Earlier this week, Ghana became the first country CGAP is aware of to launch a digital financial services (DFS) policy. While the policy has been years in the making, the government hopes the policy will support various measures it is taking to leverage DFS in its COVID-19 response.
Ghana has not been spared the COVID-19 pandemic. As of May 21, 2020, there have been 6,269 infections and 31 deaths. The economy has taken a significant hit, with GDP growth projections for 2020 being revised down from 6.8 to 2.6 percent. And response measures combined with a loss of revenue are expected to cost the government $1.6 billion.
Not surprisingly for a country where roughly 19 million adults have 14.5 million active mobile money accounts, Ghana’s efforts to shore up the economy include measures aimed at promoting the use of digital financial services (DFS).
For example, the government has removed fees for low-value remittances, relaxed transaction and wallet size limits for mobile money, made know-your-customer (KYC) transferable from SIM registrations to allow for remote mobile money account openings, and zero-rated all interoperable transactions made through the interbank switch. These initiatives were agreed in consultation between providers and the central bank, which will mean that the long-term viability of digital finance should hopefully be preserved. The country has also committed to allowing beneficiaries of its largest social benefit transfer program (LEAP) to receive their payments via mobile money.
These efforts are in line with what is happening in other African countries where a cash-lite economy is seen as a key tool to surviving COVID-19 and any future pandemics. For example, the Central Bank of Kenya has raised mobile money transaction limits, and National Bank of Rwanda has gotten financial service providers to agree to waive merchant fees for digital payments.
Ghana hopes that its new DFS policy will amplify the effectiveness of DFS-related COVID-19 measures. Developed with technical support from CGAP and funding from the Swiss State Secretariat for Economic Affairs (SECO), the policy establishes a four-year (2020-2023) blueprint for achieving 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 to supervise the space
- Supporting the development of market infrastructure for DFS
- Driving the expansion of digital payment use cases
The policy details 43 actions to be taken by the public or private sector within these areas. If some are implemented immediately, it would directly impact how effectively DFS can be deployed to support in the COVID-19 response.
For example, the policy details how Ghana’s existing biometric ID and GhanaPost GPS digital addressing system could be connected to allow for remote account opening. Prior to the pandemic, financial accounts could only be opened in person. Recently, as mentioned above, government has allowed the use of SIM card registrations to open a mobile money account with the same provider. But connected market infrastructure that enables an e-KYC utility, as proposed in the DFS policy, would go one step further to allow for remote opening of any formal financial account. With social distancing the new order of the day — and with 42 percent of adult Ghanaians still without a formal financial account — this should result in a large number of Ghanaians newly having access to financial services that allow them to continue to transact even in the face of pandemic-related restrictions.
The policy also calls for actions to support fintech innovation that could lead to a more enabling environment for remittances, e-commerce and contactless merchant and utility payments. For example, as a result of COVID-19, remittances to Sub-Saharan Africa are expected to decline by $37 billion in 2020. Remittances to Ghana will no doubt fall sharply as well. The policy explicitly calls for setting up a regulatory sandbox that would allow innovative new products and services to reach market, while also providing effective supervision. This will be especially important to Ghanaians who will be relying heavily on those transfers during these times of constrained economic activity.
Finally, action areas around increasing digital government-to-person (G2P) and person-to-government (P2G) payments could strengthen the government’s ability to collect much-needed revenue from citizens while minimizing leakages in disbursements. Considering the expected contraction of the economy due to the pandemic, any digitization efforts that maximize government resources will be critical.
Ghana’s DFS policy was born out of a need to specify how DFS could be deployed to support Ghana’s financial inclusion goals, as detailed in the country’s National Financial Inclusion and Development Strategy (NFIDS). While it was not developed in response to COVID-19, it is a forward-looking DFS policy that should help to ensure government and citizens have the digital financial tools they need to cope with a new era of social distancing and economic uncertainty.