Digital finance in Mozambique: A new era for financial services – International Financial Law Review

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Digital finance is the term used to describe the impact of new technologies on the financial services industry. It includes a variety of products, applications, processes and business models that have transformed the way that banking and financial services are traditionally provided and it is usually delivered by fintech companies.
Although technological innovation in banking and finance is not new, the growing investment in new technologies has substantially increased the pace of innovation in recent years, which in turn has resulted in an equally substantial growth in demand for new banking and financial services solutions.
Mozambique has followed the evolution of digital finance in a very particular way. It is important to bear in mind the African context, which has seen a booming fintech sector, especially in countries like South Africa, Nigeria and Kenya – the three African countries with the most developed fintech ecosystems.
Many analysts have identified this sector as one of the most critical for the continent’s post-pandemic recovery – particularly the adoption of digital payment methods. Therefore there is an expectation for this fast-moving sector to move even quicker and, as of May 2022, African fintech companies have raised around $2 billion. However, for this transformation to take effect, regulators and government will need to come up with solutions that allow the development of digital finance tools.
Here we look at the Mozambican reality in terms of regulation as well as services provided through digital finance. We also discuss the impact of these new ways of providing financial services on the wider population; this especially important in Mozambique where the majority of the population lives in the rural areas and only 30% of it currently has access to electricity.
It is important to mention that, in terms of relevant legislation and regulation in Mozambique, there is still a long way to go. Nevertheless, we highlight below some of the more relevant legal initiatives:
Decree 66 – August 1 2019 – Telecommunications Network Security Regulation
This establishes the procedures for implementing technical measures to be observed regarding the security and integrity of the telecommunications network and infrastructure.
Decree 59 – July 3 2019 – Regulation of the Digital Certification System of Mozambique
This aims to ensure a secure e-transaction environment in the country.
Law No. 3 – January 9 2017 – Electronic Transactions Law
This establishes the principles, general rules and the legal regime of electronic transactions in general, of electronic commerce and electronic government, aiming to guarantee the protection and use of information and information and communication technologies.
Law No. 4 – June 3 2016 – Telecommunications Law
This establishes the general rules for the telecommunications sector and promotes the liberalized market in an environment of competition and network and service convergence.
The Telecommunications Law and its regulations play an important role due to the fact that digital finance services are mostly provided by mobile phone operators. For that reason they regulate, for example, the payment services provided by these same mobile phone operators.
Thus, it is also important to review the regulators point of view on the matter. These arethe Communications Regulatory Authority (INCM) and the central bank’s instructions regarding this same subject.
The Bank of Mozambique is the central bank of the Republic of Mozambique and among its missions are to preserve the value of the national currency and promote a sound and inclusive financial sector. The central bank’s strategic vision is to be an institution of excellence that contributes to the macroeconomic stability of the country and the national financial sector.
The Bank of Mozambique is responsible for regulating the country’s banking and financial sector, so digital finance services also come under its supervision.
Therefore, it is in the Electronic Transactions Law that this matter is regulated, because it establishes the principles, general rules and legal framework of electronic transactions in general, of e-commerce and e-government, aiming to ensure the protection and use of information and communication technologies.
This law in Article 41 paragraph 1 states that the Bank of Mozambique must issue norms that establish security guarantees for all payments made by any other bearer using an electronic payment instrument. In addition, paragraph 2 of the same article is of particular importance, since it establishes that the entity wishing to issue an electronic payment instrument must request authorization from the Bank of Mozambique in accordance with the applicable legislation.
Violation of the issuer’s responsibility, the supply to the public of an electronic payment instrument without authorization from the Bank of Mozambique, constitutes a misdemeanour pursuant to Article 67.
Thus, in order to provide digital financial services in Mozambique, operators must, in addition to being licensed by the Communications Regulatory Authority, obtain authorization from the Bank of Mozambique, under penalty of incurring a misdemeanour.
The licensed mobile phone operators in Mozambique are: Tmcel – Moçambique Telecom, SA (Tmcel); Vodacom Moçambique, SARL (Vodacom) and Movitel. All three operators provide for digital financial services, including transfers, payments and withdrawals via a cell phone.
Tmcel is a private company resulting from the merger between TDM – Telecomunicações de Moçambique, SA and mcel – Moçambique Celular SA. Its main objective is to provide telecommunications services throughout the national territory and in the region.
Modernization and technological innovation constitute one of Tmcel’s major commitments, translated into the offer of fixed and mobile telephony products and services, trunking, satellite communications, switched data transmission service, transmission and reception of radio and television signals, subscription television programming services and audiovisual services. Tmcel also offers importing and marketing services for telecommunications equipment and accessories.
Additionally, Tmcel provides digital finance services through M-kesh, which is a mobile financial services solution in Mozambique that allows Tmcel’s clients to perform financial intermediation, namely sending, depositing and receiving money in an easy and safe way using their cell phone.
In addition, M-Kesh also allows users to receive salaries from employers, pay for purchases and other expenses at authorized merchants, buy Giro credit, check balances and send a password allowing recipients to withdraw money at an accredited M-Kesh agent.
Movitel is a telecommunications operator in Mozambique that was established after Vodacom and Tmcel, and initially invested in different target group by expanding its services in rural areas that were not covered by other operators.
E-Mola is Movitel’s mobile wallet that lets users withdraw and transfer money, buy Credelec (prepaid electricity) and credit, pay for water, TV and internet.
The application allows the user to deposit money, transfer money to family, friends and colleagues, pay for market and grocery bills and taxis. It also allows the user to withdraw money, buy credit, buy Credelec and pay for water and TV.
Vodacom is a Mozambican company that started operating in Mozambique in December 2003 and its main objective is to offer a mobile network of high quality and reliability and bring new communication technologies to Mozambique.
Determined to offer the best service and focused on social issues, Vodacom has been developing social responsibility initiatives in several areas, including the rehabilitation and construction of schools, the installation of computer rooms and distribution of books and supplies in schools around the country.
Vodacom started a partnership in Mozambique with M-Pesa, a fintech founded in Kenya. M-Pesa is considered to be one of the biggest and best mobile financial services in Mozambique, allowing people to transfer and withdraw money, buy airtime and pay for services via cell phone including energy, water, TV and shopping.
M-Pesa has been a driver of change in financial inclusion across Africa, where, at the time of its launch, less than 23% of the population had access to banking, but where many people were starting to use smartphones, even in rural areas. This allowed people that were not part of the formal financial system to start using financial services. According to Statista, as of 2022 48% of the population of Africa has access to banking.
Besides the payment system, M-Pesa has recently started lending money to its users, in cooperation with Mozambican commercial banks. However, how the credit score system works is not very clear.
M-Pesa’s presence in the market represented a moment of change in Mozambique. Although the country already had fintechs, they had not made much impact on the market. However, with these developments a number of challenges have arisen since Mozambique is still lagging behind in terms of legislative development compared with other African countries.
Although the Credit Institutions and Financial Entities Act, Law No. 20 of December 31 2020, mentions the electronic payment systems’ entities, Mozambique still doesn’t have a specific law to regulate the licensing process and activities of fintech companies.
The fintech companies have been raising concerns, across the continent, regarding the risks related to money laundering and Mozambique is a country affected by this type of crime. There are also issues related to security of the transactions, since there have been many reports regarding security breaches.
There is an urgent need to start working on regulatory change in order to build the necessary environment for the fintech sector to thrive. Other countries in the region, such as Tanzania, Zimbabwe and South Africa, have already set up regulatory ‘sandboxes’ for fintechs – a framework that allows fintech start-ups and other innovators to conduct experiments in a controlled environment under a regulator’s supervision.

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