Analysis Of Cash Usage And Challenges In The Adoption Of Electronic Payment Facilities In MEFMI Countries – The case of Malawi, Botswana and Tanzania

By Fraser Harrison Mdwazika
August 2010

The payments mechanism is a vital infrastructure that ensures the flow of funds in the economy. The modern payments arrangement has however evolved from barter to cash and to electronic based payment facilities.
Taking advantage of the revolution in computer technology, MEFMI member countries embarked on a payment systems modernisation initiative which among others aimed at introducing electronic based payment facilities. In particular, Malawi, Botswana and Tanzania embarked on the reform programme in 1995 under the auspices of the SADC Payment Systems Modernisation Programme. The modernisation initiative has resulted into the introduction of a number of payment products which among others include real time gross settlement system, debit and credit cards, smart cards and mobile payments solutions. Despite the introduction of these payment facilities, cash still remains a dominant mode of payment in the three countries being studied.
This paper therefore seeks to analyse the extent of cash usage in Malawi, Botswana and Tanzania and also explores challenges that these countries face in promoting electronic payment products. The results of this study will assist central banks in the three countries and MEFMI Secretariat to identify areas that require policy intervention either by the local payment systems authorities or through In-country Mission activities. The study has identified the following as major challenges faced by Malawi, Botswana and Tanzania in promoting usage of electronic payment products: the supremacy of cash over electronic payment products, cost of electronic payment facilities (acquisition of payment instrument and also transaction fees), distance or accessibility to banking facilities, literacy levels, fraud, legal framework, narrow range of products, power supply and the state of telecommunication infrastructure.
Cross-section and time series data were used to come up with empirical findings of the study. In addition, a questionnaire was circulated to the three central banks. An evaluation of the ease with which economic agents access banking facilities and also the existing legal and regulatory framework for the three countries have also been analysed. The study has shown that the degree of each challenge is different from one country to another. One problem is serious in one country while the same challenge is not severe in another country.
In order to ensure a speedy adoption of electronic payment products, it is recommended that the central banks in Malawi and Tanzania should expedite the enactment of specific legislation to govern the operations of their respective national payment systems. The central banks should also lobby governments to waive duty on importation of gadgets that support electronic payment facilities. Governments in MEFMI member countries should also invest in rural electrification so that the rural people can easily operate gadgets that support electronic payment facilities.