Financial inclusion . . . Headwins on the way
FINANCIAL inclusion came under the spotlight this month when the Reserve Bank of Zimbabwe (RBZ) unveiled its strategy to push the number of consumers accessing banking services to 11,7 million by 2020, from current levels of 3,9 million.
The national financial inclusion strategy (NFIS) launched on March 11 will revolve around technology based banking platforms, whose growth has been underpinned by a robust mobile telecoms industry with 19,5 million subscribers.
Statistics unveiled at the launch of the NFIS revealed that access to banking remains a privilege for only a few, despite an Information Communication Technology (ICT) revolution that has networked all facets of the economy. About 70 percent of Zimbabwe’s 13 million citizens are financially excluded, the NFIS showed.
And experts say any efforts to integrate them into the formal financial system would depend on the response of other stakeholders like power producers.
The banking sector has evolved technologically, but deposits have been disappointing.
RBZ governor, John Mangudya, has a difficult task to encourage banks to embrace previously unbanked people, attract consumers and improve liquidity for on lending to failing industries.
At US$5,6 billion in 2015, banking sector deposits were lower than an estimated US$7 billion, believed to be circulating outside the financial system.
Depositors fled banks after confidence slumped due to bank failures between 2003 and 2008.
Between 2012 and 2014, depositors lost US$185 million after three banks collapsed.
The bulk of these have switched to the informal market.
The RBZ’s bet is to leverage on ICT platforms, as few banks under its stewardship will be prepared to go the extra mile and construct traditional brick and mortar banking halls.
This could be why the NFIS focused on ICT based banking services, potentially reopening rivalries as banks and digital platforms like Econet’s EcoCash and NetOne’s OneWallet directly compete for clients.
These platforms and others reached out to six million people at the end of September 2015, through 30 000 points countrywide, pushing the value of transactions in this category to US$533 million at the end of the fourth quarter of 2015, from US$458,4 million the previous quarter, according to latest statistics from the Postal and Telecommunications Regulatory Authority (POTRAZ).
POTRAZ said the number of mobile money subscribers rose by 9,9 percent in the last quarter of 2015 to 7,3 million, from 6,7 million the previous quarter.
“The number of agents also increased by 11,7 percent to reach 33 259, from 29 775 agents recorded in the previous quarter,” POTRAZ said.
Individually, banks have been playing a significant role in broadening financial inclusion.
But without a national strategy like NFIS, fragmented efforts have largely failed.
Naturally, they had concentrated on urban markets leaving rural people financially excluded.
These would be some of the hurdles that will need attention if NFIS is to achieve desired results, say experts.
“Notwithstanding the strides made in the pursuit of an inclusive financial sector, gaps still exist in the level of access to usage and quality of financial products and services, as well as the impact on the lives of those consuming the products and services,” says the NFIS.
“There is consensus among stakeholders driving the financial inclusion agenda that broadening access to and usage of financial services stimulates financial savings and investment, as well as increase the level of loanable funds,” it says.
In November 2014, Steward Bank rolled out agent banking outlets, which opened a fresh page on the Zimbabwean landscape.
Under the model, banking ceased to be the domain of professionals.
Selected EcoCash agents were allowed to use its 10 000 strong footprint to offer basic services under the Steward Bank banner.
Although the agents were initially greeted with consumer revulsion, the market has warmed up and other banks have followed suit. Steward Bank clients are enjoying flexible banking hours through the agents, transacting in services that span from cash deposits, cash withdrawals by card and internal transfers.
The agent banking model is complimenting other products that were already on the market to enhance financial inclusion, which is defined by the RBZ 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”.
“This new neighbourhood bank approach which brings conventional banking closer to people accustomed to formal transactions only through the mobile money revolution has reduced the potential client market for conventional banks,” says an analyst at Techzim, a website which specialises in technology news.
CABS has made inroads through its Textacash electronic banking system, which has been equally well received on the market.
The tragedy, however, is that digital financial inclusion innovations have a huge concentration in urban areas.
For instance, the NFIS says as at 30 September last year, over 16 000 points of sale (POS) machines countrywide were clustered and duplicated in urban retail shops.
This is reflected in the POS density of 300 machines per one million Zimbabweans, which is below the 1 300 machines per one million people global average.
Banks have been ignoring about eight million rural people, who are lumped into a “low income” bracket.
But even if they embraced them, conditions are “torturous”, according to Rosemary Siyachitema, executive director at the Consumer Council of Zimbabwe.
“The processes of being banked are torturous, very difficult,” Siyachitema says. “Minimum account requirements are too high. A person who wants to save US$10 cannot.”
She added: “Banks are not decentralised to cater for rural people. They still want spacious offices. Yet in countries like India you find banks in the remotest of areas.”
In the rural areas, cash still rules.
And people’s daily drawbacks are considerable, including walking long distances to a bank to settle bills, where they incur high charges.
“They have too high demands,” says Siyachitema.
“Bank charges are too high. If you save, your money is reduced before you enjoy it.”
There has been no motivation for banks to focus on rural communities because droughts and job losses have eroded earning capacity, but sector leaders say they have made great strides towards financial inclusion.
“The reforms to deepen financial inclusion are welcome and the banking sector has already embraced the majority of the changes,” says Bankers Association of Zimbabwe president, Sam Malaba.
He says the sector has established financial inclusion initiatives that include opening new low cost accounts for low income earners and has simplified risk based know-your-customer requirements.
The programme’s flagship is the low cost account, which allows consumers to make deposits, withdraw money, make transfers and pay by card.
But still, it is mostly accessed by urbanites.
“All banks in Zimbabwe have leveraged on the high mobile phone penetration rate of over 100 percent by partnering mobile network operators to offer a range of efficient and safe digital financial services to different market segments,” the NFIS notes.
In addition to financial exclusion in rural areas, financial inclusion in SMEs is low, with 86 percent of a total of 5,7 million businesses unbanked, according to the NFIS.
Hurdles lie ahead.
Poor mobile phone networks have already caused inordinate delays and interruption to transacting on digital platforms, which will be a sticking point in rural financial inclusion.
Depositors have switched to informal savings groups, known in Shona as mukando.
Any education campaign will have to impress upon the market that financial inclusion will not be yet another ploy to trick them into losing cash.
“When we were carrying out our countrywide processes, people said we don’t trust the banks, we lost our money,” says Evelyn Ndlovu, permanent secretary in the Ministry of Small and Medium Enterprises and Cooperative Development.
Mukando, also commonly known as ‘magroup”, is a practice whereby a number of people pool finances and take turns to share the sum by rotating it every month, week or day.
Other versions of the scheme involve members contributing funds from which members then borrow at lower interest rates than those obtaining in banks.
They share interest of between US$5 000 and US$50 000 per month, according to data from Finance Minister, Patrick Chinamasa.
There are hundreds such savings groups in Zimbabwe, which could be taking millions of dollars in potential bank deposits per annum, and undermining retail banking.
However, they don’t lend funding to productive sectors.
Authorities said Mukando members intimated that “the safest place to keep money is in the trunk, under the pillow and under the mattresses”.
A further 153 000 people signed up to 72 savings and credit cooperative societies in 2013; through these societies, they saved US$4,25 million, according to the World Bank.
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