Mobile Money Institutions Presentation (Jan, 2017)

Brief Introduction On Mobile Money Institutions (EMIs)

Mobile Money (EMIs) Regulatory Framework and Current Status

January 2017By: Azizullah SikandariE-Money Institutions Section ManagerFinancial Supervision Department DAB

Structure of EMI Section - FSD

Mobile Money Regulatory FrameworkEMI Operations and Activities are Governed and Regulated by:

Da Afghanistan Bank Law;AML/CFT Laws and Regulations;Electronic Money Institutions Regulation;Electronic Funds Transfer Regulation; andFit and Proper Regulation.

Electronic Money Institutions RegulationE-Money Regulation is structured as followings:

Mobile money business model in Afghanistan;Licensing requirements and procedures;Corporate Governance mechanism and structures;Regulatory and prudential requirement;Internal control mechanism and system;AML/CFT compliance requirements;Reporting requirement; andEnforcement Actions and penalties;

1. Mobile Money Business Model in Afghanistan1. EMI business model can be:

Bank-Centric Model;MNO-Centric Model; andNon-Bank EMI Institution.

2. EMI must be independent or wholly owned subsidiary of its parent company; &3. Such entities shall only engage in the business of e-money;

2. Licensing Requirements and ProceduresDocument and information needed along with application:

Shareholder(s) bio data and personal net worth;Senior officers bio data and background;Three years business plan and financial projections;By laws and corporate registration certificate;Proposed standard contract between the EMI and its agents, partners & merchants;Proposed policies and procedures on:Operation, Accounting, Risk management, Liquidity management, Internal Audit, Internal controls, IT, AML/CFT, Fraud management, Dispute resolution and agent selection procedure.

Grounds for approval of application:

Fitness and propriety of proposed shareholders and senior officers;Adequacy and effectiveness of internal control and risk management;The financial condition and soundness of the entity;Reasonableness of the Business Plan;Acceptable standard policies and procedures;Meeting all regulatory and prudential requirement; andApplication is filed as per EMI Regulation.

Licensing Requirements. (cont.)

Licensing procedure:

Meeting with applicant;Application package & checklist;Reviewing & assessment of the application; andApproval / Rejection;

Licensing Requirements. (cont.)

3. Corporate Governance Mechanism and StructuresEMI Corporate Governance Structure includes:

General Assembly of Shareholders;Board of Supervisors;Board of Management;Audit Functions; andCompliance Function.

4. Prudential and Other Regulatory Requirement

Capital adequacy (minimum USD 1 million paid up and financial capital at any given time);E-money denomination must be Afghani (AFN) currency only;E-money can be used to transfer and remit funds;E-money is not deposit and shall not earn any interest for the customer;An EMI entity should not issue e-money at a discount;E-Money must be deposited 100% in the banking system (trust account);An EMI entity must, at all times, fulfill the right of redemption of any customer;Transaction and e-money balance limitations are:Maximum Balance: AFN 150,000.Amount & Number of transactions for P2P AFN 15,000 per transaction & 10 transactions per day

5. Internal Control Mechanism and SystemEMI should have adequate internal control policy and procedure;The EMI system must have an adequate security capabilities:Data Security up to the lowest data structure;Authorization Levels according to internal control policies and procedures;Complete Audit Trail;Automated Reporting;All methods of reporting should be automated to ensure data integrity;Ad hoc reports should be provided due to special cases or conditions, as determined by Da Afghanistan Bank;Security policies and procedures must ensure:Data Integrity (accuracy);Data Authentication;Confidentiality;Approval Levels and Authorization;

6. AML/CFT Compliance RequirementsEMIs AML/CFT Compliance Program includes:

AML/CFT Policy and Procedure;Chief Compliance Officer;Customer Due Diligence ;Record Keeping and Retention;Large Cash and Suspicious Transaction Reporting;Independent testing of the programs; andTraining programs.

7. Reporting Requirements1. E-money transactions (Monthly): Beginning Balance; Inflows or Cash-in; Payments; E-money Transfers; Outflows or Cash-out; Net (Inflows/Outflows); End-of-month Balance.

2. Financial and non-financial reports (Monthly):Payment for goods and services;Salary payments;Bills payments;Loan disbursements and repayments for MFIs;Customer Complaints;Monthly Financial Statements (Statement of Profit & Loss, Statement of Financial Position and Cash Flow Statement; andLists of Authorized agents, merchants, and partners (Quarterly).

Mobile Money Systems Functionality and Capability The Mobile money system must have the capability to interconnect and / or interoperate with other payment systems;

2. Basic Functionality:3. Advance Functionality:P2P transfer; Mobile Banking;Bill Payments; Microfinance;Airtime Top-up; Microcredit;Money Remittance; Micro insurance; Others.

Business Continuity Policies and PracticesThe EMI entity must ensure complete business continuity. This shall include, at a minimum, different levels of back-up procedures for:

Hardware Systems;Software Systems;Application Systems; andData.

EMI must have a proper disaster recovery management.

Dispute Resolution Policy must include:

An acceptable redress mechanism in place to ensure any instances where transactions may be misdirected or considered lost in the system;EMI entity must provide a free-of-charge telephone hotline for customer comments and complaints;EMI entity must clearly explain, in their verbal and written explanations of functions to customers:How a customer may stop a transfer that was initiated mistakenly or without the customers agreement?How the customer will be informed that a transfer has actually been operated? andHow the customer can find out his current E-money balance and a list of recent transactions?

Dispute Resolution Policy

8. Enforcement Action and PenaltiesDAB is authorized to impose enforcement actions and penalties in the case of non-compliance;The following enforcement actions are available at DAB disposal:Instructing for corrective action plan;Warning letter;Imposing monetary penalties;Firing the EMI administrator; Suspension of the EMI license; andRevoking the EMI license.Monetary penalty is imposed for:Late or non-reporting;Violation of AML/CFT requirement and DAB regulations; andFalsification and fraudulent documents and information. The EMI management may be subject to criminal liability and/or prosecution depending on the harshness of violation.

Supervision and Regulation of Mobile Money Institutions DAB is the regulatory authority of mobile money and payment system in the country;

DAB objectives for the system are:Safety and soundness of each institution;Promote stability, safety, integrity and efficiency of payment system.

DAB supervisory approaches are:Off-Site surveillance; andOn-Site supervision.

Dully licensed companies are:MSDA (M-Paisa) a subsidiary of Roshan telecommunication company;m-Hawala a subsidiary of Etisalat Afghanistan; andABMMC (My-Money) a subsidiary of AWCC Afghanistan.

Types of Services currently offered by EMIs:P2P Transfers (domestic);Salary Payments;Loan disbursements & repayments;Utilities bills payment;Airtime Purchases (Top-up);Customers Deposit (Cash-In); &Customers Withdrawals (Cash-Out).

Current Status of Mobile Money Sector

Mobile Money Sector at a Glance (Dec 2016)IndicatorsFiguresTotal AssetsAFN 655 MTotal amount of Trust Accounts: AFN 434.3 MTotal e-money value (amount)AFN 9.2 BTotal e-money volume (No. of transaction)2 MTotal amount of monthly salary paymentsAFN 3.3 BNumber of Salary payment296 TTotal Number of mobile subscribers (3 Tele. Companies)16.8 MTotal No. of registered users415 TTotal No. of active Mobile Money Users41 Tm-Money Penetration0.25 %Total No. of agents1,432Number of cities/districts254Number of Provinces32

Average Monthly Amounts and Number of Transactions in 2016IndicatorsFiguresAverage Amount of Customers Cash-insAFN 115.5 MAverage No. of Monthly Transactions171,587Average Amount of Monthly TransactionsAFN 764.6 MAverage Amount of Monthly Salary PaymentsAFN 273.8 MAverage Amount of Loan RepaymentsAFN 17 MAverage Amount of Electricity Bill PaymentsAFN 15.5 MAverage Amount of Peer-to-peer (P2P)AFN 116.8 MAverage Amount of Airtime PurchaseAFN 11.8 M

Mobile Money Sector Trends in Over the Last Five Years

Mobile Money Sector Trends. (cont..)











Way Forward

A Working Group of delegates from DAB and USAID/FAIDA has created to bring some necessary amendments into the EMI Regulation;The EMI Regulation will also be placed into the peer review in the 15th AFI, Digital Financial Services Working Group (DFSWG) Meeting taking place from 20 to 24 February, 2017 in Ghana to receive comments and remarks;The meetings of MNOs with APS and Banks are taking place progressively in order to interoperate and interconnects the systems and platforms;The Mobile Money Awareness Campaign is in the 2nd phase of its process by the chief of party team - USAID/FAIDA;

Thank You!Question & Answer

Documents

Mobile Money Institutions Presentation (Jan, 2017)