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Ghana Launches World's First Digital Finance Policy Amid COVID-19

Jan 08, 2021   •   by   •   Source: Proshare   •   eye-icon 1964 views

Friday, January 08, 2021   /06:44 AM / By Buddy Buruku of CGAP  / Header ImageCredit:businessdailyafrica


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Earlier this week, Ghana became the first country CGAPis aware of to launch a digital financial services (DFS) policy. While thepolicy has been years in the making, the government hopes the policy willsupport various measures it is taking to leverage DFS in its COVID-19 response.

 

Ghana has not been spared the COVID-19 pandemic. As ofMay 21, 2020, there have been 6,269 infections and 31 deaths. The economy hastaken a significant hit, with GDP growth projections for 2020 being reviseddown from 6.8 to 2.6 percent. And response measures combined with a loss ofrevenue are expected to cost the government $1.6 billion.

 

Not surprisingly for a country where roughly 19million adults have 14.5 million active mobile money accounts, Ghana's effortsto shore up the economy include measures aimed at promoting the use of digitalfinancial services (DFS).

 

For example, the government has removed fees forlow-value remittances, relaxed transaction and wallet size limits for mobilemoney, made know-your-customer (KYC) transferable from SIM registrations toallow for remote mobile money account openings, and zero-rated allinteroperable transactions made through the interbank switch. These initiativeswere agreed in consultation between providers and the central bank, which willmean that the long-term viability of digital finance should hopefully bepreserved. The country has also committed to allowing beneficiaries of itslargest social benefit transfer program (LEAP) to receive their payments viamobile money.

 

These efforts are in line with what is happening inother African countries where a cash-lite economy is seen as a key tool tosurviving COVID-19 and any future pandemics. For example, the Central Bank ofKenya has raised mobile money transaction limits, and National Bank of Rwandahas gotten financial service providers to agree to waive merchant fees fordigital payments.

 

Ghana hopes that its new DFS policy will amplify theeffectiveness of DFS-related COVID-19 measures. Developed with technicalsupport from CGAP and funding from the Swiss State Secretariat for EconomicAffairs (SECO), the policy establishes a four-year (2020-2023) blueprint forachieving short- and medium-term progress in six areas:

 

Improving governance of the DFS ecosystem
Supporting fintech
Creating an enabling regulatory framework
Actively building the capacity of authorities tosupervise the space
Supporting the development of market infrastructurefor DFS

Driving the expansion of digital payment use cases

 

The policy details 43 actions to be taken by thepublic or private sector within these areas. If some are implementedimmediately, it would directly impact how effectively DFS can be deployed tosupport in the COVID-19 response.

 

For example, the policy details how Ghana's existingbiometric ID and GhanaPost GPS digital addressing system could be connected toallow for remote account opening. Prior to the pandemic, financial accountscould only be opened in person. Recently, as mentioned above, government hasallowed the use of SIM card registrations to open a mobile money account withthe same provider. But connected market infrastructure that enables an e-KYCutility, as proposed in the DFS policy, would go one step further to allow forremote opening of any formal financial account. With social distancing the neworder of the day - and with 42 percent of adult Ghanaians still without aformal financial account - this should result in a large number of Ghanaiansnewly having access to financial services that allow them to continue totransact even in the face of pandemic-related restrictions.

 

The policy also calls for actions to support fintechinnovation that could lead to a more enabling environment for remittances,e-commerce and contactless merchant and utility payments. For example, as aresult of COVID-19, remittances to Sub-Saharan Africa are expected to declineby $37 billion in 2020. Remittances to Ghana will no doubt fall sharply aswell. The policy explicitly calls for setting up a regulatory sandbox thatwould allow innovative new products and services to reach market, while alsoproviding effective supervision. This will be especially important to Ghanaianswho will be relying heavily on those transfers during these times ofconstrained economic activity.

 

Finally, action areas around increasing digitalgovernment-to-person (G2P) and person-to-government (P2G) payments couldstrengthen the government's ability to collect much-needed revenue fromcitizens while minimizing leakages in disbursements. Considering the expectedcontraction of the economy due to the pandemic, any digitization efforts thatmaximize government resources will be critical.

 

Ghana's DFS policy was born out of a need to specifyhow DFS could be deployed to support Ghana's financial inclusion goals, asdetailed in the country's National Financial Inclusion and Development Strategy(NFIDS). While it was not developed in response to COVID-19, it is aforward-looking DFS policy that should help to ensure government and citizenshave the digital financial tools they need to cope with a new era of socialdistancing and economic uncertainty.

 

About the Author

Buddy Buruku is a Financial SectorSpecialist and a digital financial services (DFS) adviser based in Ghana whereshe is CGAP's in-country lead.

 

Credit:

The post GhanaLaunches World's First Digital Finance Policy Amid COVID-19 first appeared in CGAPon May 21, 2020.


 Proshare Nigeria Pvt. Ltd.


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 Proshare Nigeria Pvt. Ltd.


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