554 points

3  Kenyan M-Pesa users have filed a lawsuit against Safaricom, Vodafone Group, and two government agencies over its Fuliza overdraft facility.

The trio allege that the service illegally uses money belonging to non-borrowing M-Pesa users and is engaged in banking and financial business despite not being a bank or financial institution for the purposes of the Banking Act.

The plaintiffs, Gichuki Waigwa, Lucy Nzola, and Godfrey Okutoyi, are seeking KES 305 billion in damages from the defendants for fraudulent misrepresentation, material non-disclosure of facts, illegal and unlawful investment of M-Pesa account holders’ funds, predatory lending practices, and charging of exorbitant interest rates.

Aside from Safaricom, the other defendants are Vodafone Group, the Central Bank of Kenya, and the Communications Authority of Kenya.

According to the lawsuit, the three accuse Safaricom of fraudulent misrepresentation and material non-disclosure of facts related to the risk assessment audit of the M-Pesa Service. They say that the government, through the then Permanent Secretary in the Ministry of Finance, falsely claimed that the service was sound, safe, and reliable, while it knew that the service was unsafe and unreliable.

They further argue that the M-Pesa Service was in competition with commercial banks and was in dire need of regulation to protect the rights of marginalized people.

The plaintiffs argue that the Fuliza overdraft service that allows M-Pesa users to complete transactions even when they don’t have enough funds in their accounts illegally used money belonging to non-borrowing M-Pesa users and is engaged in banking and financial business despite not being a bank or financial institution for the purposes of the Banking Act.

Waigwa, Nzola, and Okutoyi also claim that Safaricom and other associated defendants invested M-Pesa account holders’ funds illegally and unlawfully. They say that the trust account into which money was collected by M-Pesa agents was a ‘sham trust’.

They further claim that Safaricom is a “financial institution” as defined by the Proceeds of Crime and Anti-Money Laundering Act. Furthermore, the Plaintiffs claim that Safaricom fraudulently and illegally invested M-Pesa Accountholders’ funds with third-party banks, mingling them with Safaricom and Vodafone Group’s.

Central Bank of Kenya

The three accuse CBK of failing to provide sustained and effective oversight of the service. They argue that CBK failed to ensure that M-Pesa Accountholders’ funds were always safeguarded and kept separate from money used in Safaricom’s ordinary operations.

They also accuse CBK of failing to prudentially regulate Safaricom and the M-Pesa Service by requiring it to control risks by overseeing and ensuring that its reporting and public disclosures requirements were met.

Communications Authority of Kenya

The plaintiffs seek a declaration that the Communications Authority of Kenya, as Safaricom Plc’s adjunct regulator in relation to the M-Pesa Service, violated its statutory duty to ensure full compliance with its functions pertaining to the provision of telecommunication services and the regulation of electronic transactions, as contemplated by Sections 23 and 83C of the Kenya Information and Communications Act.

The plaintiffs allege that Safaricom and M-Pesa Holding commingled funds, resulting in Vodafone Group owing M-Pesa Accountholders KES 305 billion for the years ended March 31, 2019, and March 31, 2020.

They say the funds should never have come into the hands of Vodafone Group and that the money should be paid to M-Pesa Account Holders.

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554 points