AFGHAN CENTRAL BANK GOVERNOR REITERATES SUPPORT FOR

UNCLAS SECTION 01 OF 02 KABUL 000127 SENSITIVE SIPDIS TREASURY FOR LMCDONALD, MNUGENT, JCASAL E.O. 12958: N/A TAGS: EFIN EAID ECON PGOV PREL AF SUBJECT: AFGHAN CENTRAL BANK GOVERNOR REITERATES SUPPORT FOR EXANDING MOBILE BANKING REF: A. KABUL 0125 ¶B. 09 KABUL 3863 ¶1. (SBU) Summary: On January 7, Coordinating Director for Development and Economic Affairs (CDDEA) E. Anthony Wayne and Treasury Attache met with Da Afghanistan Bank Governor Abdul Qadeer Fitrat to discuss the M-Paisa pilot project, which uses mobile banking technology to pay Afghan National Police salaries in Wardak province. Governor Fitrat noted that the Central Bank's Financial Supervision Department had recently completed a positive review of the project and that he was ready to sign off on a countrywide expansion of the project. Later in the week, the Treasury Attache spoke with Kabul Bank on their initiative to use pre-paid cards to pay Afghan Government officials. Treasury Attache considers the pre-paid card initiative a potentially valuable alternative to mobile banking, and one which deserves more research. End Summary. CENTRAL BANK REPORT ON M-MONEY PILOT LARGELY POSITIVE - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶2. (SBU) Governor Fitrat reported that the Central Bank's Financial Supervision Department had successfully completed its review of the M-Money pilot project in Wardak Province (Jelrez District). Under the M-Money project, telecommunications provider Roshan and the Ministry of Interior (MOI) have teamed up to issue Afghan National Police salaries through M-Paisa, Afghanistan's first mobile money transfer system. Through this system, the MOI can issue salaries to ANP officers using SMS communication. ANP officers can then collect their salaries through certified mobile banking agents. ¶3. (SBU) The report found that ANP officers participating in the program were largely pleased with the pilot's results, consistent with earlier updates from CSTC-A representatives and MOI officials. The only negative incident reported was the case of an ANP commander in Wardak province who sought a cut of his subordinates' salaries from an M-Paisa agent in November (reftel B). The agent refused to disburse salaries to the commander and Minister of Interior Atmar suspended the commander and asked the Major Crimes Task Force to investigate. Governor Fitrat expressed satisfaction with how the incident was resolved. ¶4. (SBU) Governor Fitrat said he would soon sign a document agreeing to support the expansion of the M-Money project to other provinces and the indefinite extension of the mobile money pilot in Wardak province. In addition, he discussed expanding the project to additional ministries (e.g. Ministry of Energy and Water for payment of electricity bills; Ministry of Education for payment of teacher salaries). MINISTRY OF FINANCE HAS LINGERING CONCERNS ABOUT MOBILE BANKING - - - - - - - - - - - - - - - - - ¶5. (SBU) Although the M-Money pilot in Wardak has been successful to date, the Ministry of Finance's Treasury Department (which has legal responsibility for salary funds until they reach the recipient) has expressed concerns, stating that there has not been sufficient critical assessment of the pilot's outcomes and risks. CSTC-A representatives have told EmbOffs that MOF has given only weak support to the pilot project in Wardak and may oppose its expansion. They believe MOF's stance partially reflects an ongoing turf battle with MOI. (Note: This is a particularly important issue that will be looked into further as part of Ambassador Holbrooke's trip to Kabul later this week.) KABUL BANK PUSHES PRE-PAID CARDS AS ALTERNATIVE - - - - - - - - - - - - - - - - - - - - - - - - ¶6. (SBU) Update: On January 10, the Treasury Attach met with a senior official at Kabul Bank to discuss the bank's plan to use pre-paid cards to pay Afghan government salaries. Kabul Bank is currently conducting preliminary discussions with the U.S. Military on using pre-paid cards to pay Afghan National Security Forces (ANSF) salaries. This is the first time the idea has been communicated to EmbOffs. Treasury believes the idea has merit and should be considered a potential alternative or supplement to the M-Paisa program. The cards could also be used to provide micro-grants and loans - in both rural and urban areas. The pre-paid card concept has strengths and weaknesses relative to mobile banking. Pre-paid card advantages include the ability to use cards globally and at any ATM or Point of Sale (POS) machine (the Kabul Bank official stated POS machines cost about $300, can easily be distributed all over the country, and do not require a landline). In addition, the official told Treasury that Kabul Bank would supply funds for the cards rather than requiring the U.S. Military to pay up-front. The key disadvantage to pre-paid cards relative to mobile banking is that cards cannot provide 24 x 7 facilities for person-to-person funds transfers or balance info. Treasury will KABUL 00000127 002 OF 002 work with other USG agencies to further research the viability of Kabul Bank's prepaid card plan. ¶7. (SBU) Update: The final version of the Money Service Provider (MSP) regulation (encompassing electronic/mobile money institutions) was recently released by the Central Bank. (Note: This regulation is available at the following URL: http://www.centralbank.gov.af/ laws-and-regulations.php.) Despite substantial suggestions during the comment phase from Roshan and other interested parties, two concerns remain in the regulation as released: - Agent Liability: M-Paisa/mobile money providers are completely liable for any acts/omissions of the agents (in the field),which creates a large opportunity for fraud. - Agent Liquidity: M-Paisa/mobile money providers are responsible to ensure the liquidity (cash on hand) of the agents, which also creates a large opportunity for fraud/collusion. COMMENT - - - - ¶8. (SBU) Governor Fitrat's continued support of mobile money is key to achieving strategic objectives at both the national and local levels. While there are concerns about mobile money, its potential makes it an important initiative to follow and support where appropriate. The Kabul Bank prepaid card concept is also of possible interest, however, more analysis on the specifics are required. Post will continue to track developments, coordinate with military in this key area and make recommendations on the various payment methods available. EIKENBERRY