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Friday, January 08, 2021 /06:44 AM / By Buddy Buruku of CGAP / Header Image
Credit:businessdailyafrica
Earlier this week, Ghana became the first country CGAP
is aware of to launch a digital financial services (DFS) policy. While the
policy has been years in the making, the government hopes the policy will
support various measures it is taking to leverage DFS in its COVID-19 response.
Ghana has not been spared the COVID-19 pandemic. As of
May 21, 2020, there have been 6,269 infections and 31 deaths. The economy has
taken a significant hit, with GDP growth projections for 2020 being revised
down from 6.8 to 2.6 percent. And response measures combined with a loss of
revenue are expected to cost the government $1.6 billion.
Not surprisingly for a country where roughly 19
million adults have 14.5 million active mobile money accounts, Ghana's efforts
to shore up the economy include measures aimed at promoting the use of digital
financial services (DFS).
For example, the government has removed fees for
low-value remittances, relaxed transaction and wallet size limits for mobile
money, made know-your-customer (KYC) transferable from SIM registrations to
allow for remote mobile money account openings, and zero-rated all
interoperable transactions made through the interbank switch. These initiatives
were agreed in consultation between providers and the central bank, which will
mean that the long-term viability of digital finance should hopefully be
preserved. The country has also committed to allowing beneficiaries of its
largest social benefit transfer program (LEAP) to receive their payments via
mobile money.
These efforts are in line with what is happening in
other African countries where a cash-lite economy is seen as a key tool to
surviving COVID-19 and any future pandemics. For example, the Central Bank of
Kenya has raised mobile money transaction limits, and National Bank of Rwanda
has gotten financial service providers to agree to waive merchant fees for
digital payments.
Ghana hopes that its new DFS policy will amplify the
effectiveness of DFS-related COVID-19 measures. Developed with technical
support from CGAP and funding from the Swiss State Secretariat for Economic
Affairs (SECO), the policy establishes a four-year (2020-2023) blueprint for
achieving short- and medium-term progress in six areas:
Driving the expansion of digital payment use cases
The policy details 43 actions to be taken by the
public or private sector within these areas. If some are implemented
immediately, it would directly impact how effectively DFS can be deployed to
support in the COVID-19 response.
For example, the policy details how Ghana's existing
biometric ID and GhanaPost GPS digital addressing system could be connected to
allow for remote account opening. Prior to the pandemic, financial accounts
could only be opened in person. Recently, as mentioned above, government has
allowed the use of SIM card registrations to open a mobile money account with
the same provider. But connected market infrastructure that enables an e-KYC
utility, as proposed in the DFS policy, would go one step further to allow for
remote opening of any formal financial account. With social distancing the new
order of the day - and with 42 percent of adult Ghanaians still without a
formal financial account - this should result in a large number of Ghanaians
newly having access to financial services that allow them to continue to
transact even in the face of pandemic-related restrictions.
The policy also calls for actions to support fintech
innovation that could lead to a more enabling environment for remittances,
e-commerce and contactless merchant and utility payments. For example, as a
result of COVID-19, remittances to Sub-Saharan Africa are expected to decline
by $37 billion in 2020. Remittances to Ghana will no doubt fall sharply as
well. The policy explicitly calls for setting up a regulatory sandbox that
would allow innovative new products and services to reach market, while also
providing effective supervision. This will be especially important to Ghanaians
who will be relying heavily on those transfers during these times of
constrained economic activity.
Finally, action areas around increasing digital
government-to-person (G2P) and person-to-government (P2G) payments could
strengthen the government's ability to collect much-needed revenue from
citizens while minimizing leakages in disbursements. Considering the expected
contraction of the economy due to the pandemic, any digitization efforts that
maximize government resources will be critical.
Ghana's DFS policy was born out of a need to specify
how DFS could be deployed to support Ghana's financial inclusion goals, as
detailed in the country's National Financial Inclusion and Development Strategy
(NFIDS). While it was not developed in response to COVID-19, it is a
forward-looking DFS policy that should help to ensure government and citizens
have the digital financial tools they need to cope with a new era of social
distancing and economic uncertainty.
About the Author
Buddy Buruku is a Financial Sector
Specialist and a digital financial services (DFS) adviser based in Ghana where
she is CGAP's in-country lead.
Credit:
The post Ghana
Launches World's First Digital Finance Policy Amid COVID-19 first appeared in CGAP
on May 21, 2020.
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