Announcing fiscal measures on Monday, Finance and Economic Development minister Mthuli Ncube said the intermediated money transfer tax had been reviewed from five cents per transaction to two cents per dollar transacted, effective October 1, 2018. The decision is a threat to the much-anticipated financial inclusion.
Guest column: David Mhlanga
Global, regional and national level policymakers are increasingly embracing financial inclusion as an important priority for fostering socio-economic development. These policymakers recognise the strength of financial inclusion as a driver of economic growth. The significance of financial inclusion in the economic development agenda has also been epitomised by the formation of networks and organisations with specific focus on financial inclusion matters.
Such organisations/networks include the Alliance for Financial Inclusion and the Global Partnership for Financial Inclusion. This stand to show the importance of financial inclusion to the development and growth of the nations. In Zimbabwe, the Reserve Bank of Zimbabwe (RBZ) came up with the National Financial Inclusion Strategy 2016-2020.
It is important to realise that in Zimbabwe, there are many classes of citizens, who were previously excluded and others who are still excluded from enjoying the formal financial services. Notably, some of the excluded groups were now enjoying formal financial services due to the introduction of technology in the financial sector favouring money transfer without any hustles. The groups of women, youth, disabled, rural people, smallholder farmers, small businesses are continuously excluded from enjoying the formal financial services because of many barriers chief among them is transaction costs like bank charges, transport to visit the bank. With money transfer, it’s easy for these groups of people to perform transactions to pay school fees, to buy goods, to pay workers, without visiting the bank. However, the introduction of this tax by the Finance minister will automatically act against the interests of the marginalised groups.
For the benefit of the reader, the RBZ defines financial inclusion as: “The effective use of a wide range of quality, affordable and accessible financial services, provided in a fair and transparent manner through formal/regulated entities, by all Zimbabweans.”
The key principles underlying the definition of financial inclusion in Zimbabwe are:
Effective use of financial services
Use of financial services in Zimbabwe should be part of the day-to-day living of Zimbabweans. The use of formal financial products should not be considered the preserve of a few but a way of life for all. With the introduction of this new tax regime, I think the goal for financial inclusion is defeated. Only a few rich Zimbabweans will be able to make use of the financial services.
Wide range of products and services
Financial inclusion covers a broad spectrum of financial products and services, including banking, insurance, pension capital markets and remittances.
The financial services provided to the Zimbabwean population must be suitable for their requirements and needs. Providing quality financial products ensures that the products have a positive impact on the welfare of users. However, with this tax in place, financial products will have no impact on the welfare of users
Financial service delivery channels should be within the proximity of intended beneficiaries so as to promote regular use of the same. In this regard, financial inclusion addresses accessibility of financial products and services to the majority of the population.
Fairness and transparency
Financial inclusion seeks to ensure that the marginalised sections of the Zimbabwean population gain access to appropriate products and services without being subjected to exploitation.
The focus of financial inclusion is to formalise the provision of financial services to the marginalised population. This reduces exploitation of low income groups by informal service providers while promoting stability of the financial system. Financial inclusion also helps to manage money laundering risks by ensuring that the majority of transactions are conducted through the formal financial system which enables more effective monitoring.
Achieving financial sustainability means reducing transaction costs, offering better products and services that meet client needs, and finding new ways to reach the unbanked.
Barriers to financial inclusion
Barriers to financial inclusion in the capital markets in Zimbabwe: low disposable income, illiquidity of the local market; inadequate diversification of capital markets to meet the needs of the low income earners; undeveloped secondary market; lack of awareness; low confidence in the capital markets; and lack of investor protection.
Barriers to financial inclusion within the MSME sector: low incomes levels within the MSME sector; irregular incomes to support consistent loan repayment requirements; information asymmetries regarding funding options at the disposal of the MSMEs and cooperatives; lack of product and service awareness; and high and uncompetitive interest rates and bank charges offered by financial institutions. Barriers to financial inclusion within the insurance and pensions industry; low disposable incomes; lack of innovation by services providers; low confidence in suppliers of insurance and pension services; low levels of financial literacy; an inadequate legal and regulatory framework; high product and service distribution costs; and lack of accessibility of products and services. The announcement of the new tax regime is a threat and totally against financial inclusion.
This tax is increasing the cost of transactions which is one of the chief barriers to financial inclusion. The tax is increasing transaction costs which will encourage many Zimbabweans to shun the formal financial system. When this happens, poverty and underdevelopment will be a daily problem.
Equally important, this tax will encourage informal financial market risks like money laundering and the RBZ will not be able to monitor the financial system. With financial inclusion, majority of transactions will be conducted through the formal financial system which enables more effective monitoring by the central bank.
David Mhlanga writes in his personal capacity