Zimbabwe has a fascinating financial history. As a nation we have always been interested in the world of finance. In the early nineties, the Zimbabwean government liberalised the banking sector and in just over a decade, 14 new indegenous banks had been licenced. Yes, fourteen banking licences were issued, from CBZ in 1991 to Time Bank in 2002.
At the time this felt like a good idea. The main goal was to break the dominance of the foreign banks. So, the govt actively encouraged locals to try their hand at this banking business. Hence why the RBZ dished out banking licences at a rate of more than one every year for 11 years straight.
To our Gen Z friends, what happened next was a massacre. Our now familiar foe, hyperinflation ravaged through those shiny new indegenious banks. See, we had already seen three banking institutions bite the dust in 1998 and 2000. However we had not seen the ‘bank-wide liquidity crisis’ monster which took the souls of fourteen banking institutions in 2004 alone.
Fourteen bank failures in one year. Sheesh.
There were other factors in addition to hyperinflation that led to this madness. The RBZ had a lot of blood on its hands thanks to its slothly responsiveness and lax monitoring. The banks were riddled with managerial problems mainly arising from ownership concentration as most were family owned. There was fraud, poor asset management, insider lending and concentration of loans to specific individuals/firms.
It was brutal and so my dear Zoomers, please bear with us millenials and our elders as we are trying and failing to conjure up trust in the farce that has been the Zimbabwean banking industry.
Banking’s bankless resurgence – fintech
After the 2004 mess, the escalation of the hyperinflation crisis and further bank closures, Zimbabwe ended up with the biggest proportion of the formerly banked. As adoption of foreign currencies increased in the market, the National Mattress Bank rose to prominence and banks had no appeal to the masses. This, despite the benefits that can be found with those banks.
If a business had ‘bank’ in their name, we wanted nothing to do with it. So, the solution to this came with mobile money. Indeed the fintech innovation called mobile money offered hope to a nation that was desperate for banking services, but just not from banks.
What banks offer customers is the ability to save, borrow and exchange money safely. Zimbabweans shun banks for many reasons, the lack of trust being the major one. The other reasons being high fees and charges, long distances to bank branches, challenges in getting KYC documentation, especially the proof of residence.
Mobile money providers (Ecocash, OneMoney and telecash) stepped in to offer more or less what banks offered – ability to save, borrow and exchange money. All without much of what we hated about banks.
We could trust the telcos that offered mobile money wallets because we had no reason not to. Mobile money providers charged lower fees and did not require great grandparents’ birth certificates or proof of residences to open accounts. They solved the ‘long distance to a financial institution’ problem too by investing in wide agent networks.
It was no surprise then that mobile money took over. Financial services without banks was a deal Zimbabweans could not pass up. In fact, we so loved this mobile money, EcoCash in particular, that it reached communities that had never had access to the elitist formal banking sector. At one point, EcoCash handled 80% of ALL financial transactions by volume in Zimbabwe.
As we saw above, the govt and its central bank liberalised the banking sector in the 90s so they could deal with foreign banks’ dominance. Post dollarisation, they found that they had a dominant force yet again – this time in the form of the fintech giant EcoCash. The sector was already open to other players and yet one player continued to dominate and so the plan was hatched – clip EcoCash’s wings.
Transactions limits were introduced, the expensively established agent network was dismantled and lawsuits were threatened. The govt’s plan to curtail EcoCash and mobile money’s growth kind of worked. In mid 2020 when mobile money was temporarily banned, there were 5.3 million mobile money accounts and in December 2021 that figure had fallen to 4.1 million. Mobile money volumes fell from over 400 million transactions in December 2020 to around 340 million as we closed 2021.
Zim not in line with global trends
The Global System for Mobile Communications (GSMA) industry report for 2021 shows that the number of registered mobile money accounts grew by 12.7 percent globally in 2021.Whilst in Zimbabwe, once considered one of the leaders in this space, the number of accounts fell 21% during the same period.
2021 was also a record breaking year for fintech financing globally. CB Insights reports that there was a 168% increase in funding, from US$49 billion in 2020 to a record $131.5 billion in 2021.
How much of the $132 billion made it to Zimbabwe? I’d imagine little, if any. Investors no doubt saw how a fintech player that had succeeded fairly and squarely was cut down and had executives threatened with jail time. They saw how mobile money was temporarily banned and how strategic components (agents) of a successful mobile money service were outlawed.
They saw a nation moving from mobile money to deal in cash and so not many investors were knocking on Zimbabwe’s door. So much for Zimbabwe being open for business. We may be open but the unpredictable nature of the Zimbabwe policymakers/regulators adds significant risk to an already risky economy.
2022 might be interesting though
We shall see what 2022 has in store for us. If not mobile money per se, there is a fight in the remittance business that is shaping up to be interesting. These remittance providers, especially domestic USD remittance providers are starting to look like the mobile money of old. By offering wallets, users can save (up to a low limit) and exchange foreign currency. What’s lacking in the meantime is the option for users to borrow using their remittance wallets.
In 2021, we saw a number of players enter the ring with one of the curious ones being InnBucks which appears to have all the necessary components to dominate. At launch, an InnBucks wallet user could only load up to a maximum of US$200 in their wallet. I wonder if the RBZ will allow an upward revision of that limit. However, their branch/agent network is good.
So, it appears that remittance is where the fun will be. Until the govt feels remittance players have become too dominant and folds the whole industry. We shall see.
Then there is the mysterious RBZ fintech sandbox which has been a thing for over a year now. The RBZ boasted that “the Sandbox had received 112 registrations on the online portal and a further 31 applications at various stages“. We are still in the dark on who the 112 are and what exactly they are working on. The RBZ is keeping its cards close to its chest and that can’t be attracting much investment in the space. Again, we shall see.