If you are receiving money from the diaspora, the Reserve Bank of Zimbabwe (RBZ) is offering you an incentive of 3% to get that money through official channels.
It’s called the Diaspora Remittances Incentives Scheme (DRIS) and it is expected to sway Zimbabweans who are using informal channels for remittances to use the official, recognised channels that will ensure that the foreign currency flows to the Central Bank.
At the recent unveiling of the partnership between EcoCash and Mukuru, Moris Mpofu, the Divisional Director for Exchange Control at the RBZ, explained the central bank’s move to extend this incentive to recipients of diaspora remittances.
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It is based on the export incentive scheme for importers that the RBZ Governor Dr. Mangudya introduced earlier this year and highlighted in his recent mid-term monetary policy.
What is this export incentive scheme?
This is a performance related export bonus scheme of 5% that was introduced in May 2016 as a way of encouraging exports.
Exporters receive the incentive proceeds in US dollars and the incentive will be credited to their US dollar accounts in US currency.
According to RBZ, an exporter will then be able to transact freely within the multi-currency exchange system through RTGS for foreign payments such as making settlements for the importation of goods and services.
How will this work for remittances?
Starting from the first of October 2016 this same export scheme will be extended to diaspora remittances. It has been set at 5% – with 2% being reserved for the money transfer agent and 3% reserved for the recipient.
So for example, every $100 that is received will earn a $5 incentive that will be split between the agent and the recipient.
The agents are expected to prefund the payout (or pass on the 3% to the recipient, this explains their 2% share) on a reimbursement basis.
The Reserve Bank pays the incentive on the basis of money received and this is within 48 hours of the money having been sent. According to RBZ officials, finer details of how this will be executed are set to be shared with bankers and agents today.
Sound concept but riddled with its own challenges
Just like the export incentive scheme that came before it the Diaspora Remittances Incentives Scheme (DRIS) is a notable effort in addressing the challenges with foreign currency inflows.
According to the RBZ, in 2015 alone, an estimated $1 billion was remitted to Zimbabwe through informal channels.
The gamble, in this case, is that Zimbabweans in the diaspora will have an added reason to send money home officially if there’s a carrot dangled.
So far the RBZ has been lobbying Zimbabweans in the diaspora to do this and according to Mpofu their engagement with the Zimbabwean community in countries like the United Kingdom has shown an interest in using official channels.
This strategy is, however, coming up against challenges such as a market that is not keen on receiving or leaving money in bank accounts or the formal system.
With the RBZ’s plans to introduce bond notes in October 2016, there is a general apprehension towards any sort of arrangement that could leave a recipient with money they cannot retrieve straight away.
In the worst case scenario, if transfer agents are affected by foreign currency shortages and funds received plus the incentive can’t be redeemed in time, there could be instances where recipients would be forced to “buy” hard currency which is commonly known in Zimbabwe as “burning money”.
The practice was rife in 2008 before dollarisation and at the height of inflation. In recent months it’s resurfaced as cash shortages have pushed some individuals and entities to buy money.
This probable scenario affecting remittances will effectively mean that the RBZ has set its own rate for burning .
For now, these are all suppositions. We only have to wait until next month to find out how the market responds.