The Cost of Transacting and Banking Is High, Thus Slowing Progress Towards Cashless

This article is part of an ongoing study on the cost of transacting and banking in Rwanda. You can preview consolidated data for mobile money, commercial banks, micro-finance institutions, and Umurenge SACCOs.

It used to take days, and sometimes weeks, to transfer money from one bank to another. But since the rise of mobile technology and many banks adopting new digital offerings, access to financial products and services has improved with time. Notably, during the lockdown due to the current pandemic, the number of mobile-money transactions doubled in the week after a lockdown was imposed in March. With more businesses accepting at least one or more digital payment options, experts believe this trend shall continue and lead to further positive outcomes. Young people, who make up more than sixty percent of the Rwandan population, are increasingly using digital transactions to pay for goods and services — and future trends, we believe, will only move upward.

But progress has been slow. Between Twenty-twelve and Twenty-twenty, the percentage of the adult population who have an account in a bank grew from forteen to thirty-six percent.  While ninety-three percent of adults who are financially included in Rwanda, according to the latest FinScope survey, over sixty-five percent are in Umurenge SACCOS, the rural saving and credit cooperatives. These are characterised by vast use of cash and paper-based processes, and it is discouraging for those who see good in a fast drive towards a cashless economy.

Printing, distributing, and securing cash costs Rwanda up to twenty billion Rwandan francs annually. This amount, if not slightly less, can build a state-of-the-art hospital. While mobile-money has proved beneficial for moving money over distance and making payments, especially for low-income and rural populations, users need access to greater finance for business, a home, school fees, and more.

Between August and September this year, we conducted a survey (see consolidated information) to understand how realistic the costs of banking and digital transaction fees are. We concluded that the costs of banking and transacting are high, which partly explains the slow progress in heeding the call by the Rwandan central bank to go cashless.

Most banks, including the largest commercial banks and micro-finance institutions, still charge ledger fees. Every month, for instance, a personal current account is charged a thousand and five hundred Rwandan francs at Bank of Kigali and a thousand and seven hundred Rwandan francs at I&M Bank, plus additional fees for digital transactions and their corresponding alerts. Mobile wallet options by telecommunications companies MTN and Airtel, although most convenient, are even more costly as they charge per transaction.

Without the ease of digital transactions and greater access to banking services, meaningful inclusion gets hard. This continues to hurt women and youth, without whom Rwanda risks falling short of achieving its plan to more than double the GDP value of digital payments by the year Twenty-twenty-four.

It takes the ordinary Rwandan between eighteen and forty-two minutes on average to reach an agent, ATM or a bank to access cash for payments; whereas with one’s phone or other mobile device, payments are instant and can be made from anywhere and at any time.

Umurenge SACCOs were established in 2008 to boost financial inclusion with savings and access to loans in rural areas, serving the majority of Rwandans. But operations are conducted only in branches, as they lack the platforms to provide digital transactions. As such, most of their customers are especially served by mobile-money.

Despite being a viable option for transacting digitally in regions where mobile phone is king, mobile-money is limited as a tool to deliver financial inclusion. More investment and innovation are required. When people cannot access timely and affordable banking, loan, and equity products, they hardly succeed in their business or social endeavours. Mobile-money technology, which currently relies on USSD, will take time to catch up with the formal banking industry due to its insufficient capabilities.

The financial sector need not leave anyone behind, especially at this critical time. Rwanda has done well in tackling financial inclusion as part of its response to the pandemic, thanks to good connectivity infrastructure. Now let's push to the next frontier by swiftly advancing the reach and use of digital payments in order to mobilise local resources that can propel us to sustained inclusive socio-economic development.

This will require banks and all financial services providers to collaborate so they can bring services closest to where people live and need to transact. Convenience, powered by interoperability, which shall in turn drive down costs and make digital the preferred way for most people to conduct their financial lives. The time to invest in fast-tracking innovation and investment in this area is now.

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