Cash Really Is King
Cash is easy.” “Cash is what I know most.” “There are no charges when I use cash.”
I was sitting in a little room in the outskirts of Accra listening to a group of tomato sellers talk about the financial tools they use to manage their finances. As a part of CGAP’s work in Ghana, we have commissioned Bankable Frontiers Associates (working with Easy Errands, a Ghanaian market research firm) to conduct a market research study on the financial needs of low-income customers in Ghana. One of the first steps was to conduct focus groups throughout the country and listen to diverse groups of Ghanaians, including farmers, taxi drivers, traders and students, talk about their strategies for moving and storing money. They discussed bank transfers and drivers and the use of family and friends but more than anything, they talked about cash.
Ghana Market Seller
Cash is far and away the preferred method for storing and sending money in Ghana, no matter how inconvenient. One tomato seller, Charity, wraps her cash in no less than six black plastic bags and hides it in the back of her refrigerator, underneath her tomatoes and meats, so that the rest of her family does not suspect it is there. A timber seller, Emmanuel, told us he keeps his cash under the carpet in his living room. When asked whether the cash does not form a noticeable bulk, he replied with a big grin, ‘That’s why I spread it all around so that people walk all over my cash but have no idea it is beneath their feet!’
From the stories I heard, people are tied to cash for two main reasons. First, they trust cash and its tangibility. Several focus group participants complained that ATMs ‘swallow cash’ and many worry that the wrong amount will be in the bank if they leave their money there. Second, in a country with limited financial infrastructure, cash still offers the greatest convenience. The tomato sellers travel to Burkina Faso to purchase tomatoes, often starting work as early as 4:30am. Since no banks are open that early, they carry significant amounts of cash – as much as $7,000 each. They do not feel secure carrying so much cash, but they feel they have no other options.
Some people have experienced such crises with cash that they have switched to safer methods. Mary, a baker, lost her mother in a car accident while she was carrying a significant amount of cash from Accra to Kumasi to purchase goods. When Mary traveled to the scene of the accident, she was told that the money had been taken by the first people to arrive on the scene (who at least did help take care of some of the accident victims). Now Mary refuses to travel with cash.
However, many people are still loyal to cash, despite personal experiences with its shortcomings. Adelaide, a sales assistant in an office, was robbed on her walk home from the office a few months ago – while carrying a month’s salary she had just received. Despite losing a whole month’s income, she still does not want to receive a direct deposit of her salary since she does not trust the bank. She’s not sure the money will really be in her account when it should be and prefers the certainty of hard cash.
Aside from trust and convenience, one more explanation of the allure of cash came from George, a store owner: “When I have cash in hand, it gives me power and authority.” Bestowing power and authority on top of everything else – cash truly is king and will be a difficult sovereign for branchless banking providers to topple.
- Claudia McKay
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Comments
Great article. Another
Great article. Another advantage that cash provides is for businesses to operate outside of the formal sector. Thus, if businesses have the incentive (not paying taxes or other fees) to not use mobile money services to process transactions, how can we expect the reliance on cash to decrease. Making mobile money more convenient and effective on the consumer side is obviously an important piece to this puzzle, but policy considerations to make it easier and affordable for businesses to enter the formal sector should be a part of the conversation as well.
Claudia, this is a really
Claudia, this is a really interesting post because it shows just how complex the problem is. While cash is king, it certainly is inadequate. And while banks would theoretically be better, they are not able to gain buy-in. Is this a case of inadequate financial education? Of an inability for financial institutions to gain the trust of their clients? Of product inadequacy? Of poor marketing?
Thanks for your thoughtful reflections!
94% to be precise . . . that
94% to be precise . . . that was the extent to which “cash remained king” in a recent Financial Diaries survey of M-PESA uptake conducted by MFO (see http://microfinanceopportunities.org/news/the-role-of-mpesa-in-the-live…). The report by Guy Stuart and Monique Cohen puts both some hard numbers and some context around this important “cash is king” issue.
MFO researchers tracked every financial transaction for more than 90 Kenyan households over the course of 18 months, compiling a database of 18,000+ transactions. Only 6% of those transactions turned out to involve mobile money — and virtually all of those were the classic “sending money home” scenario. The idea that people would be using mobile money for everyday financial life — including savings — was simply not happening in meaningful numbers.
And considering that more than 70% of Kenyan households use M-PESA, we might imagine that if mobile money were to begin displacing cash in any market, then Kenya would be that market. Yet as MFO puts it, M-PESA uptake is “a mile wide but an inch deep.” (see http://microfinanceopportunities.org/wp-content/uploads/2011/11/KenyaSp…) Everyone uses M-PESA, but they use it for that one specific “send money home” purpose, over and over. Along with issues of trust and the powerful force of habit, MFO also identified M-PESA’s own tariff structure as an unintended incentive for people to convert digital money into cash immediately rather than transacting digitally.
(See http://www.microfinanceopportunities.org for the master report, a one-page fact sheet, and a suite of topical briefs about the Financial Diaries’ findings.)
I agree that incentivization
I agree that incentivization is a requirement for mobile commerce to overtake cash, given the correct interpretation that if taxes can be evaded, they typically will – at least by the small, private merchant. Which raises the issue of who should be responsible for such incentives? While MNOs will be ready to buy market share, the much larger incentive provider should be government.
The value of administrative burden reduction, tax collection increases and an overall ‘fairer’ society are all wins. For example, we saw in Greece a Diminishing Return on tax revenue when a VAT increase caused greater evasion levels – and also is a major contributor to the civil unrest we see now. Our proposal in that case is for a VAT refund for those paying electronically (down from 23% to 15%)as well as other incentives. The tax ‘take’ is going to be higher, if we can also deal with the zero tax of the evader. One of the key factors in determining that is whether fairness is sufficiently marketed and understood.
As a final point, we are looking to conduct feasibility studies in this respect in different parts of the world, both developed and developing. Anyone who is interested in helping or providing general guidance? All suggestions greatly appreciated
94% to be precise . . . that
94% to be precise . . . that was the extent to which “cash remained king” in a recent Financial Diaries survey of M-PESA uptake conducted by MFO (see http://microfinanceopportunities.org/news/the-role-of-mpesa-in-the-live…). The report by Guy Stuart and Monique Cohen puts both some hard numbers and some context around this important “cash is king” issue.
MFO researchers tracked every financial transaction for more than 90 Kenyan households over the course of 18 months, compiling a database of 18,000+ transactions. Only 6% of those transactions turned out to involve mobile money — and virtually all of those were the classic “sending money home” scenario. The idea that people would be using mobile money for everyday financial life — including savings — was simply not happening in meaningful numbers.
And considering that more than 70% of Kenyan households use M-PESA, we might imagine that if mobile money were to begin displacing cash in any market, then Kenya would be that market. Yet as MFO puts it, M-PESA uptake is “a mile wide but an inch deep.” (see http://microfinanceopportunities.org/wp-content/uploads/2011/11/KenyaSp…) Everyone uses M-PESA, but they use it for that one specific “send money home” purpose, over and over. Along with issues of trust and the powerful force of habit, MFO also identified M-PESA’s own tariff structure as an unintended incentive for people to convert digital money into cash immediately rather than transacting digitally.
(See http://www.microfinanceopportunities.org for the master report, a one-page fact sheet, and a suite of topical briefs about the Financial Diaries’ findings.)
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