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NewsDay

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‘Mobile money, major driver in financial inclusion’

Business
It is estimated that over $3 billion is circulating in the informal sector, with banks struggling to bring the money into official channels.

It is estimated that over $3 billion is circulating in the informal sector, with banks struggling to bring the money into official channels. A second quarter report by the Postal and Telecommunications Regulatory Authority of Zimbabwe showed that deposits on mobile money platforms increased by 25,8% to $512 million from the previous quarter.

BY TATIRA ZWINOIRA

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NewsDay Business reporter Tatira Zwinoira (ND) spoke with financial inclusion expert, Munyaradzi Nyakwawa (MN), on how he thinks financial inclusion can be better improved. Below are excerpts of the interview.

ND: How best can the government implement its financial inclusion strategy and what do you think of their current strategy?

MN: Let me start by defining financial inclusion strategy, this is a roadmap of actions, agreed and defined from community to national level, which stakeholders agree to religiously follow in order to achieve financial inclusion objectives.

The current strategy is to create an enabling environment to harness technology that increases access to financial services. Technology that lowers cost of financial services and brings convenience.

It might not be enough, but we all have to start somewhere, don’t we.

ND: How can the government try and tap into that revenue and at the same time instill confidence?

MN: Official development finance to Zimbabwe has been going down and as a country we need to find new ways to enhance domestic revenue mobilisation.

The government instils confidence by coming up with clear policies to protect consumers, for example, against excessive prices and opportunistic behaviour.

Over and above policy, the government can instil confidence by using mobile money, pensions, salaries and creditors can be paid through mobile money, revenue can, therefore, be increased by the increase in the number of send-money transactions that are taxable.

A tax incentive can be introduced on all companies that remit on time and via mobile money, companies will be eager to comply, as this would save them time wasted in a tax returns queue and even money wasted in transport costs.

An e-government model can motivate residents to comply, imagine how much more the Ministry of Education would collect in school fees, if all government schools were on mobile money and parents allowed to pay as and when they has the money, regardless of the amount.

Government and quasi-government adoption of e-government increases trust in the whole financial inclusion system.

ND: In what way can financial inclusion benefit the economy and with what effect?

MN: Research in other economies has shown that a 10% increase in financial inclusion has the potential to increase income per worker by 1,34%. That’s an increase in gross domestic product per capita, thus, a small change in standard of living.

Firstly, let’s look at savings. The poor are already saving through burial societies, rotating savings and credit associations, accumulating savings and credit associations and savings clubs. Such funds, if formalised, will be available to finance domestic investment, thus, contributing to economic growth.

Micro-insurance and micro-pensions are another way in which financial inclusion can aid in economic development. Institutional investors that hold these funds can invest in infrastructural development projects.

Secondly, without financial inclusion the informal sector relies on loan sharks for credit, which is dangerous and lowers standards of living. Because of inclusion, some banks are thinking outside the box and are already lending based on mobile money account statistics.

Thirdly, Zimbabwe relies on remittances, before financial inclusion the cost of remitting to Zimbabwe was too high. The cost was around 11,5%, however, with the coming of mobile money, costs can be reduced to about 5%, thus, the about 5% extra can be sent to Zimbabwe and affect our consumption and income.

ND: What are the key areas to target towards financial inclusion and what exactly is involved?

MN: My targets will generally relate to product use, channel penetration, gender and youth and other enablers for financial inclusion, like KYC, consumer protection and financial literacy. I believe financial literacy is the bridge between financial inclusion and sustainable financial inclusion.

Financial inclusion is all encompassing and cuts across all sectors of the economy, there isn’t an area in the economy or an individual that we can say does not need to be financial included.

The first thing is to identify the gaps, urban to rural disparities and intra urban disparities. Research has shown that the needs of top and the bottom of the pyramid are exactly the same.

Secondly, create a service or a product that suits that niche. There is a fortune at the bottom of the pyramid, and companies, government and quasi government should come up with financial, savings and insurance products for this market. ND: Why is financial inclusion important to the finance sector?

MN: Firstly, financial inclusion provides data on transactions which helps in policy-making. Cash hides data. Key to the fight against money laundering or terrorism financing is data.

Secondly financial services sector benefits in the long run. Zimbabwean media have painted a picture that mobile money (our major driver for inclusion) is competing with banks. I beg to differ and its high time banks have a critical analysis of that position.

Mobile money provides a primary access to financial services, whereas banks provide for the secondary and tertiary needs. Financial inclusion accelerates the opening of accounts. In 2010, Kenya had three times more accounts than they had in 2007 before the launch of Mpesa. Thirdly, without financial inclusion our liquidity situation would have been much worse than it is now. Before mobile money, around this time of the year the Press would have been awash with reports of how banks are running short of cash.

ND: The issue of $7 billion in circulation in the informal economy, what strategies can be done to tap into that revenue that will still gain the consumers trust?

MN: We need robust systems, we need the microfinance institution, mobile network operators and other mobile virtual network operators to follow the national strategy on financial inclusion.

I bet you, those funds will never find their way into formal sector unless we start thinking outside the box and offer the informal sector something that is bankable and something they can trust.

Most informal sector entrepreneurs and employees would love to transfer funds from the young-self to the older-self. However, no product or service is available to cater for this need.

Very few in the informal sector are saving formally or informally towards their retirement, which is an opportunity for all insurance companies to tap into the “$7 billion” and formalise it.

ND: What are the main reasons behind having money outside the formal system?

MN: If you allow me to give a one word answer to it, I would say trust.

When I talk to people in the market, their experiences from last decade are a major contributor to them preferring to keep money under the mattress and all other presumed “secure” places.

Many of the informal sector entrepreneurs once had bank accounts they once had insurance and savings, but we all know what happened.