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
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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
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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
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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
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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