Picture is Courtesy of VOA
One of my favourite questions over drinks when discussing Zimbabwe’s financial eco-system is asking the question; what is the difference between the airtime vendor who is also a money changer who trades outside shopping malls and Innbucks, which collects money and sends it to people’s phones as digital money? The answer is the work is the same, the difference is that the latter is registered, and the former is not. It is easy to say then that is the end of the conversation, but that would be scratching the surface of a large issue that has not been questioned. Informal micro-money changers have been part and parcel of Zimbabwe’s economic society for more than thirty years. Not enough has been done to question the policy and legal framework that undergirds what a ‘legal’ or ‘illegal’ money changer is. What is illegal money changing when the country operates in a multicurrency policy framework? All this in the context of a country that has an 80% informal economy. This article will argue that Zimbabwe’s current policy and legal framework impedes any financial inclusion of the thousands of money changers who are key components of Zimbabwe’s financial ecosystem, albeit, unrecognized and it would in the Reserve Bank of Zimbabwe’s (RBZ) best interests to set up means to register them formally.
Since 16 April, the Government of Zimbabwe has been on a stern operation arresting informal money changers in the main economic cities of Harare and Bulawayo. The Vice President, Constantino Chiwenga cemented the government’s position warning the traders that, “these thieves you call moneychangers, stop it…waking up saying you’re going to work changing money, stop it. We do not want you crippled over such activities”. For the nearly 100 money changers arrested across the country, they have not received bail and have reeling in remand prison for three weeks and counting. But what laws are they breaking?
The key statutes that one needs to investigate are the Exchange Control Act and Statutory Instrument 104 of 2015 which looks at the Authorized Dealers with Limited Authority (ADLA). Section 5 (1) of the Exchange Control Act read with Section 4 of Exchange Control Regulations of 1996 states that:
Unless permitted to do so by an Exchange Control Authority no person shall, in Zimbabwe;
(i) buy any foreign currency from or sell any foreign currency to any person other than an authorized dealer; or
(ii) borrow any foreign currency from, lend any foreign currency to or exchange any foreign currency with any person other than an authorised dealer;
The Exchange Control Act clearly shows an authority that has the power to decide who in effect changes money in the country, from one currency to another, and in Zimbabwe’s case that is the Reserve Bank of Zimbabwe (RBZ). Following on from the Exchange Control Act, how does one become a registered, legal money changer? That is covered in Statutory Instrument 104 of 2015 which explains how one becomes an ‘Authorized Dealer with Limited Authority’ (ADLA), ie-formal money changer and they are defined as,
“A financial services provider not necessarily licensed under the Banking Act but authorized by the Reserve Bank… to carry out small-value person-to-person cross-border cash transfers or buy and sell foreign currency through money transfer systems designated by the Reserve Bank.”
Under this order, as of 2024, there are currently, 101 registered ADLAs and they are segmented in three different tiers which all have different requirements that must be met based on whether one is a money transfer operator (MTO), money transfer agent (MTA) and/or a Bureau de change. These ADLAs, what I will call registered money changers include well-known businesses in that space such as Mukuru, Innbucks, Ecocash, and OK Zimbabwe.
As you can imagine dear reader, the requirements to set up a formal money-changing operation are strenuous and impede most traders to registering formally. Financially, to be able to satisfy one of the three existing tiers, one will need a security deposit of between USD$7 500 to USD$10 000. The trader can only do so under a private limited company with a tax clearance, a head office that requires USD$1 000 yearly to renew the licence, Know Your Customer requirements, yearly audits, and requires a board with written resolutions, directors including their CVS, a business plan including expected business volume, and a risk assessment. In effect, the only entities that can be ADLAs/formal money changers are liquid, substantial Small-To Medium to Large Businesses which most of the arrested money changers are certainly not.
Logically, there is a need to register those who deal and trade money in any country. The two primary reasons are to reduce tax evasion and minimize money laundering which usually fuels illegal activities. However, the current structure of formal money-changing laws and policies are designed to effectively keep out minor players in the industry, keeping them in the shadows even though they play a major role in the money trading industry in Zimbabwe, especially in a multi-currency market which in effect necessitates the trade between currencies from one to another which the current registered 101 ADLA/formal money changers entities cannot satisfy.
There is an opportunity to establish registration methods for the informal money changers. This should be done to increase the financial inclusion of the broad informal economy into the nation’s key financial apparatuses. As a stated objective of the RBZ outlined in the Monetary Policy, the main strategic vision of the National Financial Inclusion Strategy (NFIS) II is to promote increased usage of financial services. Key developments in the financial inclusion space over the last fifteen years have been financial literacy campaigns, the creation of the collateral registry system as well as the increase in Microfinance Institutions now totalling 238 serving 334 423 clients in 2023. Nevertheless, the financial system is still structurally biased against most of the country’s socioeconomic groups. Less than 8% of loans in the country go to women, less than 5% go to MSMEs and less than 4% of loans go to youth in a country which is majority youth.
The current money trading services structurally do not and cannot satisfy those who rely on the informal micro-money changers who are usually those marginalized socioeconomic groups of women and youth. The informal micro money changers are key conduits to making the financial landscape fairer for most of the country hence the need for an extra Fourth Tier on the ADLAs. Ideally, the Fourth Tier will allow the informal micro-money changers to register requiring less registration requirements and cheaper licensing fees. They could either register in their individual capacity or under an agent structure. In their individual capacity, they would trade as a sole trader. As an agent, like what happened with Ecocash agents when Ecocash was established, they can be designated as the micro-money changers or an already established operating ADLA. This agent structure will serve the purpose of formalizing the public secret which is that several of the registered ADLAs already work with informal money changers to access foreign currency in the informal market.
We can imagine this futuristic money-changing industry by providing a relevant example from the drinks industry in Zimbabwe. Delta and Varun Beverages distribute their drinks through supermarkets, bars, and restaurants but rely heavily on supplying vendors who go into the streets and neighborhoods across the country. That last mile to the customer who needs their drink there and then is the same who needs to exchange currencies in order to use public transport, buy airtime or groceries is best reached by the micro-money changers.
The RBZ has done something similar in the gold industry where processes have been created with support from the Zimbabwe Miners Federation (ZMF) to allow artisanal miners (who produce 60% of gold in Zimbabwe) to register with the RBZ. The presumptive tax which has been dangled to other informal traders as a path towards formalization can also be used to legalize micro-money changers tax-wise.
Inclusion looks different at different times in a nation's financial journey. Informal micro-money changers are now part and parcel of Zimbabwe’s financial landscape especially in a multicurrency regime. Arresting money changers without providing a path toward their legalization or formalization is a short-term solution that doesn’t solve anyone's problems and becomes a point of resentment from the public with government and monetary policy of the day.
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