By Charles Dhewa
Mobile money continues to be touted as a solution to the financial exclusion of many people in developing countries. However, examples in Zimbabwe are showing the need for cautious optimism. As an economic hub, Mbare mass market in Harare has more than 500 mobile money agents and the number is increasing. Why? The answer is that mobile money platforms are taking advantage of the fact that when farmers bring their commodities for sale they are paid in mobile money but will not be able to find cash when they go back home in rural and farming areas. They are therefore forced to buy cash at the market after selling their commodities. Being a cash economy, the market also compels consumers and traders to get some cash before buying some of the commodities traded in the farmers’ market.
What does this mean?
Through a network of cash barons and mobile money agents, mobile money operators are siphoning money from banks and selling it in busy markets like Mbare. Charges for cashing in and out from mobile money agents range from 10% to 31% of the amount of money being transacted. The rate changes willy-nilly according to the wishes of cash barons who are part of the system involving banks. Every transaction charge on money that is supposed to transact within the agriculture sector, means that money is withdrawn from agriculture commodities and moves without being attached to commodities.
For instance, if charges related to cashing in and out withdraw 10% from $500 000 circulating Mbare agriculture market daily, $50 000 is moved out without commodities being attached to it. As a result, agricultural commodities are under-sold by the same amount. Commodities that were supposed to be collectively bought for $500 000 will be bought for $450 000. This suppresses prices and value of agricultural commodities as less money competes for the same quantity of commodities. Farmers lose as prices of commodities go down due to money being swallowed by uncalled for transaction charges.
A black market for local currency
By facilitating selling of cash, mobile money platforms have created a black market for local currency. Why should farmers, consumers, traders and ordinary people buy cash, a medium of exchange? No country has ever built a middle income economy that way. Through banks, cash barons are the ones financing mobile money agents. Rather than admiring such practices and calling them innovation, financial and monetary authorities should identify and control this predatory system.
Some of the economic actors suffering from this injustice are traders who borrow trading finance from banks and micro finance institutions. Given that most of the money is now received through mobile phones, a trader who receives a $1000 loan from an MFI and accesses it through mobile money losses, $200 if cashing out charges are 20%, leaving him/her with $800 on which the MFI will charge 20% interest (another $200). That means the trader will only do business with $600. There is no worse daylight robbery than this and the situation is the same rural business centres colonized by mobile money agents.
Importance of recognizing dynamic economic hubs
With the right attitude and evidence-based approach, financial policy makers should by now have recognized how economic hubs like Mbare and many others have their own ecosystems and nodes. Besides being a source of livelihood for the majority, mass markets circulate a lot of money that should be protected through decent financial systems. It cannot just be one financial jacket fits all. Given that banks prefer to remain located in the Central Business District of cities like Harare, farmers and traders have nowhere to put money they handle daily except keeping it in pockets and taking it home at the end of the day.
If banks open cash accounts for traders, traders would be willing to put money in the bank because they would know their money is protected. Absence of a robust financial system for the entire economy explains why cash is not flowing into banks. Currently, at least 70% of the cash deposited in Zimbabwean banks is taken out into the street by cash barons with the tacit approval of banks. Monetary authorities are not able or willing to keep track of money in circulation. If financial and monetary policy makers had put in place a financial system to anchor and protect money circulating in the Mbare economy so that farmers, consumers and traders are supported, there would not be such a big number of mobile money agents around the market. Customers, farmers and traders should not buy money from a mobile money agent.
The financial sector should rebuild its image and integrity
Unless banks work hard to rebuild their image, citizens and economic actors will not put money in banks. Most people have resorted to using cash as a store of wealth not as a medium of exchange and this has caused cash shortages, including of US dollars. Cash is being sold through systems that were established legally. Policy makers should revisit this system just as they have dealt with the parallel forex market. Why are banks without cash while streets have a lot of money being sold to citizens? Mobile money operators should be compelled to control their systems or lose the licence. The system is being abused to rob the poor. Such robbers should have a place in Chikurubi Maximum Security Prison.
Banks should immediately stop the system of selling money and maintain minimum transaction charges. Why are financial institutions charging people for withdrawing money from banks or for moving money from one source to the other (bank to bank), from bank to purchases (for instance, a farmer is charged when buying fertilizer through transfer), from one form of money to another (mobile money to cash)? Conversely when a farmer or trader is depositing money using the same system there is no incentive for bringing money into the system.
Financial institutions are taking money through charges irrespective of where business is taking place or not. When is withdrawing there is no real business or use of money as a medium of exchange but moving money to money, a process which should not attract a charge. Financial institutions and mobile money operators should make money from extending loans as opposed to milking citizens through charges. Where a bank takes money from just maintaining an account and loan out that money to someone else, that constitutes double charging which should be discouraged from an ethical perspective. Such charges withdraw money from circulation. If calculations of how much money is withdrawn from circulation through charges and end up in the hands of banks, the figure would be shocking. Yet such money should be stimulating production and the entire economy instead of being used for speculation.
What forms of collateral are backing up mobile money platforms?
No country has ever developed by placing its entire financial system on mobile money. Several known and unknown risks characterize mobile money. In the event of mobile money platforms crashing like pyramid schemes while holding the entire population’s money, how will people get their money? Financial institutions are fond of using immovable property as collateral, what forms of collateral are being used to back up mobile money platforms in case the entire system crashes? These are some of questions policy makers should not wait to be asked but answer without stammering. Innovation should not be confused with introducing unnecessary complexity on services like use of money that are crucial to people’s everyday lives.