Champion Mudavanhu—Own Correspondent
Policy changes to promote innovation, public convenience, and build public trust in the local financial system have been highlighted as the much-needed panacea, particularly in countering the vibrant hawala-based informal money transfer system to channel more remittances revenue to the fiscus.
In simple terms, Hawala is a money exchange system that allows for an informal transfer of funds from one person to another without the actual movement of money, permitting anonymity as it requires no documentation.
An article published by this paper earlier this month proved how government is losing out on potential revenue in the form of both direct and indirect taxes through the operations of unregistered therefore unregulated money transfer companies that have established offices in all the country’s major cities and towns and in some growth points.
Several economic and financial luminaries reacted to the story, with policy change recommendations seemingly being the common ground in their arguments.
Local entrepreneur and CEO of Fresh-in-a-box, Kuda Musasiwa, argues that there is no practical way to stop the unregulated Hawala system.
“They can`t. as long as there is arbitrage and incentive to go around the system.” By definition, arbitrage is the practice of profiting from price discrepancies across marketplaces, where traders purchase the less expensive form of a currency, commodity, or assets that are valued differently on two different marketplaces,” Musasiwa said.
Financial expert and Chartered Accountant, Kudakwashe Mugova, who is based in South Africa, buttresses Musasiwa`s position and said these transactions are hard to control.
“I think cross border transactions are hard for us to control especially with the US$ as the medium of exchange in our economy,” Mugova said.
The same view is held by Great Zimbabwe University Munhumutapa School of Commerce Economics lecturer, Dr Talknice Saungweme, who highlighted the need for the government to make the formal financial transfer system more accessible and convenient.
“The first thing is to make the formal system more convenient. Any general person should be able to access the facilities, even in the rural areas. For the meantime, it is really difficult for a person in the rural areas to access it (money transfers), but if it`s done through the informal agencies, they will make sure the person gets their money,” Dr Saungweme said.
Dr Saungweme further suggested that government should make accommodations to be able to tap into the revenue stream of the informal money transfer sector.
“The government can avail facilities through the banking system, or maybe even through the retailers (look at the South African system) where retailers have a part to play in the disbursement or in ensuring that the public have access to their monies. It is also important for the government to be as flexible as possible, to have as many players as options for people, and then just tie-up the loose ends, making sure that every cent that comes into the system is accounted for,” he added.
This view was seconded by Mugova who added that Zimbabwe does not have enough control due to lacking of banking infrastructure.
“We don’t have enough banking infrastructure to control it. It`s not like in SA where the regulator has strong institutional controls,” he added.
Dr Saungweme added that the current interest and tax regimes need to be reviewed and aligned with reality if the formal system is to gain any market share controlled by the informal sector which charges below the formal 10percent.
He argues that the government needed to work with the law of numbers to try and attract as many people as possible so that even if it charges little amounts they still turn out substantial because of the numbers.
South African based economic and political analyst, Kudzai Mtisi, said that it is difficult to regulate the operations of the unregistered money transfer agents, or to prosecute the perpetrators using the Reserve Bank of Zimbabwe (RBZ) Act [22:15], the National Payment Systems (NPS) Act [22:43], and the Exchange Control (EC) Act [22:05].
“The major challenge is the corruption of the law enforcers. These people unregistered money transfer operators are known,” he said.
Mtisi said the government needs to consider why the people who use the informal system do so in order to come up with a meaningful position.
“The starting point is knowing why individuals choose these folks (unregistered agents) over the registered one. That will help in addressing the issue.”
“It should be more of an information campaign rather than a law enforcement blitz. It’s about discouraging people from using unregistered agencies. In many countries, government departments run adverts warning people about using unregistered agencies. At least with registered agencies, you are guaranteed that your money is safe. We need to be a nation that provides information in ways that provide easy access. A simple google search should give a list of registered agencies. We should warn people through marketing campaigns. No hardball approach,”Mutisi said.
Dr Saungweme was however tentative on being asked if he would recommend regularizing the Hawala system as an issue of policy.
“When we talk of policy, it`s not something that the government can just use opinions, it should be tested. There is need for a thorough investigation into the system before we can then say we are going to adopt it and use it. It depends with our structure, the depth of our financial system and other supporting systems that can then make it function efficiently. I recommend we study the system first,” Dr Saungweme said.
The RBZ public relations department did not respond despite asking for questions in writing. Follow-up phone calls were made to the PR department, and they indicated that they were waiting for response and clearance from the Financial Intelligence Unit (FIU) and the Exchange Control Unit, and then ended up not picking up calls.
Similarly, ZIMRA PR were responsive initially and asked for a formal email request which was sent. They indicated that they were waiting for an appropriate response from the relevant department that deals with revenue collection in the case of financial institutions.
(This story was written with support from the Voluntary Media Council of Zimbabwe (VMCZ) Investigative Journalism fund.)
