statement was because of the current high inflation which, in his view, might be due to unchecked and uncontrolled transfer of funds by the mobile phone operators. In responding to the issues raised by the hon. Member, I consider it imperative to first understand what the mobile phone-based transfer system is all about; but more importantly, we need to appreciate whether such transactions can result in an increase in the reserve money, which forms the basis of money creation. This is important because any unplanned increase in reserve money would lead to expansion in money supply in excess of what is required to support productive economic activities and subsequently, to inflation. Mr. Deputy Speaker, Sir, mobile phone-based money transfer is an innovative electronic money transfer product that enables users to store value on the their mobile phone account in form of \"electronic currency\", which when necessary, they can transfer to other mobile holders to settle payments. It is a convenient and cheaper alternative mechanism for executing financial services. For this system to operate, first, there must be a network provider or operator that uses its existing mobile phone network to electronically transmit monetary values as requested by the customers. Secondly, there must be a separate company formed by a network provider or operator to hold money deposited by a customer in a bank account and thirdly, there must be a commercial bank that maintains the trust account referred to above. For any person or subscriber to use this system, such a subscriber must be registered to use the services of a mobile-based money transfer operator, and he or her phone must be fitted with a SIM card that has a specialised software to effect financial transactions. It is important to emphasise that for a subscriber to obtain e-money, he or she must first deposit with an agent, or network provider, customer care actual cash drawn from his bank account. The maximum e-money a customer can purchase, and be credited to his or her account, is Kshs50,000. No income or interest is earned by that account. Also, the amount transferrable to other persons is limited to Kshs35,000 per 3236 PARLIAMENTARY DEBATES November 4, 2008 transaction. So, you still have to fit the account after you are allowed the first transfer and nothing will take place until you have put money into that account. The system works in such a way that the total money e-money held by say, M-pesa agents is equivalent to the total cash balance on M-pesa Trust Account with the Commercial Bank of Africa, which is the chosen bank by the mobile phone operator. This is the e-money that the agents in turn sell or transfer to their customers in exchange for cash. Agents can only acquire additional e-money by depositing cash into the bank accounts that I have just mentioned. Hon. Members, it is worth emphasising that the CBK has been closely monitoring the operations of the two electronic phone based money transfer operators. The bank's findings is that e-money purchased is transferred on a daily basis and, therefore, does not serve as an alternative bank account. It is with this understanding that the CBK recognises M-pesa as merely a money transfer service. It is no more than that. Despite what has been alleged or said, it is no more than normal money transfer as you would issue a cheque or withdraw money and pay somebody. Mr. Deputy Speaker, Sir, the M-Pesa services are now widely used both in rural and urban areas, as it is a cheaper alternative way to transfer money. In any case, you will avoid those people who will always want your money, although they have not earned it. Indeed, even commercial banks are being engaged by Safaricom to provide services for a commission, just like any other Safaricom dealer agents. Mr. Deputy Speaker, Sir, obviously, the Government has taken interest to understand that innovation. But more, importantly, to put in place safeguards to minimise risks to customers, the Central Bank of Kenya, working together with Safaricom, has developed a system for monitoring the operations of M-Pesa through regular information which is submitted to it. Indeed, the Central Bank of Kenya has prepared a draft National Payment System Bill which is intended to cater for such emerging products, and challenges associated with them. Once the Bill is finalised, we will soon be tabling it here for your examination, approval and for that matter, rejection if you so think. Mr. Deputy Speaker, Sir, it is now clear to hon. Members that given the way the mobile phone-based money transfer system operates, there is no way reserve money would increase on account of such money transfer transactions. Monetary field tells us that reserve money can increase only if there is an expansion in the net foreign asset and/or the domestic asset of the Central Bank of Kenya. Those are the two sources of reserve money which are, in no way, affected by the mobile-based money transfer transactions. So, the fear that the Central Bank of Kenya is not able to contain reserve money target is misplaced and far-fetched. Mr. Deputy Speaker, Sir, it is worth noting that the Central Bank of Kenya is also able to monitor the money in circulation since the mobile phones funds are first paid to a bank account by the appointed agents. Those deposits---"
}