Kenya’s Biggest Fintech & Gov’t Agencies Face Unprecedented $2B Lawsuit

By  |  March 6, 2023

Three Kenyan users of M-Pesa, Kenya’s leading mobile money platform powered by the country’s biggest telco Safaricom,  have filed a lawsuit against Safaricom, Vodafone Group, and several other entities, including two government institutions. over the Fuliza overdraft service (which is run by Safaricom, NCBA, and KCB).

According to the plaintiffs, the service is illegally exploiting non-borrowing M-PESA users’ funds and conducting financial transactions without being a bank or other financial institution as defined by the Banking Act.

Gichuki Waigwa, Lucy Nzola, and Godfrey Okutoyi, who brought what could be considered an unprecedented case, are now seeking KES 305 B (USD 2.3 B) in damages for fraudulent misrepresentation, material nondisclosure of facts, illegal investment of M-PESA account holders’ funds, predatory lending practices, and exploitative interest charges. The Central Bank of Kenya and the Communications Authority of Kenya are also named in the suit, as reported in the local media.

The case against the establishment

The identity and administration of Kenya’s M-PESA money transfer services are at the heart of the lawsuit. Plaintiffs claim that government representatives participating in the project engaged in dishonest behaviour to advance their own interests and those of their cronies at the expense of Kenyans.

In particular, they contend that government representatives distorted the ownership structure of M-PESA and omitted crucial details concerning its activities.

Local media reports that the suit features a statement by the Ministry of Finance regarding M-PESA money transfer services, implying that there were concerns about transparency and accountability on the platform. “It would appear like the statement acknowledges that there were reporting and public disclosure requirements for M-Pesa, but it is unclear whether these requirements were met,” Techweez reports.

The lawsuit also contains information on the requirements for public disclosure and reporting. It mentions that businesses must inform regulatory bodies of specific information and make operational disclosures to the general public. It is made clear that the goal of these standards is to encourage responsibility and openness in company processes.

The plaintiffs further claim that Safaricom and the other defendants engaged in a scheme to cheat them out of their rights as beneficiaries of a trust that Safaricom set up in 2007.

The trust was established to keep digital currency deposited through Safaricom’s M-PESA mobile money service. The plaintiffs contend that the defendants’ deceptive actions prevented them from receiving their entitlements, which included a share of the funds kept in the trust. The plaintiffs assert that the defendants conspired to deny them their proper part of the trust assets through a well-orchestrated, state-approved patronage scheme.

More areas of dispute

Important issues regarding accountability and transparency in financial institutions are raised by the case. Those who don’t have access to traditional banking services are increasingly using mobile money services like M-PESA to store and transfer money electronically. But, as this instance tries to highlight, if these technologies are not adequately regulated and managed, there may be untold risks involved.

The question of whether the digital currency stored on SIM cards should be regarded as actual money or just a digital representation of value is one that this case brings up.

This case also brings up the question of whether the digital currency stored on SIM cards should be regarded as actual money or just a digital representation of value. It should be covered by the same laws and safeguards as conventional bank deposits if it is regarded as genuine money, the plaintiffs argue. But if it is not regarded as real money, there might be openings that dishonest people could take advantage of.

The lawsuit asks for a number of reliefs, including rulings that Safaricom violated the law when it manipulated the tendering process and orders requiring it to pay compensation for contract violations.

As a result, the lawsuit seeks the following relief: orders compelling all defendants to pay exemplary damages, orders compelling all defendants to pay punitive damages, orders compelling all defendants to pay interest on damages awarded, costs incurred by the plaintiffs in filing the lawsuit, and any other relief the court deems appropriate.

The matter has been taken to the Nairobi Milimani Law Courts’ Anti-Corruption & Economic Crimes Division. The plaintiffs’ arguments against Safaricom and other defendants are set forth in a number of documents. Due to the interest of the public in this subject, they have also asked for an expedited hearing.

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