As NDIC insured mobile money users
Nigeria launched a National Financial Inclusion Strategy (NFIS) on 23rd October, 2012 aimed at reducing financially excluded adult Nigerians from 79.6% to 20.0% by the year 2020.
In a bid to achieve this fit, the Central Bank of Nigeria (CBN) rolled- out a Regulatory Framework for Mobile Payments Services in Nigeria, aimed at revolutionizing the Nigerian payment system in tune with global developments as well as facilitating financial inclusion in the country.
The development has led to the licensing of 24 Mobile Money Operators (MMOs) by the CBN. Even of those licenses are bank led, in or words operated by deposit money banks while 14 are non- bank led.
The question of whether mobile money schemes qualify for deposit insurance has continued to agitate the minds of prospective subscribers of mobile money. The argument by a number of prospective subscribers have always been that, since such funds are not in the strict legal sense ‘deposits’ and the beneficial owners of the funds do not have customer/banker relationships with the institutions in which the trust fund has been placed in respect of their entitlement under the mobile money scheme, it follows therefore that each mobile money customer’s entitlement cannot be considered a protected deposit.
These questions which essentially instill doubt on the security of mobile money transfer services basically hinges on the fear that mobile money account holder may not be entitled to deposit insurance coverage in the event of bank failure.
Dr J. A. Afolabi, the Director of Research at the Nigerian Deposit Insurance Corporation (NDIC) said NDIC, as a deposit insurer, has been effectively responding to all emerging issues in the global financial system, particularly financial literacy, consumer protection, financial inclusion, sustainable banking and extension of deposit insurance coverage to depositors of non-interest banks.
He said in order to engender confidence of the public in subscribing the products of the Mobile Money Operators(MMOs), the NDIC has extended deposit insurance to the individual subscribers of the MMOs in the form of pass-through deposit insurance.
Afolabi pointed out that deposit insurance is vital to the mobile payment system because subscribers need assurance that their deposits are safe and available at all times and therefore essential for mobile payment and invariably financial inclusion.
The NDIC seems to have borrowed from the US Federal Deposit Insurance Corporation (FDIC) “Pass Through” model for omnibus custodial accounts holding pooled funds underlying stored value cards.
The US Federal Deposit Insurance Act [iii] reads with the Federal Deposit Insurance Corporation (FDIC) Regulations [iv] recognizes deposit ownership in fiduciary relationships and custodial accounts.
The FDIC has taken the view that the funds underlying stored value cards or other nontraditional access mechanisms are “deposits” to the extent that the funds have been placed at an FDIC-insured depository institution [v].
The requirements for “Pass Through” are [vi]: (1) The custodial relationship must be disclosed in the account records of the insured depository institution. (2) The identities and interests of the actual owners must be disclosed in the records of the depository institution or records maintained by the custodian or other party and (3) The deposits actually must be owned (under the contract between the parties or any applicable law) by the named owners and not by the custodian.
When the FDIC’s requirements are satisfied, the insurance coverage ‘‘passes through’’ the custodian, i.e., from the nominal account holder, to each of the actual owners of the deposit [vii].
The modus operandi of the NDIC deposit insurance coverage for the Mobile payment system is that the provision of the Pass-Through Deposit Insurance coverage is limited to the subscribers of funds domiciled in Mobile Money operators Trust (pool) account in the Deposit Money Banks.
According to the NDIC, the participant of the Pass-through Deposit Insurance Scheme are; the Deposit Insurer, Mobile Money operators, Deposit Money Banks, mobile Money Agents and customers
Afolabi noted that subscribers of Mobile Money operators will be insured up to the maximum coverage level as applicable to Deposit money Banks in line with the NDIC Act
Mobile payment system especially in developing economies is rapidly involving and making tremendous impact in the economy and lives of its citizenry.
In the Nigerian context, a total number of over 98 thousand agents have enrolled which simply translate into 98 thousand jobs created. Today there are 24 million subscribers ( far less than the over 120 million mobile lines) generating a transaction value of N815 billion.
According to ‘Dipo Fatokun, Director of Banking and Payment Systems in the CBN, ‘The potentials for mobile money to stimulate financial inclusion by enhancing economic opportunity and boosting productivity in various sector is huge.
She argued that the reliability of mobile payment operators is further given credence by the World Health Organization ( WHO) which is currently using mobile money to pay field health workers on immunization.
Save the Children in Nigeria, an international body charged with children development grant programme is also using mobile money to distribute funds.
With this in retrospection, it is safe to say that each mobile money account holder is entitled to deposit insurance coverage in the event of bank failure. Deposit insurance passed through from the trustee to the mobile money consumer by the NDIC, reinforces existing safeguarding measures and the overall safety of the mobile money scheme.
Managing Director/CEO NDIC, Umaru Ibarahim