The number of mobile money accounts in Sub-Saharan Africa surged by 17% annually to 763 million in 2022, according to GSMA. The World Bank highlights the need for policymakers to assess the risks faced by users in the event of an operator's insolvency.

With the growing significance of mobile money services in developing nations, the World Bank advises policymakers to reassess regulations concerning operator insolvency. In a recent report titled "Insolvency of Mobile Money Firms in Developing Countries Overview for Policy Makers," the institution urged them to secure funds deposited in mobile money accounts and mitigate inherent risks.

While to date no major mobile money firm has become insolvent, firms providing other e-money services have failed, demonstrating the importance of clarifying fund safeguarding rules, the report said. The authors explained that operator insolvency could immediately erode trust in the financial system as users of these services often lack traditional bank access.

Another report titled "State of the Mobile Money Industry in Africa 2019" highlights that the failure of one or more mobile money operators could severely impact the overall financial and economic system of a developing country. Insolvency also exposes users to depreciation and liquidity risks. These risks are exacerbated by users often being treated as unsecured creditors in most legal frameworks. This means they would only be reimbursed after priority creditors, and only to the extent of remaining funds.

The liquidation process can be lengthy and costly, further diminishing available funds for users. As liquidation procedures often extend over several years in developing countries, users may not access their funds for a long time, worsening their financial situations and potentially that of their community.

Room for Improvement in African Regulations

Existing regulations in Africa partially address these risks. For instance, in the WAEMU zone, two regulatory frameworks oversee mobile money operator activities: Regulation No. 15/2002/CM/UEMOA on payment systems and BCEAO Instruction No. 008-05-2015 governing electronic money issuer activities.

Instruction No. 008-05-2015 aims to mitigate insolvency risks by imposing capitalization, risk management, and user fund protection requirements. For example, operators must maintain sufficient equity to cover operational and credit risks. User funds are segregated from company assets, providing extra protection in case of bankruptcy.

However, according to the report, challenges persist despite these regulations. In many cases, user funds are not classified as priority claims and are thus subject to increased risk in liquidation. Moreover, in many countries, mobile money operator fund protection requirements may potentially conflict with other laws, particularly insolvency and trust laws. The document notes that these challenges are compounded by few systems being fully compliant with World Bank principles governing insolvency treatment and creditor rights protection.

The report thus offers recommendations to guide policymakers in revising and strengthening robust regulatory frameworks capable of addressing challenges posed by mobile money company insolvency. It urges policymakers to define a clear legal status for users, determining whether they would be considered secured, priority, or unsecured creditors, or if necessary, create another appropriate classification. It also recommends reviewing regulations for compliance with international standards such as the World Bank Principles on Insolvency Regimes and Creditor/Debtor Relations.