Ecocash, Mpesa  under spotlight

. . . companies’ laws could have been violated

KANANELO BOLOETSE

MAFETENG – Lesotho’s two telecommunications giants, Econet Telecom Lesotho (ETL) and Vodacom Lesotho (VCL) could have overstepped their bounds and violated financial and companies’ laws when they ventured into a mobile money business which they were not registered to, Public Eye has learnt.

An application for incorporation of a company, according to law, has to indicate the type of business in which the company intends to engage, in accordance with the Lesotho Business Classification Codes.

Records from the companies’ registry show that ETL and VCL are registered as telecommunications enterprises whose primary activities are “wholesale of electronic and telecommunications equipment and parts” and “retail sale of computers, peripheral units, software and telecommunications equipment in specialised stores”.

Their other registered activities are wired telecommunications, satellite telecommunications and “other telecommunications activities”. However, from 2012 and 2013 ETL and VCL ventured into the thriving business of mobile money in the financial services industry. ETL launched its mobile phone-based money transfer and payments service, EcoCash in October 2012, while VCL launched the similar M-Pesa in July 2013.

A practicing senior advocate who spoke to Public Eye on condition his identity is not revealed said at common law, a company is limited to acting within the objects set out in its memorandum of association. He added anything purported to be done by a company which is beyond those objects would be ‘ultra vires’ (beyond one’s legal power or authority) and void at common law.

Business commentator, Thabo Qhesi, said before a company can venture into a new business it has to amend its objects clause and duly submit the amended clause to the registrar of companies. An objects clause is a provision in a company’s constitution stating the purpose and range of activities for which the company is carried on.

The Financial Institutions Act of 2012 states that a local financial institution shall not be granted a license unless it is incorporated as a public company under the Companies Act. The Financial Institutions Act states that a company intending to operate as a financial institution “shall not be registered without prior written approval of the Commissioner”.

In order to obtain a licence under this Act as a financial institution, an applicant company has to apply in writing to the commissioner and submit, among others, authenticated copies of the memorandum and articles of association.

VCL told Public Eye: “Vodacom Lesotho’s mobile money operations have always been duly authorised by the Central Bank of Lesotho (CBL). That is similar to, for example, an insurance company authorised to mine diamonds by the ministry of mining or a law firm authorised by the ministry of tourism to sell alcohol.

Lesotho Communications Authority (LCA) – a statutory body established in June 2000 with the mandate of regulating the communications sector in Lesotho – distanced itself from EcoCash and M-Pesa services.

“We wish to point out that our mandate as per the Communications Act No.4 of 2012 is limited to regulating the provision the communications services, namely; telecommunications, broadcasting and postal services,” Mothepane Kotele of LCA said.

“As a result, regulation and supervision of financial services, it being mobile money services, does not fall within our mandate,” Kotele added. CBL had not responded to questions emailed to it at the time of going for print. The central bank’s public relations manager, Ephraim Moremoholo, told Public Eye on Wednesday this week: “We are still on it, and will get back to you once the necessary consultations have been completed.”

Public Eye had asked LCA by whose authority ETL and VCL (both only registered as telecommunications businesses) were taking deposits from the members of the public and operating payment systems through Ecocash and M-Pesa respectively.

This publication has obtained both companies’ extracts showing their business activities listed earlier in this article. According to the Financial Institutions Act, a person, other than a licensed deposit taking institution, should not accept any deposits from the public. VCL denied it was taking deposits from the members of the public.

“It is important to clarify from the outset that Vodacom Lesotho was licensed by the Central Bank of Lesotho as an issuer of mobile money and not a deposit taking institution as the line of questioning suggests,” Thato Mochone, VCL’s corporate communication specialist, said.

Public Eye also wanted to find out from the LCA which regulatory authority would take responsibility and provide recourse if something happened with members of public’s hard-earned money deposited in EcoCash and M-Pesa. “Our humble view is that an appropriate authority, which may adequately address your questions, is the authority charged with the responsibility to regulate financial institutions in Lesotho,” Kotele responded.

She added: “In the same vein, it may also be important to direct your questions to the relevant service providers cited in your questions.” ETL also referred Public Eye to the central bank. “Having browsed through your questions, I would like to refer you to the authority that regulates mobile money in our country which is the central bank of Lesotho. They should be able to respond to all your questions related to EcoCash operations,” said Puleng Litabe of ETL.

Both ETL and VCL appeared in the central bank’s list of licensed financial institutions for first quarter of 2021 published earlier this year. “The Central Bank of Lesotho hereby notifies members of the public that the under-mentioned institutions are duly licensed to operate in Lesotho in terms of the Financial Institutions Act of 2012, the Insurance Act of 2014 and the Collective Investment Schemes Regulations of 2001,” CBL said.

“The list includes approved banks, insurance companies, insurance brokers, Micro-Finance, Credit Bureau, Foreign Exchange and collective investment schemes,” it added. VCL announced in July this year that its M-Pesa mobile money platform will operate under the new company, VCL Financial Services. “The decision to separate the businesses followed the Central Bank of Lesotho’s recommendation – a move welcomed by Vodacom Lesotho – to separate the M-Pesa business from the GSM business to enhance its oversight functions in the financial services regulatory environment,” Mochone said.

“Vodacom’s M-Pesa activities fall under the auspices of the Central Bank of Lesotho, whose mandate includes relevant authorisation requirements related to mobile money,” she added. Records obtained from the registrar of companies show that VCL Financial Services, unlike ETL and VCL, was duly incorporated as a financial services and insurance business on June 24, 2020. It is wholly owned by VCL.

Its business activities include financial leasing, other activities auxiliary to financial service activities, life and non-life insurance, other financial service activities, except insurance and pension funding activities. In 2014, the parliament enacted the Payment Systems Act to make provision for the management of interbank systems, clearing houses and securities settlement systems, and related purposes.

Section 10(1) of the Act made it an offence for any person to operate a payment system in Lesotho, like EcoCash and M-Pesa, unless such person is in possession of a license for this purpose, obtained from the central bank. In 2017, the central bank promulgated the Payment Systems (Issuers of Electronic Payments Instruments) Regulations which prescribed licensing requirements for operating a payment system in Lesotho.

VCL Financial Services was licensed under the Payment Systems (Issuer of Electronic Payments Instruments) Regulations as a mobile money issuer. Public Eye asked VCL by whose authority it was previously taking deposits from the public and operating a payment system through M-Pesa.

Mochone answered: “Vodacom Lesotho’s mobile money operations have always been duly authorised by the Central Bank of Lesotho. From July 2013 until the enforcement of the Payment Systems Regulations in 2017, Vodacom Lesotho issued e-money under the Mobile Money Guidelines through a ‘letter of no objection’ from the CBL.

“Since the enforcement of the Payment Systems Regulations, Vodacom obtained an annually renewable Certificate of Registration of an issuer of an electronic payment instrument from CBL.” She emphasised that VCL’s operations of M-Pesa, from July 2013 when the service was launched up to this year when the service was transferred to the new company, were completely above board.

“As a responsible corporate citizen, Vodacom Lesotho has operated M-Pesa in adherence with prevailing regulations and requirements of the Central Bank of Lesotho and has an exemplary record regarding the issuance of mobile money services,” Mochone said.

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