BY ANTONY MUTUNGA
Currency has changed forms many times over years. From metal coins to the now advanced crypto currencies, which are bridging the gap and reducing the cost of making and receiving payments in the global village. Other than crypto currencies, there is also mobile money. These two virtual money transaction innovations are edging out the physical money and the traditional ways of transacting
According to the World Bank, Kenya has among the highest percentage of growth in remittance in Africa. However, high remittance costs by transfer firms significantly reduces what finally reaches the recipient country. This hurdle has over the years pushed local companies to innovate ways to cut remittance costs. It is from the dire need to reduce these costs that gave birth to technologies like mobile money services and crypto currencies.
Crypto currencies are digital currencies that use encryption techniques to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. They use peer-to-peer technology to operate with no central authority: the network carries out managing transactions and issuing money collectively. Crypto currencies include the likes of bitcoins and worldcoins.
Mobile money, on the other hand, is a way of storing virtual money in ones mobile phone with the ability of passing it from one person to another. For people who have no mobile phones, they can receive money from a friends’ or from an agent who usually changes the virtual money to physical money and vice versa.
Safaricom’s M-Pesa was launched in 2007 and is widely known as the alternative currency. It is considered safer and more secure.
According to a report by National Bureau of Economic Research, by 2009, M-Pesa, with 10 million users, had revolutionized the financial community.
On the other hand, bitcoins entered into the Kenyan market through a company known as BitPesa. It was established in 2013 and it looked to enable Kenyans to receive and send money internationally in the form of bitcoins at an affordable rate than that of money transfer companies like Western Union and MoneyGram.
BitPesa, save for the firm grip mobile money has on the market, has quite a potential in the country. Bitcoins have therefore not quite hit the market in a massive way yet, although there are several meet ups where people are usually increasing in number as more people continue to learn about the crypto currencies.
The major obstacle, however to BitPesa and other emerging virtual currencies is the lack of recognition by the regulator. The Central Bank of Kenya (CBK) has recently warned Kenyans against the use of the Bitcoin other virtual currencies. In a press statement, regulator said “Virtual currencies such as Bitcoin are not legal tender in Kenya therefore no protection exists in the event that the platform that exchanges or holds them fails or goes out of business.”
The CBK also warned that the virtual currencies are associated with criminal activities and put consumers at high risk of losing money without legal redress. “Transactions in virtual currencies such as Bitcoin are largely untraceable and anonymous therefore susceptible to abuse by criminals in money laundering and financing terrorism… CBK reiterates that Bitcoin and similar products are not legal tender nor are they regulated in Kenya. The public should therefore desist from transacting in Bitcoin and similar products,” the regulator warned.
Virtual money, however, have several advantages. It has a low cost on transactions, which makes it economical. They are international, say, unlike M-Pesa, which regardless of its growth is yet to be available in many countries.
Bitcoin is also a decentralized system hence it has no owner or single institution that controls its network like central bank do with fiat currency, making it an open source. It, however, depends on the Internet, limiting the scope of its uses especially in developing economies.
BitPesa CEO, Elizabeth Rossiello says, “It is the first company in the world to link mobile money to bitcoins.”
Bitcoin, she says, is like a token whereby instead of moving money or transfer of value, one can buy and sell bitcoins as payment or recede of payment.
BitPesa had a primary objective of bridging the gap between those who wanted to remit from the United Kingdom to Kenya and vice versa. The person from either of the countries was to send bitcoins and the recipient was to receive it in Kenyan shillings in their accounts, as the company would convert from bitcoins first.
BitPesa uses the services of Lipisha, a company that uses various platforms to automate mobile payments, to enable transfers and conversions of bitcoin into other currencies.
“I think one of the largest problems with Kenya’s financial system right now is Mpesa – it’s too powerful.” This was due to the fact that M-Pesa as a gatekeeper has the power to choose who to let in and onto their system,” said Kipochis’ (first bitcoin wallet in Africa) founder Pelle Braendgaard,
With BitPesa rising slowly in the Kenyan market, it eventually found itself between a rock and a hard place as arguments between it and the dominant telecommunication company, Safaricom, arose. Safaricom cut off Lipisha’s access to BitPesa without notice last November 12 besides asking them not do business with BitPesa. This ended up in court with Lipisha and BitPesa combining efforts against Safaricom.
On December 12, the High Court allowed Safaricom to maintain the status quo, pending the hearing of the case. It is interesting how this will end, especially with the recent declaration by the CBK that that virtual currency is illegal.
This prompted Lipisha to take Safaricom to court, arguing the telecom giant had no grounds to terminate their access without notice. As BitPesa largely depended on the services of Lipisha it joined in suing Safaricom. The two companies argued that Safaricom was using its dominance in the mobile money market to kill off competition by denying Lipisha access.
Safaricom at the same time argued that BitPesa’s transactions with Lipisha through the Safaricom platform contravened the Anti-Money Laundering (AML) regulation, which was introduced in 2009.
The lawyer to the two firms also added that Safaricom’s termination of Lipisha to access its platform was creating grave strain on the two firms and thus causing inconveniences to the people who use their services.
On December 14th a Kenyan high court judge gave a ruling that Safaricom will not have to reinstate Lipisha’s access to their platform M-Pesa for Bitcoin Company, BitPesa until the case over the AML rules is done. The judge stated that some aspects of BitPesa’s transactions constitute money remittance under the Kenyan law.
Although, the ruling itself was against CBK’s formal and written guidance as it is the institution that regulates and enforces the rules on money remittance in Kenya. Previously, CBK had ruled that BitPesa was not engaged in money remittance.
After the case ruling, BitPesa issued a statement saying, “Today the judge ruled that this case will continue on for further judgment. This could be a lengthy process, as are many legal cases around the world. Importantly, the judge also found that BitPesa is strong enough to sustain its business for the duration of this potentially long trial, even without access to the M-Pesa network.” In addition Elizabeth Rossiello said, “That Safaricom moved against us shows that we have already won.”
