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Financial inclusion strategies should cushion people

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The government has this year launched the National Financial Inclusion Strategy (NFIS), which seeks to increase the delivery of financial services within the country from 69% in 2014 to 90% in 2020.

OPINION BY BLESSING MACHIVA

Financial inclusion is the delivery of financial services at affordable cost to sections of disadvantaged and low income segments of the society, in contrast to financial exclusion where those services are not available.

The Finscope Consumer Survey carried out in 2014 revealed that only 30% of the country’s adult population made use of banking services, only 1% made use of the capital markets, 58% of Zimbabwe’s adult population do not borrow, 30% use informal sources of credit, while 13% use the formal channel. The survey also revealed that 50% of business owners (1,4 million) have or use informal mechanisms to manage their business finances.

From the year 2014, the Reserve Bank of Zimbabwe (RBZ), has tried to implement a lot of measures to try and increase financial inclusion, especially to low income earners and to the marginalised and rural areas of Zimbabwe.

This saw a great improvement in terms of institutional innovation as the central bank went on to approve and encourage the adoption of agent banking models and e-banking. Much has been done by banks like Steward Bank and People’s Own Savings Bank (POSB) as they have managed to grant many rural businesses an opportunity to be their agents in banking.

I have seen one Steward Bank agent at Manjolo Business Centre in Binga and another one for POSB at Kariyangwe Business Centre still in Binga. This is helping so much in delivering and encouraging the use of financial services in marginal areas.

Much has been done in trying to reduce the access barriers to financial services for marginalised communities. In terms of process innovation, banks have been urged to make use of mobile technology to introduce new delivery mechanisms such as Point of Sale (POS) and ATM networks, mobile phone based systems, retail agent banking etc. Mobile phone services providers like Econet have done a lot in this category as has been seen by the introduction of financial products like merchant buying or selling, biller code for payments to major suppliers of services, EcoCash services etc.

Econet has gone a long way in trying to advertise and promote the usage and consumption of its products and services. This has seen even those who are in rural areas being able to send and receive money, do transactions using mobile banking.

Regulations and deregulation of the financial market can also promote and increase financial innovation. High spread of ATM usage has been seen to be caused by regulations which specify target ATMs per 100 000 adults and the increase in POS being driven by usage of cards which can be supported by tax incentives for branchless banking initiatives and regulations, which introduced and permitted banks to use retail agents. It is assumed that the government knows what the society needs in order to achieve social efficiency.

The current cash shortage in the economy has seen an increase in bank charges. A depositor has to part with $20 for a withdrawal of $1 000 made over several days because of the cash limits, implying a hike of $17. Due to the low demand, elasticity for cash, the cost of cash importation on foreign-owned banks is being passed on to consumers.

This prompted RBZ governor John Mangudya to intervene and decrease the bank charges. RTGS transfers have been reduced from $10 to $5, POS transactions of up to $10 will now cost $0,10 with those of above $10 will now be charged a maximum of $0,45 and $0,20 if the customer uses a POS from their own bank. ATM charges will now cost a maximum of $2,50 and monthly service fees have been set at $5.

This will go a long way in promoting the use of plastic money, although I strongly feel that all transactions below $10 were supposed to be carried out free of charge. This would help in creating and building a strong culture and reliance upon the use of plastic money in the economy.

Although the central bank has reported and already noted an increase in the use of plastic money in the past weeks, one wouldn’t disagree that the high cost of plastic money has in the past caused economic agents to prefer using cash and that the increase is much due to the fact that economic agents have no option in terms of choice. There is need to carry out transactions, but the cash is not available, so they are forced to opt for the next best alternative available, which is plastic money but still being expensive than using cash. The central bank should still craft strategies to make plastic money a perfect substitute for cash such that the cost of using one will be insignificant relative to the other.

Although one wouldn’t dispute that the major reason to low savings in Zimbabwe is being caused by low income levels, but a greater contribution is also coming from high bank charges. Before the RBZ governor slashed bank charges, I had once calculated that if one is to leave $100 in the account, without any income inflow into the same account, one would find a zero balance at the end of one year. The savings would have been wiped off by account service fees and bank charges.

Most of the economic agents in Zimbabwe are instant gratifiers as can be evidenced by a very high marginal propensity to consume. This is being caused by low income levels, the majority of Zimbabweans are saving with income that is far below the poverty datum line of $520 as the majority is earning income below $200 per month.

This will leave economic agents with nothing to save and invest as all the income would have been wiped away by living expenses. It should also not be ignored that unemployment rate in Zimbabwe is currently above 80% and the majority are informally employed. The monetary authorities shouldn’t look forward to see economic agents surviving through informal ways being willing to bring their hard-earned money into the formal sector to bank it at the end of the day. The informal sector has its own systems which include under-the-pillow saving mechanisms.

Economic agents are still being haunted by the memories of 2008 when people’s hard-earned savings were wiped away by inflation. More than 10 commercial banks have closed since 2004 and most of them went with people’s savings. It’s not too long back when Kingdom bank struggled to give depositors their money when it has faced challenges. In addition to this, the central bank governor had to go on and announced the introduction of the bond notes, which have been viewed by economic agents as a way of trying to bring back the Zimbabwean dollar.

Everyone is quite convinced that due to the revenue challenges that the government is facing, the introduction of bond notes will be enough to tempt the government to print more bond notes of and above the $200 million they promised to print as a way of trying to ease out revenue and cash shortages. This has gone a long way in reducing the financial institutions confidence people had struggled to build from the period of dollarisation. One would see that in Zimbabwe, government policies fail to complement each other well as evidenced by the bond notes policy and the NFIS implemented. The bond notes issue on its own is enough to cause the central bank to fail to achieve its set goals in the NFIS.

In the NFIS, the central bank governor was urging the Primary and Secondary Education ministry to come up with curriculums that will help to increase financial inclusion in the country through increasing financial literacy.

One can view this as a failed objective already as have been evidenced in the past when the same ministry tried to widen their curriculum, but failed to get financial support from the Finance ministry. This has seen subjects considered less important and not among the core (economics, accounts etc.) being scrapped off at Ordinary level, especially in rural schools as many teachers were displaced due to the said over-staffing. These strategies and policies will then end up being theoretical approaches designed to amuse and waste people’s time.

The economic environment in Zimbabwe is not conducive for investments; businesses are being pulled down by the regressing economy. Last week the Zimbabwe Stock Exchange has been reported to have recorded the lowest income of $104 level in the past decade.

It’s now too risky to carry out investments as they will fail to perform due to economic challenges, banks now shun investments in the capital markets and are now surviving on bank charges rather than from loan provisions and investments in derivatives.

People are failing to save due to low income levels, the government wants to introduce bond notes to curb money flight being caused by excessive imports because the economy is failing to produce, the country is getting less in terms of exports revenue, the country cannot sustain and support own currency due to low production levels, people in rural areas cannot participate in the financial sector due to poverty caused by poor performance of the agricultural sector. Let’s revive the economy of Zimbabwe, that’s the cure to all the problems we are currently facing — production!

l Blessing Machiva is an economist and he writes in his personal capacity. Criticisms and comments can be forwarded to the following email address machiva.blessing@gmail.com or WhatsApp +263 773 836 435.

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