The Uganda Bankers’ Association has objected to a government proposal seeking to have mobile money funds held on trust accounts earn interest.
A trust account refers to funds held in trust by the bank whilst two or more parties complete a transaction. It entails mobile money stock, float and mobile money balances. According to the Bankers’ Association, the key players here are mobile money agents, merchants, mobile wallet holders or mobile money subscribers.
Currently, no interest is paid on the trust account since according to the Bankers ‘Association, the nature of deposits fluctuates regularly.
But government under the National Payment Systems Bill, 2019 currently scrutinized by Parliament’s Finance Committee proposes that commercial banks provide interest for mobile money funds held on trust accounts.
“A bank licenced by the Bank of Uganda conducts proper due diligence on the mobile money service provider, enters into an agreement with a telecom operator to provide the escrow account that holds all the money collected by mobile money agents on behalf of the registered mobile money users,” explained Wilbrod Owor the Uganda Bankers’ Association Executive Director.
He was on Wednesday appearing before the Finance Committee together with Mathias Katamba, the Managing Director DFCU Bank, Nazim Mahmood the Managing Director ABSA, Anthony Kituuka the Executive Director Equity Bank and others.
Owor told MPs that the assumption that interest has been earned on the trust account presupposes that banks have invested the funds held in ‘trust’ of the subscribers and earned a return that is payable to a beneficiary.
“Given the nature of Trust accounts, the bank is obliged to keep funds available for any liquidation by Mobile Money subscribers which limit the ability to utilise the fund for investment. For example, a commercial bank’s role is mainly to hold customers’ funds in Trust accounts and release them on demand,” he added.
He said that a mobile money account holder is not a bank account holder and cannot earn bank interest because interest is contractual between the account holder and a bank. Owor argued that the Bill is looking at regulating payments systems and not banking matters relating to interest propositions which should be managed under the Financial Institutions Authority (FIA).
The Bankers’ Association says that paying interest is a banking activity and it should be at the discretion of the financial institution and not dictated through an Act which tantamounts to government intervention in free-market movements.
Katamba warned that if the government proposal is adopted, banks will likely introduce charges for maintaining these accounts leading to higher cost of financial services to be paid by users and also banks would engage the Central Bank to reduce the Cash Reserve Ratio (CRR) and allow banks invest in idle cash.
He said that the proposed Bill should create a level playing field.