Angeline Mangawa is a small-scale farmer based in Nyanga, Nyatate rural areas. She grows vegetables in a community garden commonly known as “German”. This is what she has to say about mobile money, “While selling my produce, most of it is bought through EcoCash. I think it’s mainly so because of the problem of cash shortages and the fact that most people are now using digital finance ‘ ‘mobile money’ in the area. This has helped me especially in paying school fees for my four children and providing food for the family. I positively think if mobile money wallets are now earning interest, this will help us in making some savings, especially during this period when some are refusing to accept digital money.
People like Angeline have basic financial services needs, such as the need to conduct payments and to store value safely. Practical examples of these financial services include paying for, or saving for, good sanitation, electricity, safe drinking water, housing, electrification, connectivity, health care costs and school fees among others. In Zimbabwe, mobile money is emerging as a key product that assists people in meeting their basic needs.
The wide adoption of mobile money has revolutionised and strengthened the financial infrastructure and services in the country. This has provided households, and individuals like Angeline, the opportunity to save, spend and transfer money without formal bank accounts. According to the results of the FinScope Survey 2014, financial inclusion in Zimbabwe has increased from 60% in 2011 to 77% in 2014. Mobile money has been the major driver to support this increase in financial inclusion.
According to the Reserve Bank of Zimbabwe, there are about 15.3 million mobile money users with 5.3 million active accounts, as of April 2020. The bulk of mobile money account holders are with EcoCash (which controls about 94% of the mobile money market). If interest is paid on mobile money balances, there could be an increase in usage of these accounts, particularly to store value. In terms of total market value, mobile money transactions come in at ZWL$22 billion, second only to the RTGS value which totalled ZWL$49 billion . In terms of transaction volumes, mobile money comes in at first place, followed by point of sale transactions. Mobile money transactions can be p2p, p2b and p2g in nature.
But is it safe?
In terms of regulation an MMO is not a deposit-taking institution. As such, it is a legal requirement for MMOs (Mobile Money Operators) to keep subscribers’ funds within a Trust account, which is managed by a commercial bank of its choice. This regulatory requirement is in place to safeguard the customer funds collected in exchange for e-value (the e-float), by requiring the full amount to be placed in an account held at a fully prudentially regulated bank. This account is effectively a pooled account that the financial service providers hold in trust on behalf of, and for, the benefit of mobile money customers. It also isolates the funds from other operating accounts of the mobile money service providers, ensuring the money is always secure – even in the case of liquidation (in particular of the MMO itself).
But who profits from the savings?
A key question now arises – as these deposits are intermediated at the financial service provider, interest is paid on the value of the accounts. To whom does this interest belong? Suggestions from some MMOs in other countries that are now paying interest, preferred the interest to be used for financial literacy programmes and corporate social responsibility amongst other approaches. In the case of Zimbabwe, suggestions from MMOs were still being compiled by the regulator at the time of writing the article. The concerns of the regulator and the consumers are that the interest should directly benefit the consumer themselves, as the funds belong to them. Ultimately, the latter view was adopted.
Across the continent there has been a very long debate about the payment of interest on mobile money. Tanzania and Ghana are some of the first countries to pay interest on e-money. For example, the first interest payment by Tanzania’s Tigo Pesa was $8.7 million in September 2014 (representing 3.5 years of income earned at an average of 7 to 9% per annum) made headlines globally. This interest payment has since incentivised and encouraged e-money subscribers to keep their money in their wallets. A savings culture within the mobile money users has been developed and also encouraged non-mobile money users to come on board. For example, in Tanzania, there were about 15.5 million users in 2014 which jumped to about 25.9 million users in 2019. Could this suggest that the payment of interest could incentivise both mobile money users and non-users to use mobile money frequently and has impacted an increase in the use of mobile money?
A careful and worthwhile journey for Zimbabwe
After careful consultations done by the Central Bank on the payment and usage of interest on Trust accounts, the Reserve Bank of Zimbabwe has gazetted a Statutory Instrument on the 14th of March 2020. It enables e-money account holders to earn interest on the money they keep in their mobile money wallets. Every mobile money service provider is now obligated to credit interest due in terms of these regulations on a monthly basis, proportionately to each customer’s daily closing balance during each month. When the regulations were gazetted, the market was very positive that this would in some way reduce the burden on mobile money transaction costs as something would be brought back into the account at the end of the month. The regulations were based on the SADC Mobile Money Guidelines and the draft National Financial Inclusion Strategy implementation framework, which FinMark Trust developed on behalf of the SADC Secretariat.
One mobile money account holder had this to say,
The interest to be received is better than not receiving anything, regardless of the interest rate
This view is also supported by the Government’s position that the regulations will bring relief to the financially included and those without e-money accounts will be incentivised to have one. It is believed that failure to encourage the payment of interest on e-money will retard the growth of the Digital Financial Systems (DFS) ecosystem. When e-money customers do not receive interest on their e-money accounts, they would have less incentive to save money in their accounts, hamstringing meaningful financial inclusion. This could be exasperated if customers are charged fees for cash-in and or cash-out transactions, or any other transactions.
Still a while to go…
Banks in particular have raised concerns that when interest starts to be paid on e-money balances, e-money customers will start moving funds from their bank to their e-money wallets. Interest on normal savings accounts is paid on a monthly basis at an average flat rate of 0.3% per annum, while on e-money balances is paid depending on the period (days) the funds are in the wallet, and the interest rate is not flat. As more days attract a higher rate, this has opened discussions at the Central Bank. Experience from other countries, like Tanzania, tells us that customers will not move funds from their savings accounts to their e-money accounts in order to earn more interest. This is however, an area that may need further interrogation in the Zimbabwean case.
Beyond the ongoing Reserve Bank discussions, a number of other key questions remain. For example, could the increased usage of mobile money present regulators with additional opportunities to monitor transactions and fulfil their AML/CFT obligations? Thinking about the customer is an important aspect for exploration; could mobile money operators take advantage of the regulations to encourage keeping of funds for longer periods in wallets as they are not a deposit-taking institution, or are there other benefits that we have not yet foreseen.
FinMark Trust, with support from FCDO (Department for International Development and Foreign Office) will be exploring some of these questions.
Should you be interested in joining the conversations around this, kindly join us by contacting Blessing Mautsa.
The mobile money regulations in Zimbabwe are based on the SADC Mobile Money Guidelines. These guidelines were developed by the Secretariat, with support from FinMark Trust, to guide the development of the mobile money ecosystem across the region. For a copy of these guidelines in all of the official languages of SADC, please see the link below:
Portuguese - View SADC Mobile Money Guideline
French - View SADC Mobile Money Guideline
English - View SADC Mobile Money Guideline
Financial Inclusion Specialist
FinMark Trust, Zimbabwe
Tel: +27 (0) 11 315 9197