Governor Bank of Uganda Prof Emmanuel Tumusiime Mutebile has expressed worry about the possible ramifications of the rapidly expanding mobile banking business in the country and the East African region, ChimpBusiness reports.
Mr Mutebile on Thursday highlighted an array of dangers that mobile banking could pose on Uganda’s financial system, on policy and regulation, if it keeps up with the current competition against the traditional banking system.
The governor was speaking at the opening of a conference on the economics of Mobile Money, held at Sheraton Hotel in Kampala.
The comments come against the backdrop of fraudulent mobile money transactions by MTN Uganda.
While mobile money enables customers to carry out quick transaction thus compelling many to avoid the traditional banking system, it is haunted by scandals of fraud and manipulations.
Several former employees of MTN Uganda this week testified at the Anti-Corruption court on how the telecom giant used its systems to create hot air money worth billions of shillings for mobile money operations.
Mutebile said he was worried that in only a few past years, mobile banking had exhibited all the potential of wiping out the traditional banking system, which has existed for more than 100 years, where customers held deposit accounts and received a range of services from the banks.
“Mobile banking is already peeling away some of these services from banks, notably payment services,” said the governor.
“One wonders how many more types of financial services will migrate from the traditional banks to mobile banking in the future.”
He added, “As commercial banks lose their dominance in the market for these services, will traditional banking remain viable?”
The Central Bank boss’ remarks also come at a time when most commercial banks in the country are striving to keep up with the new Internet banking vogue, ushered in by mobile telecommunication service providers.
Customers nowadays are enjoying the extensive ability to carry out transactions, access their accounts, and even conduct a number of retail transactions on their mobile phone handsets, tablets or laptops.
At the conference, Mutebile warned that the blossoming mobile banking could have adverse implications on government’s (Central Bank) monetary policy, and financial regulation, both of which are easier implemented through traditional banks.
He went on to caution that central bank’s ability to control interest rates would also be undermined especially if the ‘radical’ mobile banking business proceeds to substitute the demand deposits in commercial banks.
The central bank normally controls short-term interest rates by varying the liquidity available for commercial banks to meet their reserve requirements.
If mobile banking eventually reduces the role which commercial banks play in the financial system, Mr Mutebile warned that the interest rates transmission mechanism would be weakened.
“We (BoU) will therefore need to develop alternative tools for influencing interest rates in the economy,” stated the Governor.
He noted that the central bank’s financial regulation is easier implemented under commercial banks because these are financial institutions where the bulk of ordinary people keep their financial savings, but also the banks play a key role in the economy’s payment system.
“Commercial banks are thus much more important to the stability of the financial system and delivering of essential financial services to the economy than any other financial institution.”
“As I have noted, mobile banking is already providing partial substitution for the retail payment services of banks, and could eventually challenge the dominance of banks in the provision of other types of services, including deposits.”
“If so, prudential regulation — which is focused on ensuring soundness of the banking system — may no longer be sufficient to protect the safety of customers’ savings as well as the stability of the financial system,” added Mutebile.