HomeOpinion & AnalysisColumnistsBudgetary implications for financial innovation,inclusion

Budgetary implications for financial innovation,inclusion

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The unauthorised release of 251 287 secret diplomatic cables by whistle- blower website WikiLeaks apparently not only exposes international political undergarments; the financial sector is also fingered as recent reports indicate that in a matter of days damning disclosures will be made involving a major American bank, thought to be either Bank of America or Citigroup.

In much the same way as this unauthorised release has torched a firestorm of denials, accusations and counter-accusations and provided fodder for partisan political engagement in this and other countries, the 2011 Budget appears to have provided much more fodder for this column than initially envisaged.

Under the circumstances, I may be forgiven for the episodic release of budget briefs in the manner of WikiLeaks.

As you have come to know, for maximum impact, WikiLeaks releases its damning cargo in calculated batches.

So far, only 1 447 cables have been released out of a possible 251 287 but just think of the brouhaha that only 0,6% of the cables have already created.

WikiLeaks has caused much anxiety and speculation and already, some enterprisingly creative people are beginning to write articles like “10 things I wish WikiLeaks would release”.

Anyway, back to the more mundane issue of dividing the national cake, I had intended last week’s article on the dynamics of ditching a burdensome cargo cult to be the last piece based on the budgetary theme but a further look revealed an interesting perspective deserving further exploration, the fiscal policy’s implications for innovation and inclusion.

As indicated before, on paper the 2011 Budget is pro-growth and reform-minded as far as the financial sector is concerned, but does it pass the real test of promoting financial inclusion and innovation, two very key parameters for financial sector growth?

Well, the jury is still out on that one but in the meantime in attempting to answer the question as best as we can, we will review some of the minister’s proposals and assess their financial innovation and inclusion credentials.

Deposit–taking MTAs: The proposal “to allow MTAs to also conduct capital transfers originating from the country” in addition to their traditional role of facilitating cross-border remittances enhances financial inclusion in the sense that against the background of recent branch network rationalisation by banks, it might make additional infrastructure for broader use in the provision of banking services available, therefore widening choices for the banking public with the potential to lower the cost of such services.

On the basis of money transfer business alone, most MTAs must have been operating at below capacity so the envisaged broadening of their role increases the scope of their business and sources of revenue.

Given their size, flexibility and their lower cost structures, perhaps MTAs might provide new ideas about how to tap the informal sector for deposits.

The setting up of the $15 million fund advances the financial inclusion agenda by providing financial services to previously unbanked low-income groups.

A large swathe of the local population currently has no access to financial services because the market segment they occupy at the bottom of the pyramid is considered unprofitable by mainstream banking sector players, who might have units dealing with SME banking but not on a meaningful enough scale to provide low-cost banking services to a large number of people on a sustainable basis.

In the 2010 National Budget, a total of $800 000 was allocated to the Women Development Fund and administered by the Ministry of Women’s Affairs, Gender and Community Development.

The funds were disbursed through POSB to 2 000 women in 160 constituencies across the length and breadth of Zimbabwe, financing diverse projects at grassroots levels such as poultry, knitting, hairdressing, cross-border training, soap manufacturing, brick moulding, mushroom growing and catering amongst others.

The proposal to increase the allocation to $2 million for 2011 fiscal year clearly enhances the financial inclusivity of the budget since women are usually amongst the most marginalised members of society.

The budget recognises that “indigenisation and economic empowerment regulations designed to achieve economic empowerment for indigenous citizens are now in place” and advocates “for the indigenous (people) to participate meaningfully in economic activity”.

Accordingly, “in order to facilitate the implementation of this framework and ensure that it embraces inclusivity”, the Finance minister proposes to set aside $5 million for the purchase of shares for the benefit of the disadvantaged, the vulnerable and marginalised groups of society.

Pressure groups have already cocked a snook at the amount and pronounced it woefully inadequate, but perhaps we should consider that in the context of limited domestic resources this is the beginning of a journey of a thousand miles seeking to empower those who would ordinarily not have the resources to empower themselves.

Further Exchange Control liberalisation, which according to the minister “will principally provide a compact legal framework within which the multi-currency system and the liberalisation of current account transactions are to operate,” will go a long way in creating a predictable operating environment in which innovative juices of business and product development committees in banks can flow with confidence, unhindered by regulatory uncertainty.

In advocating for greater emphasis to be placed on domestic savings mobilisation, the minister notes that “our financial system is not reaching out to new clients by introducing new products that attract the large pool of investible resources that the public continues to hold outside the financial system.”

In as far as this pronouncement exhorts the banking system to introduce new products to new clients, it appeals to innovative sensibilities as much as it appeals to the inclusivity of that innovation.

The minister identifies ICTs as a “critical champion issue in the 2011 Budget” and notes that modern technology is the singular foundation of shared transformation the world over. It has been shown, he adds, that a mere 10% increase in the use of mobile phones increases GDP by 1%.

Accordingly, the minister proposes to set aside $15 million to develop optic fibre infrastructure across the length and breadth of Zimbabwe.

By providing such funding and giving the optic fibre cable the priority it deserves, government is playing its part in creating a conducive environment in which the financial sector can exercise its innovative impulses.

It is against this background, that the minister urges the financial sector to formulate strategies that enable them to reach the un-banked sections of the economy, thereby enhancing financial inclusion.

This, he says, should include use of developments in ICTs to introduce technology-based payment services to increase outreach to both the banked and un-banked, especially the generally un-accessed rural banking.

Omen N Muza is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd. He writes in his personal capacity. For feedback and your views on the issues raised in the article, please contact him on: omen.muza@gmail.com

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