As a social entrepreneur and an employee, the current environment is discouraging to rely on banking facilities. Financial inclusion is the talk of the day! The government is pushing banks to encourage citizens to use mobile money, cashless transactions, and debit cards. Holding all other factors constant, entrepreneurs and citizens would receive it well. However, there are underlying factors that affect this route.
Cost of transacting
E-transactions are not for free in Zimbabwe. As long you are doing a transaction using mobile money or debit card it comes with a cost. For example, if you want to buy clothes for your children and let’s assume that you will buy in three different shops. For each transaction that the consumer conducts there is a charge that is deducted. This cost is deducted every time you transact. The bank charge for all transactions is fixed for all sale transactions. Cashback transactions attract a higher charge. Due to this cost, most people prefer to hold on to cash or get cash from the bank and transact in cash form.
The 2% tax
It came at a time Zimbabwe is experiencing a liquidity crisis. Most people barely get hold of cash and depend mostly on cashless transactions. The cashless transactions become costly because of every transaction above $10 there is a government tax deducted from it. As an entrepreneur, I see no point in transacting using plastic money. I am better off with cash in hand. So when one has no cash and they want to buy my product they have to bear my cost too of getting the money. The amount will include the cost of the product plus 2% of that cost, the percentage of buying cash on the black market plus bank charge for money transfer. This is why products are slightly cheap in cash compared to using plastic money.
Cost of money
Banks are not really a reliable place where I would want to keep my money. From the perspective of an entrepreneur, banking seems to be my last resort. When I get cash from customers, chances that I will bank the money are very low. Once I get cash I start thinking of the bank’s monthly charge, which is around $10 for most banks. So given a scenario where I have cash receipts of $500, I weigh in what’s better to bank or to keep it in cash form. If I bank it a monthly charge of $10 that is deducted. In addition, the day I will transact charges for government tax and transaction fee are factored in. It means that I will use less than I initially deposited. Contrary, if I keep my cash it will be at zero cost and the money will still be $500.
The disincentives of banking money outweigh the incentives of banking money. Financial inclusion may remain just another project that will stumble in the pipeline. Not because of people’s unwillingness but due to the costs of money transfers.
By Mitchell Name