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E-Money and Deposit Insurance in Kenya

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  • Defina, Ryan
  • Van Roosebeke, Bert
  • Manga, Paul

Abstract

E-money is widespread in Kenya, especially through MPESA, a form of e-money stored on mobile phones and issued by Safaricom, a mobile network operator (MNO). Integration between the MPESA platform and the traditional banking system is increasing. Given the very high use-grade of MPESA throughout the population, it has reached critical importance in Kenya. In Kenya, e-money issuers must back their e-value with bank balances at commercial banks (float), through trust accounts. Deposit insurance does not cover a default of the e-money issuer. However, the Kenya Deposit Insurance Corporation aims at offering pass-through coverage in case of a default of the deposit-taking commercial bank holding the trust accounts. Pass-through coverage is confronted with a number of challenges, including regarding data on the identity of e-money users and their balances held. Also, the critical importance of MPESA raises questions as to how to deal with a potential default of the MNO and the role of deposit insurance in such a scenario. Looking forward, there is merit in further coordination amongst safety net participants as well as in the management of trust accounts and the strengthening of data-availability requirements to e-money issuers.

Suggested Citation

  • Defina, Ryan & Van Roosebeke, Bert & Manga, Paul, 2021. "E-Money and Deposit Insurance in Kenya," MPRA Paper 111007, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:111007
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    References listed on IDEAS

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    1. World Bank [WB], 2018. "The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution," Working Papers id:12735, eSocialSciences.
    2. Isaac Mbiti & David N. Weil, 2015. "Mobile Banking: The Impact of M-Pesa in Kenya," NBER Chapters, in: African Successes, Volume III: Modernization and Development, pages 247-293, National Bureau of Economic Research, Inc.
    3. Van Roosebeke, Bert & Defina, Ryan, 2021. "Five Emerging Issues in Deposit Insurance," MPRA Paper 110713, University Library of Munich, Germany.
    4. Milford Bateman & Maren Duvendack & Nicholas Loubere, 2019. "Is fin-tech the new panacea for poverty alleviation and local development? Contesting Suri and Jack’s M-Pesa findings published in Science," Review of African Political Economy, Taylor & Francis Journals, vol. 46(161), pages 480-495, July.
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    Cited by:

    1. Carlos Colao & Roman Kahanek, 2022. "Beneficiary Accounts: Challenges for Deposit Insurance Schemes," IADI Fintech Briefs 7, International Association of Deposit Insurers.
    2. Van Roosebeke, Bert & Defina, Ryan, 2021. "Central Bank Digital Currencies: The Motivation," MPRA Paper 111006, University Library of Munich, Germany.
    3. Aurazo, Jose & Gasmi, Farid, 2024. "Digital payment systems in emerging economies: Lessons from Kenya, India, Brazil, and Peru," TSE Working Papers 24-1572, Toulouse School of Economics (TSE).

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    More about this item

    Keywords

    deposit insurance; bank resolution;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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