As MFS grows, its regulations need to change

Earlier this year, the World Health Organisation recommended that people go cashless for their transactions to eliminate the spread of the novel coronavirus in the communities. 

As contactless payments become the norm amid the worldwide pandemic response, many countries around the world have been working on different alternatives to cash transactions. In Bangladesh, the most popular alternative to cash payment is mobile banking. 

Since the nationwide general holiday declared by the government on March began, all transactions, including person to person money transfer, disbursement of salary, utility bill payment etc. have taken place through mobile financial services (MFS). 

As it has become so essential and popular medium of transaction, the laws relating to MFS needed to be readdressed by the government.

Two years ago, Bangladesh Bank issued Bangladesh Mobile Financial Services Regulation 2018 as the governing law relating to mobile financial services, to provide a regulatory framework for efficient and prompt MFS system, promote access to formal financial services at an affordable cost and ensure compliance with anti-money laundering laws and combating the financing of terrorism. 

The regulation stated that the MFS providers shall operate as payment service providers and the regulation should be read in compliance with Bangladesh Payment and Settlement System Guidelines (BPSSG), 2014. 

The MFS provider shall obtain a license under the MFS regulation as well as under the BPSSG as a payment service provider. As both the regulations have a different set of criteria for providing license, it creates confusion and inconvenience for the investors. 

As per the regulation, the central bank will promote only scheduled commercial bank-led MFS in Bangladesh and will allow only two types of ownership structure-related models. 

The scheduled commercial banks can do MFS business through a separate wing or can open a subsidiary company where the parent bank should own 51 percent of the equity ownership, while the remaining 49 percent could be owned by the mobile operators and other stakeholders. 

However, to get a license under BPSSG as a payment service provider or payment service operator, there is no such requirement. 

The restriction on the ownership structure in giving MFS license creates a hindrance to the growing business of MFS. 

As MFS is essentially a payment service provider system, the regulation should not reserve rights for banks to hold majority shareholding. A holistic approach should be taken for ensuring a proper balance between sustainability and business. 

The regulation should be inclusive to attract more investment in the business. Mobile Network Operator and other business entities should get a chance to lead. 

MNO's generally are better equipped in terms of assets like scale, distribution, brand position, customer service, technical readiness, expertise, a business motive to drive a nationwide fast-moving business sustainably. So, they should be given a chance to lead the business to meet the growing need of MFS business.

Another contradiction in providing license can be seen in the case of "Nagad", a company owned by the postal department of Bangladesh but running on a revenue-sharing model. Bangladesh post office holds 51 percent, while the private sector owns 49 percent shares. 

After almost a year in operation, recently the Bangladesh Bank has permitted Nagad to work as a full-fledged MFS provider. 

Following the concept of "Nagad", many other public entities could use their funds or go for a public-private partnership to invest in the MFS business. 

In fact, public entities should be encouraged to invest in such business as the sector needs to flourish. But since each public entity is formed through an enabling act, they can only invest in MFS business if the enabling act has provisions for it. All enabling acts should be formulated in the same way to allow MFS businesses for public entities.

Though one of the purposes of the MFS Regulation  2018 is to ensure anti-money laundering and combating financial terrorism, very little has been mentioned about it in the regulation. 

At present, it is very difficult to identify the actual culprits behind fraudulent transactions as over the counter service is available. This service should be banned. As mobile banking is also one kind of banking, only the account holder should be allowed to avail the service.

Under these circumstances, the Parliament should take up the matter and enact a new uniform and codified law for MFS business to overcome all the lacunas in the MFS Regulation 2018. 

This law should focus on how the licensing process can be made easier. Removing the bank-led model would open greater prospects in MFS business and allow a level playing field for all the players in the MFS business. 

Consideration should also be given to whether the MFS business should fall under the Bank Companies Act (which is the case now) or should it fall under the purview of non-banking financial institutions. 

As there is an enormous scope of expansion of MFS in Bangladesh due to the emerging need of moving towards a cashless society, the government should rethink the policies and take the matter to Parliament to pass an Act. 

The author is a Barrister-at-Law and an Advocate at the Supreme Court of Bangladesh. [email protected]