Interoperability of Digital Financial Services in Tanzania
Kennedy Komba
In Tanzania, access to financial services for the
unbanked expanded drastically when convenient and relatively cheaper options
became available to receive and send money through simple feature mobile
phones.
This is the total number of all active accounts in the
referenced month). This was in October 2014, when three of the four mobile
money providers signed on to interoperability and made Tanzania the first
country to successfully develop and implement standard business rules for
interoperability (Source IFC: Achieving Interoperability in Mobile Financial
Services: Tanzania Case Study).
By February 2016, the fourth provider had signed on and
Tanzania was a global leader in the interoperability of digital financial
services delivered by mobile network providers. How did this happen? This
article highlights the key factors contributing to DFS interoperability in
Tanzania.
Establishing an enabling environment
A regulatory environment nurturing competition and
cooperation provided a foundation for dialogue and engagement around
interoperability.
The Bank of Tanzania, the country's central bank, played
a monitoring role, ensuring that DFS providers offered services in compliance
with risk mitigation frameworks (guidelines were issued that emphasized the use
of international standards) that supported the dual objectives of financial
stability and financial inclusion.
This led to policies advocating for non-exclusivity in
the use of mobile money agents and ultimately to agent interoperability.
However, as the market continued to grow and mature, some market players
demanded interoperability to kickstart client uptake, which had not seen rapid
growth. Comprehensive interoperability was a clear need.
The Bank had to assume a leadership role in the push for
sustainable interoperability. It opted for a market-based approach to
interoperability, which was backed by evidence, and began to coordinate the
process. It approved a neutral market facilitator, the International Finance
Company (IFC) and the Financial Sector Deepening Trust (FSDT) of Tanzania, to
facilitate engagement with DFS providers and reach agreement on an
interoperable solution.
A market approach works
The IFC facilitated the industry-led interoperability
project, with financial support from The Bill & Melinda Gates Foundation
and the FSDT.
This involved coordinating industry meetings to develop
and reach consensus among mobile money providers on business rules and
commercial agreements for interoperability and submit them to the Bank of
Tanzania for consideration.
This exercise began in September 2013 and, after several
meetings in which participants reached a greater understanding of the
regulatory framework, market demand, payment systems and rule development,
consensus was reached.
A year later, in September 2014, two of the four mobile
network operators (MNOs) signed off on the wallet-to-wallet operating rules,
which led to technical arrangements to initiate interoperability.
In December 2014, the third MNO came on board. It took
another year for the fourth to sign on, and by February 2016, Tanzania was one
of the first markets in the world to have full interoperability of mobile money
services (Figure 1).
Other markets could learn lessons from Tanzania's
journey. It is worth noting that although Tanzania was well-suited to a
market-based approach to interoperability, with its supportive central bank,
conducive regulatory framework, and a sufficient level of market competition
and maturity, two other factors played an important role: (i) the value
proposition for the private sector was taken into account; and (ii) private and
public sector dialogue was enhanced through the public policy lens of financial
stability and financial inclusion. This helped the regulator balance its dual
mandate and ensure financial inclusion initiatives do not compromise financial
stability.
The next frontier
Tanzania's interoperability journey is still underway:
the market is currently expanding the use case for interoperable services
through merchant payments and extending interoperable services beyond MNOs to
banks and other players. This will also involve improving the clearing and
settlement process, shifting from bilateral arrangements to a multilateral
process that includes a switching process. The Bank of Tanzania is continuing
to play a monitoring role and provides guidance and direction on a process that
is efficient and creates value not only for market players, but also for users
and other stakeholders. In the end, this will ensure the best solutions are
implemented and satisfy both private sector and public policy objectives-a task
guided by the same principles that led to interoperability in the first place.
Maoni
Chapisha Maoni