By Marcia Kwaramba
Mobile financial services are, in most African countries, born out of crises.
In 2011, Zimbabwe went through a volatile decade of economic crises – hyperinflation, currency instability and a collapse of the financial system.
Consumers had a widespread mistrust of the formal banking system.
In came Econet, a major mobile operator, to launch a mobile money service called Ecocash.
The service had 2.3 million users within 18 months. Today, close to 90% of Zimbabweans use Ecocash.
In addition, Ecocash paved the way for competitors such as OneMoney, Telecash and Mycash. The economic crisis in Zimbabwe spurred the rapid adoption and use of mobile money.
Mobile money transfers in Zimbabwe are mainly from one person to another. This allows for urban to rural money remittances. Another important use of mobile money is to store money securely in high crime areas.
An important benefit is the cash-in and cash-out functionality. This allows users to deposit cash into a mobile account through a mobile money agent and withdraw physical cash at a convenient time and place.
Despite the compelling value proposition that mobile money offers, the Reserve Bank of Zimbabwe recently placed restrictions on its operations.
The regulator said mobile money services were fuelling illegal foreign currency exchange, money laundering and fraud, especially through the cash-in/cash-out service.
The restrictions followed the reserve bank’s audit of the four mobile money platforms. It found that some accounts were opened using fictitious identification documents.
There was also a misuse of accounts for money laundering schemes.
Users are now restricted to just one mobile wallet account per person.
In addition, users can no longer transact through mobile money agents. Their operations have been abolished. As a result, close to 50 000 mobile money agents have lost their source of income.
The overall effect is that mobile money accounts can only be used for transacting but not “store of value” purposes. Store of value means savings or investment accounts.
This is seemingly at odds with findings by academics and development practitioners that mobile money accounts encourage poor customers who are not well served by the formal financial sector to save regularly.
The restrictions could stifle innovation among mobile money operators and hinder access to financial services for many unbanked Zimbabweans.
Customers without adequate identification could still sign up for a basic account with the low transaction and withdrawal limits, instead of being excluded from the financial system.
The mobile money agent network increased access to financial services in rural areas. Instead of abolishing the role of mobile money agents, the financial regulator could have reprimanded and fined agents found guilty of money laundering.
The Reserve Bank also needs a financial sector policy that facilitates the development of safe mobile money services for Zimbabweans. This would require that all stakeholders develop a collaborative regulatory framework.
Such a framework would seek to protect the integrity of the financial system from fraud and misuse. At the same time, it would ensure that consumers and merchants enjoyed the full benefits of mobile money services. At all times, the end goal of greater financial inclusion must remain a priority.
Marcia Kwaramba is a scholar-in-residence in the Social Responsibility and Sustainability Division at the University of Colorado Boulder. This article first appeared in The Conversation.
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