Zimbabwe cracks down on mobile money to discourage US dollar uptake

Zimdollars or US dollars?
Zimdollars or US dollars?
Image: REUTERS/Philimon Bulawayo
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Zimbabwe is cracking down on its mobile money sector through a wave of regulatory chokeholds, including shutdowns and strict requirements to by-pass agent networks for US dollar cash-in and cash-outs from mobile wallets.

It’s a familiar story in Zimbabwe, that of a US dollar shortage, with citizens willing to pay a premium to get those dollars as the country sinks deeper into a financial crisis. The culprit being blamed this time by the Government is mobile money operators despite the fact that for many, mobile money and other digital financial services have helped buffer them against a full-blown financial crisis.

An email statement to Quartz by an IMF representative says, “mobile money has had a positive impact on financial inclusion and economic growth in many countries in sub-Saharan Africa and elsewhere, including in Zimbabwe.”

Late last year, authorities in Zimbabwe blamed mobile money platforms for driving up the street exchange rates, even launching a witch-hunt on social media to root out those dealing in currencies “illegally.”

Zimbabwe is battling a foreign currency crunch that it blames mobile money operators for

The government and the Zimbabwean central bank are “committed to an orderly de-dollarisation process (in use since 2009 when Zimbabwe nosedived into hyperinflation) and hence it is false that a mono-currency system (Zimdollar) is now in place,” governor of the central bank, John Mangudya, said over the weekend in a statement.

In its fight to end the dominance of the US dollar as local tender, the Zimbabwean reserve bank has shut-down Innbucks, a local loyalty rewards and mobile remittance company for foreign currency and another, Access Finance, which allowed users to send and receive foreign currency locally.

The central bank has also restricted mobile money platforms, including the popular offering, EcoCash, from using agent networks for US dollar cash-in and cash-out facilities. Only EcoCash run outlets are allowed to offer these services. Local fintech experts however say that lack of confidence in the local currency is the main driver of inflation—now above 70%—and exchange rate distortions, that are hobbling Zimbabwe’s economy.

“The parallel market rate ($1:ZWL400) has constantly increased despite shutting down some mobile money channels (against $1:ZWL150 on the official market). The country needs to address the root cause of inflation and not scapegoat mobile money platforms,” Tendai Mupaso, a Zimbabwean e-commerce and fintech products builder, tells Quartz.

Following the shutdown of Innbucks and Access Finance as well as restriction of EcoCash forex services from agent networks, Zimbabweans now have to rely on traditional money transfer services such as Western Union and Mukuru.com whose costs can be restrictively high. Banks are also another option but these are limited in geographical spread while they also take a long time to complete transfers.

How will Zimbabwe’s mobile money industry survive the turmoil?

This has left the mobile money industry in Zimbabwe in a crisis, all because the government is desperately seeking to prop up the local currency, control inflation, and discourage usage of foreign currency units. The economy was already self-dollarizing, and the mobile money industry had started to embrace it, only to be held back by the central bank.

“The shutting down of InnBucks and other fintechs seems to signal that authorities will allow ‘traditional forex remittances’ within the country and new players will have to contend with deeply entrenched gate keepers,” added Mupaso.

According to Juda Levine, the CEO of Mondato, a digital finance advisory company, mobile money agents are an important component of the mobile money ecosystem, especially in the African context.

Mobile money remittances on agent networks, a popular practice in African countries such as Kenya, helps ensure a seamless flow of remittances into the country.

Levine says that remittances “sent or received via mobile money (have) exhibited impressive growth” boosted by “investor enthusiasm for all things fintech”.

Yet, Zimbabwe seems to be moving in the opposite direction when it comes to realizing the importance of this cash inflow into its economy.