Once Upon a Future: A tale of the moved “FINANCIAL INCLUSION” Cheese

Financial inclusion has become a global pursuit, and governments around the world are working tirelessly to make banking services accessible to all citizens. This is because the success of several SDG goals, talk of “No poverty, Zero Hunger, Good health, Quality Education, Gender Equality” among others, hinges on the ability of people to have access to “useful and affordable financial products and services that meet their everyday needs." Ghana, like many other countries, has made significant strides in bringing millions of unbanked and underbanked individuals into the formal banking system. This progress is largely due to the advancement of digital payments infrastructure, the development of the mobile money market coupled with partnerships between banks and financial technology providers. To further cement progress and show the commitment of the government of Ghana towards advancing financial inclusion, different policy frameworks have been introduced and implemented. The National Financial Inclusion and Development Strategy (NFIDS; 2018-2023), the Digital Payments Roadmap (DPR); the Payment Systems and Services Act among other structural adjustments have all been introduced to ensure the country benefits from the power of digital financial services to advance inclusion.

In 2021, the global Findex report indicated that Ghana’s unbanked population fell from 60% in 2014 to 32% in 2021. When it comes to the adoption of mobile money alone, it is reported that Ghana has over 18 million unique mobile money subscribers (GSMA, 2023). The percentage of adults age 15+ with an account at a financial institution or through a mobile money provider has increased from 29% in 2011, 41% in 2014, and 58% in 2017 to 68% in 2021. While it is commendable the progress Ghana has made in reducing the numbers of its unbanked population, there is still more room for improvement.

Even though lot of efforts have gone into bringing the "cheese" of financial inclusion closer, to many Ghanaians who were previously excluded from the formal financial sector, the recent introduction of taxes on some digital financial transactions might impact negatively the progress made. If measures are not put in place to strike a perfect balance between taxation and inclusion, we will come back to the table in the not so distant future and ask, who moved our “financial inclusion progress” cheese?

DFS (digital financial services) are known for their cost-effectiveness. DFS enables low-income individuals to access financial services without the overhead costs associated with traditional financial services. The nature of digital financial services like mobile money has afforded low income earners the opportunity to own bank accounts, borrow, save, and participate in the formal finance space. By taxing these transactions, the government risks disincentivizing their use, especially for micro transactions. For those who were just beginning to understand the benefits of these DFS services, this could be seen as moving the cheese further away from them, making financial inclusion less appealing. By taxing the most accessible and affordable financial services available, we are making it expensive and inadvertently pushing people back into the informal economy, where they have limited access to credit and formal financial services.

Micro-loans, which are small, short-term loans often offered by mobile money companies, have been instrumental in helping small business owners and entrepreneurs grow their businesses. In 2020, I encountered a taxi driver who mentioned that micro-loans had been of great benefit to his business. He borrows in the morning to buy fuel and pays back the loan after the day’s work. These loans indeed provide a vital source of capital for individuals who would otherwise have difficulty accessing credit from traditional banks because of challenges with KYC (Know your customer) requirements. The decision to impose taxes on microloans may deter people from assessing the loans. The very "cheese" of opportunity that these microloans represent could become harder to reach for aspiring entrepreneurs and small business owners.

Another area that threatens our financial inclusion gains, is the taxation of payments to merchants. With the implementation of the e-levy, payments to small businesses and merchants who are not registered with the Ghana Revenue Authority (GRA) are charged an extra fee that is paid by the customer. This burden of having to pay a tax on the value of the costs of items makes “cash” a viable alternative for individuals. Even though the law exempts payments to merchants with VISA & MasterCard point of sale terminals, the inclusion of payments to GhQR and Mobile Money merchants, who largely fall within businesses outside the financial sector is a big disservice to the country's financial inclusion strategy. Due to the high costs associated with purchasing a point-of-sale terminal, most small businesses prefer to be registered on Mobile Money or use the GhQR code. Taxing transactions to merchants with these channels is tantamount to suggesting payments with physical cash.

The future of financial inclusion in Ghana hangs in the balance in my opinion. The "cheese" of accessibility and opportunity is tantalizingly close for millions of Ghanaians who have long been excluded from the formal banking system. Yet, it is equally at risk of being moved further away. The government's role in this unfolding tale is pivotal. While the need to generate revenue for public services and infrastructure development is undeniable, it is crucial that we safeguard the strides made in financial inclusion. If these newly introduced taxes on digital financial services remain unchecked, we may soon find ourselves asking, "Who moved the cheese of progress with financial inclusion?"

I think the challenge before us is to strike a balance between fiscal responsibility and the broader societal benefits of financial inclusion. The government must carefully consider the consequences of these taxation measures and seek alternative strategies to generate revenue and advance financial inclusion. By doing so, Ghana can ensure that its financial inclusion journey remains on course, ultimately leading to a more prosperous and sustainable inclusive future for all Ghanaians.