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OPINION

By Ismail Mutebi

On a routinely mundane day at the office, I sit there and order for a ‘safe boda’— the commercial ride hailing motorcycle app. Upon arrival, the rider asks ‘Sebbo, ogenda sasula ne sente oba tugenda kukoseza cashless?’ Literally meaning ‘are you paying cash or using the in-app cashless line of credit?’

The cashless economy has substantially grown over the last decade, especially more so in sub-Saharan Africa. But first and foremost, what exactly is a cashless economy? A cashless economy is one in which digital transactions such as; internet banking, mobile banking, digital wallets, debit cards, and credit card payments, replace the traditional methods of payment—that’s physical cash notes and coins (nickels, dimes pennies and quarters).

Uganda has experienced rapid growth in the number of people using mobile money as their preferred payment method, which in turn, has led to exponential growth of the cashless economy.

This article discusses key aspects about the current state and future trends that a cashless economy will provide for Uganda and beyond. These include:

1. The financial inclusion and benefits that the cashless transition, and specifically mobile money, has had on the average Ugandan populace-- Given that millions are financially illiterate and have traditionally never owned personal bank accounts of their own.
2. How the cashless economy can be an enviable tool in the fight against corruption.
3. How the cashless economy has improved the effectiveness of monetary policy in managing inflation (long-term) and driving economic growth.
4. All long-term beneficiaries within the various stakeholder groups of a cashless economy. This includes an explanation of how; the public, government agencies, Internal Revenue departments, the banking sector, and the family Ugandan at home, all do to benefit from going cashless; and finally,
5. How having a good cash policy can off-set some of the negative consequences associated with the high usage of physical cash in Uganda.

Financial Inclusion and the benefits that mobile money transfer services bring to the population.

The introduction of mobile money has opened up a wide range of opportunities for people in Uganda to access digital payments. Mobile money is a way for people to transfer money and make payments without having to use cash, and it has revolutionized the way people transact across the country.

The service can be used to pay for goods and services, transfer money across other mobile networks and banks, pay bills, access credit, and much more.

According to the World Bank, there were more than 20 million active mobile money accounts in Uganda in 2018, which is more than double the number of bank accounts. This has enabled people to make payments quickly and easily, and has helped reduce the risk and often heavy reliance of cash.

Another factor that has contributed to the growth of the cashless economy in Uganda is the increasing use of digital payments by businesses. Many businesses, especially those in the informal sector, have started to accept mobile money as a form of payment. This has made it easier for people to make payments without needing to physically carry cash, whilst also making it a lot faster and easier for businesses to get paid.

The Uganda government also has played an important role in guiding and implementing key reforms that are in line with the move to go cashless. The government has implemented various initiatives to encourage the use of digital payments making it easier and more convenient for citizens to access financial services.

These initiatives include tax incentives for businesses that use digital payments and financial literacy programs to help people understand the benefits of digital payments.

Overall, the cashless economy in Uganda is growing rapidly and is having a positive socio-economic impact on the country at large. It’s helped boost financial inclusion and literacy, contributed to a substantial reduction in poverty, especially in far- flung marginal rural regions that were previously excluded from the tax revenue and banking services.

This has in turn contributed to a boost in financial inclusion, making it cheaper and much easier for Ugandan nationals to access and pay for almost all goods and services.

Uganda should also focus on promoting financial inclusion by increasing access to digital payment services and banking services. This could include providing incentives for people to open bank accounts, such as low-cost or no-cost accounts, and providing low-cost or free digital payment services.

Invest in Infrastructure: To ensure that a cashless economy is successful, it is important to invest in the necessary infrastructure. This could include expanding access to mobile networks and internet services, as well as investing in secure payment systems and digital payment services.

It is also important to ensure that digital payment services are secure and that citizens are protected from fraud and cybercrime.

The next section outlines how going cashless has been a crucial tool in the fight against graft, money laundering, and corruption.

An enviable tool in the fight against corruption

Corruption can be defined as the ‘abuse of power to obtain private advantage’. As suggested by the world bank, a modern economy cannot grow and thrive in the presence of corruption—this is a well-known fact.

Transparency International publishes an annual global corruption barometer for 180 countries. Known as The Corruption Perception Index (CPI), Uganda in 2022 was ranked as the 142nd least corrupt nation out of 180 countries.

However, even other developing countries within the BRICS (Brazil, Russia, China, and South Africa) have not fared well either. For instance, Russia (136th), China (100th), Brazil (69th), and South Africa (67th) on the corruption perception index all have better values and standing in the table, even though their economic performance cannot be termed as remarkable.

As per CPI, the score of a country or territory indicates the perceived level of public sector corruption on scale of 0 – 100, where 0 means that a country is perceived to be highly corrupt and 100 means it is perceived to be highly clean. This means that Uganda still has a lot of work to do in fighting corruption and graft.

Going cashless doesn’t mean going into barter system once again but there will be no cash transactions, and all the transactions will be done through a mediator, which can be any commercial bank, under the regulation of the central bank of the country. Money has been recently termed as ‘the mother of all evils’ and so as such; the cashless model will do away with this evil by adopting a cashless platform for the country.

High cash usage is a bad thing in the globalized world. It enables corruption, leakages, money laundering, and thriving black market which the Ugandan government cannot tax neither control, amongst other things.

Just imagine if the Ugandan government decided to completely remove cash from all government procurement processes. There would be no more middle men to pay for services, and no risk that the money will leak out or be stolen since it’s all now stored digitally.

Once the government has taken charge of corruption, the next step relies on having a sound cash policy to manage the existing reserves in the central bank, and makes for the next part of our discussion.

The significance of having a good cash policy

Given that Uganda is a poor third world economy largely based on subsistence farming, the population is largely poor, and agrarian. Therefore, cash is the main payment for almost all goods and services for many of the poor and marginalized. So having a good cash policy in an economy that runs mainly on cash, makes for good fiscal management.

A good cash policy aims to curb some of the negative scales associated with the high usage of physical cash in the economy, and they include:

The high cost of cash

There is always a high cost of cash along the value chain whenever its needed. This starts from the Uganda Central, which is passed onto the merchant banks, and then passed onto the corporations and market traders.

Now in every step along that value chain from the central bank down to the market traders requires money to be paid out. In other words, everyone in the economy bears the high costs (and risks) associated with handling high cash volumes.

The high risk of using cash

Cash encourages robberies and other crimes. It also crucially leads to total financial loss in cases of fire or flooding.

Highly leveraged subsidies

According to the Bank of Uganda, analysis shows that only 10 percent of daily banking transactions are above half a million shillings. However, the ten percent account for majority of the high value transactions. This in turn suggests that the entire population subsidizes the costs that the tiny minority (ten percent) incur in terms of their high cash usage.

Informal economies, the black market, and money laundering

Note that high cash usage results in a lot of that money ending up outside the formal economic sector, and therefore limiting the effectiveness of the governments monetary policy in curbing inflation, encouraging economic growth, and tax collection to fund government services. Laundered money is especially difficult if not entirely impossible to tax, and as such undermines the government’s efforts.

Inefficiency and corruption

Finally, high cash usages enable corruption, leakages, and money laundering as mentioned earlier.

In conclusion, it is important to encourage citizens to adopt the cashless economy. This could include providing incentives for people to use digital payment services, such as discounts or loyalty programs, as well as highlighting the benefits of a cashless economy. It is also important to ensure that digital payment services are accessible and user-friendly.

Overall, the cashless economy in Uganda is growing rapidly and is having a positive impact on the country. It is helping to reduce poverty, increase financial inclusion and make it easier for people to access services.

The writer is an Electronics and Telecommunications Engineer ismailmutebi@icloud.com