Malawi has always struggled to incorporate most of its predominantly poor population into the traditional financial system. Fifty-five years after independence, more than 50 percent of the population are still outside the financial system.
A FinScope Malawi Survey conducted in 2008 revealed that 80 percent of the adult population were outside the banking system; hence, were unable to access loans to finance their operations, both in investment and consumption.
The Reserve Bank of Malawi (RBM) rightly noted in its New Customs and Procedure Code (CPC) on Importation that:
“Lack of access to finance adversely affects growth and poverty alleviation as the impoverished find it difficult to accumulate savings, build assets to protect against risks, as well as invest in income-generating projects.”
The failure to bring these marginalised segments of the population into the financial system and give them access to loans not only deprives them of a chance to improve their livelihoods, but it also deprives the government and other financial institutions access to the funds that can be directed towards investment.
In a cash-based economy where approximately 75 percent of the cash existing outside the traditional banking system, mobile banking and the role it plays in promoting financial inclusion, is an important financial agenda that must be protected.
The situation on the ground is likely worse considering that of the accounts that were included in the final statistics, some of those belonged to one customer. There is a tendency in Malawi among the banked population to own multiple accounts with one bank or different banks.
Considering that statistical discrepancy, RBM urged policy makers to create an enabling policy environment that offers opportunities for surpassing frontiers of financial inclusion. The central bank noted that deliberate policies to spur infrastructural acquisition and technological innovation were necessary to reduce mobile transaction costs.
The ultimate goal was that these reduced transaction costs would be essential in creating an enabling environment for financial services to be delivered more rapidly and more conveniently to all segments of the population, particularly the marginalised and those living below the poverty line.
Six years later in 2014, the number of people who were cut-off from the traditional financial system dropped to 71 percent as more and more people gained access. At the centre of this gain in financial inclusion was the development of mobile banking.
The mobile money agent network has grown and currently employ about 45 929 agents at end of June 2019, according to the National Payments Systems (NPS) report.
It is also estimated that about seven million, or 40 percent of the total population, are now subscribers of either TNM Mpamba or Airtel Money.
Surely, there was progress in incorporating these people in the conventional financial system. According to the NPS report, the value of mobile transaction rose from K375 billion in the first quarter of 2019 to K454 billion in the second quarter, a remarkable 21 percent in three months. Progress does not come much better, especially when it can be monetised like that.
Needless to say, Capitol Hill, thought this could be an opportunity to collect revenue to shore up its resource base. After all, by taxing this resource pool, government could gain at least K4.5 billion every quarter.
All things being equal, that would translate into K18.16 billion every year, or more than three times the K2.9 billion government set aside to boost legume and cotton production in this year’s national budget.
However, Capitol Hill might have erroneously assumed that the tax that they have introduced would not have any adverse impact on the mobile money market. Nothing could be further from the truth.
Soon after the news of the tax broke, mobile banking agents expressed dissatisfaction with the extra deduction from their earnings. Some have even threatened to abandon the market together.
If they make good on their threat and leave the market, it would mean less people on the ground to provide financial services, which could potentially trigger a ripple effect that could cause a downturn in mobile money transactions.
The resource pool which seems so productive now, won’t be so taxable after that. Not to mention, the gains that were made in including more people in the financial system would be reversed as more and more people opt out to avoid losing out on an ever-growing part of their cash during mobile transactions.
It is rather unfortunate how one piece of ill-conceived policy, no matter how well-meaning, could undermine a decades-worth of progress. That one percent government will make can throw thousands of marginalised people out of the financial system.
As much as we appreciate that government needs the additional cash injections, we can only hope that government has done enough research and conducted thorough investigations with relevant stakeholders to ensure that the financial gains accrued from the tax do not undermine the progress made in financial inclusion.