Money transfers: CBK warns of potential risks


Published on 25/02/2009

By David Ohito

Central Bank of Kenya (CBK) has warned that mobile phone money transfer services are exposed to global risks unless operators factor in safeguard measures.

The regulator said transfers across borders face numerous challenges and the possibilities of such cash being tampered by fraudsters are high.

The warning comes at a time when Safaricom’s M-Mpesa and Zain’s Zap are competing to deepen their market share in the money transfer services.

Zap, which was recently launched becomes the second money transfer service after M-Pesa. Zain has partnered with banks and hopes to enter the regional markets, but the regulator warns that cross-border transfers service are risky.

In a strategy paper prepared by National Payments System Division of the CBK, operators are encouraged to employ mitigation measures to cushion themselves against such dangers.

The bank cautions on settlement risk when the flow of funds between transacting parties fails or delays owing to credit, liquidity and operational risk or use of a risky settlement medium, which does not co-ordinate delivery and payment. CBK also warns of foreign exchange settlement risk.

It reckons that such risk emerges when a foreign exchange transaction is carried out and the recipient does not receive the currency wired.

Counter-party risk

In the credit risk, the report notes that the risk of counter-party not meeting an obligation for full value either when due, or at any time thereafter was real.

This, CBK says, is mitigated by ensuring agents pre-pay for cash transfers before offering the service and that operators strictly enforce agreements entered with agents.

CBK also warns of liquidity risk – the risk that counter-party would not settle an obligation in full value when due, but at some time thereafter. It also called on stringent vetting criteria for all money transfers.

The Governor Njuguna Ndung’u says the Bank has held discussions with the agents including commercial banks to address these challenges on a continuous basis.

“CBK continues to play an oversight role to ensure safety and efficiency of the national payments system,” said Ndung’u.

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