Fuliza: Three petitioners seek over Sh300b Mpesa cash from Vodafone

A battle over the operation of M-Pesa by Safaricom and the United Kingdom-based firm Vodafone has landed in court.

Three petitioners Gichuki Waigwa, Lucy Nzola, and Godfrey Okutoyi want the court to compel Vodafone to refund more than Sh300 billion which they claim belongs to M Pesa account holders.

In what may lift the veil on how mobile money business is conducted, the three have sued Safaricom Plc, Vodafone Group Plc, Vodafone Kenya Limited, and M-Pesa Holding Company Limited.

Also sued are Vodafone International Holdings B.V, M-Pesa Foundation Charitable Trust, Safaricom Foundation Charitable Trust, and Carepay Limited among others.

The petitioners have also targeted Fuliza, arguing that it is a banking service that is not regulated by law.

They allege that the money borrowed emanates from other account holders who have not withdrawn the money.

The crust of the case boils down to the regulation of M-Pesa and whether interest accrued from services offered to those who borrow from products such as Fuliza should be shared with the M-Pesa account holders.

The regulator is the Central Bank of Kenya (CBK) while the Attorney General is the custodian of the regulations.

In the meantime, Safaricom offers a platform for Fuliza, M-Shwari, and Hustler Fund.

“Central Bank failed in its statutory mandate in failing to prohibit the on-lending of funds belonging to non-borrowing M-Pesa account holders to other M-Pesa Accountholders intending to borrow, through the Fuliza continuous overdraft service which “allows Safaricom’s M-Pesa customers to complete their M-Pesa transactions even when they do not have enough funds in their M-Pesa account,” the three who alleged to have M-Pesa accounts claim.

 In their case filed before the Anti-Coruption High Court, the three through their lawyer Wilfred Nderitu claim that they are suing on behalf of their own behalf and on behalf of 52 million M-Pesa Account holders.

They want the court to find that M-Pesa business was and is meant to be a banking business and should have been regulated by the CBK.

“M-Pesa service as provided by Safaricom Plc and the Vodafone Group Plc amounted to “banking business” and or “financial business” and was provided in contravention of Section 2(1) of the Banking Act.

It is therefore contended that the overdraft service is a clear example of how Safaricom, in conjunction with NCBA, has been engaging in the banking business and financial business despite not being a bank or a financial institution for the purposes of the Banking Act,” Court papers read in part.

According to the court papers, the three allege that M-Pesa was developed with the sole intention of reducing the high cost of banking while offering an efficient banking infrastructure to mitigate poverty in rural Kenya.

 Court documents read that when M-Pesa started in March 2007, Safaricom registered at least 20,000 customers.

According to the documents filed Wednesday this week, this number grew to at least one million in November of the same year.

 The number of those who have registered to use the service today is more than 22 million, Nderitu claims.

 He argues that the Central Bank of Kenya was aware from the start that the M-Pesa model meant that the money deposited ought to be held in trust as Safaricom was not a licensed deposit-taking institution.

According to him, CBK ought to have ensured that Safaricom either did not operate as a bank or in the alternative, supervise or control M-Pesa transactions processes.

He argues that there was a major concern about how the owners of money deposited to M-Pesa would be compensated in case there is financial losses. This, he says, has never been addressed.

According to Nderitu, this concern was raised by former Interior Security Minister John Michuki.

He is of the view that although a trust was set to manage the funds collected, Safaricom retained control of the same. He claims that money held by M-Pesa from the customers who are not withdrawn ends up being offered as loans.

The petitioners roped in NCBA and Kenya Commercial Bank (KCB) arguing that Safaricom ought to pay interests on M-Pesa account holders from investments and profits accrued from the money.

“Safaricom and M-Pesa Holding maintained and have continued to maintain bank accounts at various banks, notably at NCBA and KCB, for a period of up to about sixteen (16) years as at the time of filing this suit, during which the two defendants (Safaricom and M-Pesa Holding) have collected and paid out to persons other than M-Pesa accountholders monies running into trillions of Kenya shillings in interest payments and investment income from real money belonging to M-Pesa account holders,” court papers continue.

Waigwa, Nzola, and Okutoyi claim that Safaricom ought to know that M-Pesa Holdings cannot donate any money as they belong to account holders.

They continue that this is trust money that ought to return to its owners. In this case, they allege that M-Pesa borrowing is a case of taking from one pocket and putting into the other which does not have.

They allege: “Assuming that Safaricom was using its own money this would necessarily mean that its funds were (being) blended with those of the M-Pesa Accountholders, which would be in violation of the law of trusts against commingling of third-party monies with funds belonging to beneficiaries.

 They also want the court to order the government and CBK to compensate anyone who has lost money through M-Pesa.