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MTN’S STOKVEL POSES THREAT TO BANKS

19/02/2023 08:05:00 Welcome Dlamini

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MBABANE – MTN Eswatini appears to have encroached into the banking environment with its mobile money (MoMo) stokvel accounts.

Financial institutions such as FNB Eswatini and Nedbank Eswatini provide specific stokvel accounts products that operate in an almost similar fashion as the product that MTN Eswatini, through its subsidiary MTN Fintech Services (Pty) Limited, has also since rolled out.

A banking expert believes that it is wrong for the Central Bank of Eswatini (CBE) to allow MTN to operate the stokvel accounts without having acquired a banking licence because this product involves deposit taking. “Taking deposits is strictly done via a banking licence. This is an unfair advantage given to MTN over banks. Banks keep reserves at the Central Bank and MTN does not and that will make MTN money cheaper than that of banks,” he said.

Explaining the ‘cheaper’ part of MTN money, the expert said for every E100 that banks collect, E3 is kept at the Central Bank at zero interest; MTN, on the other hand, will be able to collect E100 and lend E100 as opposed to the E97 that banks can lend because of the regulation. The expert opined that the Financial Institutions Act of 2006 has been violated by allowing MTN to operate the stokvel accounts.

In 2008, the same Act was used to close down the Channel S Club, which resulted in its owner Qhawe Mamba being convicted and jailed, after it was deemed to have been involved in ‘unlawful deposit-taking’. The club was accused of violating Section 9 of the Act, which prohibits illegal banking.

Defined illegal

The bank simply defined illegal banking as taking deposits from the public without being authorised by the Central Bank and registered as a bank like the other banks in the country. “This means that no person is allowed to receive, accept, take or advertise, solicit, procure or attempt to procure a deposit or deposits from the public or pretend to be a financial institution without being registered as a banking institution,” the CBE said.

In the present case, the expert said if the MTN MoMo stokvel accounts have money deposited into them, then MTN is collecting a deposit. “MTN will then use that money to lend to other subscribers, in the form of MoMo loans, and that is exactly what a bank is meant to do,” stated the expert. To eligible MoMo subscribers, MTN provides quick personal loans that are repaid at an interest of eight per cent. The CBE and MTN have both come out to defend the MoMo stokvel accounts, with the CBE stating that MTN Fintech Services did not take direct deposits from customers, but customers transfer MoMo token to transact.

Deposits

“Deposits that have to do with mobile money are taken by banking institutions as custodians of trust accounts. In this regard, mobile money service providers do not need banking licence because they do not take deposits from its customers,” Mandla Luphondvo, the CBE Head Strategy and Communication, said. MTN Corporate Affairs Manager Thandiwe Mashinini, on the other hand, said MTN Fintech was running the MoMo platform to drive financial services convenience, financial inclusion and ease of payments.

She said MoMo operates in a model where there are subscribers, agents and businesses that operate within certain limits as governed by MoMo operation rules and regulations, as well as the CBE regulations or provisions.
“I will clarify that MoMo does not take cash deposits or is not a deposit taking institution and has not attempted to take cash,” Mashinini insisted. She explained that the stokvel accounts were opened by MoMo subscribers, having formed an informal group to be able to transfer funds to a centralised account. She said MoMo does not define the rules of the stokvel, thus members needed to state how they shall be transacting in the stokvel account.

Transfer

“Stokvel accounts operate like business collection accounts in that they receive payments from MoMo subscribers – they cannot transact directly to a cash-in from our agents. This then means for funds to land into a collections account, the member has to fund their own wallet, and then do a transfer to the stokvel account,” said Mashinini.
The banking expert, though, said the CBE and MTN explanations were not convincing in the sense that the deposit taking was evident.

“How do banks take deposits? They open accounts for customers to deposit the money in them. How is the MoMo stokvel account going to work? Exactly like the bank accounts. They will open accounts for different stokvels who will deposit the money. The money will stay in those accounts and members will borrow from there,” said the expert. The expert said MTN had always operated a trust account, which is similar to what the now collapsed Swaziland Economic Empowerment Trust (SWEET) used to do.

“SWEET took deposits from the public using the trust account and that is exactly what MTN Fintech is proposing to do. If the CBE wants to wink at it, that is okay, but arguing that it is not deposit taking is absurd,” he said. The expert stated that there is a difference between remittance or payment and deposit taking. “This new product is not money transfer or payment or remittance. It is a deposit into an account opened by MTN Fintech for different stokvels. That money will then be deposited into a trust account that MTN holds in one of the banks. That is deposit taking,” he reiterated.

MTN admitted to Fintech having trust accounts across all banks in Eswatini and said MoMo operators relied on banks to hold customer funds. The CBE, meanwhile, with reference to MTN money being cheap, said it was important to understand that MTN Fintech does not provide loans to the Eswatini market but provides a MoMo platform that is used by Letshego Eswatini.

Advantage

“Letshego Eswatini is a non-bank financial service provider regulated by the Eswatini Financial Services Regulatory Authority. As indicated, the funds collected by MTN Fintech are held in a trust account, with a licensed bank, as such it is unlikely that there could be any unfair advantage derived by MTN Fintech,” Luphondvo said. The banking expert also raised the issue of reserve requirement that is a regulatory obligation for banks to act as a safety net for the protection of deposits and as an indirect tax to the banks because they keep money with the CBE and do not get paid any interest on it.

He said the same requirement should apply to MTN Fintech because of the stokvel accounts. “The risk is that if the MTN Fintech collapses, who will compensate the depositors? CBE is there to look out for risks to the system but if they then decide to look away then we have a fundamental problem,” the expert said. He opined that if MTN Fintech does not have capital requirements yet banks do, then that is a problem if the CBE allows MTN Fintech to encroach into banking products.

“The capital requirements are meant to be shock absorbers in case the entity runs into trouble. The reason banks collapse slower is because the capital takes the punches before the entity eventually goes bankrupt,” he said. According to the expert, the CBE was assuming indirect reserving by MTN Fintech via the banks, yet the banks do not run the financial technology company and they do not know the risks they are taking. He said if MTN Fintech was affected, the banks won’t feel any impact but the depositors of the MoMo stokvel accounts will.

He said he was more than convinced, no matter the level of defence by both the CBE and MTN, that the Fintech company was taking deposits and needed to have a banking licence. “The argument is this; is MTN Fintech going to take deposits? And the answer is yes. What are the requirements for that? The answer is a banking licence. Why a banking licence? It will come with the correct regulations to cover the new risks that MTN Fintech now wants to take. What are those regulations? Capital requirements and reserve requirements, among many,” argued the expert.
In response to this, the CBE said there were no capital requirements for MoMo service because ‘they do not take deposits’.

MTN also went along the lines of the CBE, with Mashinini saying that currently there were no regulatory capital requirements for financial technology service providers. “Moreover, the stokvel account is not a scheme, it is a collections account. There is no investment interest earned or assumed from member funds. Members govern their own funds in processes aligned in member meetings and governed by their constitution,” she said.

Obligatory

Adding on this, the CBE’s Luphondvo said statutory minimum reserve requirement is an obligatory provision for licenced financial institutions under the Financial Institutions Order (as amended) of 1974. “The banking institutions that hold the trust accounts consider balances in the trust account when computing their statutory reserve obligations,” he said.

The Eswatini Bankers Association (EBA), through its Chairperson Mbali Sibanyoni, who is the Managing Director at the Swaziland Building Society, also had their take on the issue, stating that consumers were increasingly using new technology, including digital means, to access banking services such as payments and deposit taking. This trend, she said, was growing and present almost everywhere in the world, with mew incumbents, fintechs, and new digital banks offering accessible and efficient banking experiences.

“As the EBA, we appreciate the potential benefits of this new development in terms of financial inclusion, competition and customer experience,” she said. Sihlongonyane said they were also assured and confident that the CBE, as regulator, had the appropriate oversight on the new entrants in terms of regulatory compliance. FNB Eswatini, which has provision for stokvel accounts, requires an opening balance of a minimum E1 000; minimum three members; full KYC documents for Chairman, Treasurer and Secretary; ID or Passport plus permit if non-Swazi; proof of residence, if it’s a utility bill it must be not older than three months; and proof of income.

Transparency

For the MTN MoMo stokvel accounts, the following are requirements: stokvel constitution; resolution to open MoMo account; and ID copies for four stokvel members; Perks for this product include: No opening balance required for MoMo stokvel; no monthly account fees; free statements downloadable from online portal; no fees applicable to the stokvel when money is sent to members e.g. loans or dividends disbursements; access to a wide agent network across the nation; and transparency - all members have sight of the fund’s activity

Benefits for the FNB product are: No monthly account fee; access to your savings immediately; free in-contact messages to all signatories; competitive interest rate based on the amount invested; free monthly statement; and minimum three members (treasurer and two signatories).

For Nedbank product, an advert reads: “Distribute stokvel funds to members securely and easily using Nedbank Online Banking. Open a Club Savings account and keep your stokvel funds safe.”