As the private sector struggles to adjust business models to the growing challenges presented by Covid-19, it has become clear that digital transformation is integral to the survival of industries. Affordable digital transactions are needed more than ever and there is a need to harmonize facilitative policies in all COMESA Member States.

Today’s financial inclusion agendas should consider the enablement of SMEs to leverage on retail digital solutions to access affordable, value-added digital financial services that also ensure appropriate safeguards for cross border transactions.

Challenges such as access to finance, access to digital e-commerce platforms and strengthening digital supply chains have never been more profound as they are today. It is now a well-established fact that giving low-income households (and particularly women) access to formal financial services can make a critical contribution to reducing poverty and addressing inequality.

A wealth of research now proves that access to services such as secure savings, lower-cost remittances, affordable insurance and appropriate forms of credit, contributes to more inclusive growth. This helps foster domestic resource mobilization, increases productive capacity, and reduces household vulnerability.

It is against this background that the COMESA Business Council (CBC) in partnership with Eastern and Southern Africa Trade and Development Bank (TDB) hosted a Public Private Dialogue, themed, “Towards the COMESA Digital Integrated Common Payment Policy for Micro Small and Medium sized Enterprises (MSMEs)” on the 20th of January, in Kigali, Rwanda. The one-day meeting validated a draft digital Common Payment Policy for Micro, Small and Medium-sized Enterprises (MSMEs).

Going forward, the policy will inform the modelling process of a low cost, instant, digitally inclusive payments platform for MSMEs in the region. The hybrid event brought together over 280 participants from central banks, ministries of finance, ICT regulators, manufacturers, mobile network operators, commercial banks, and SMEs, from across the nine pilot-study countries of the CBC Digital Financial Inclusion Program.

CBC has been implementing the Digital Financial Inclusion Program to support the design, development and deployment of an integrated digital financial services infrastructure that is low-cost, interoperable and fraud resistant, that serves MSMEs, particularly women and youth, at the bottom of the financial pyramid. The program’s pilot countries are Egypt, Ethiopia, Kenya, Malawi, Mauritius, Rwanda, Tanzania, Uganda, and Zambia.

The meeting validated eight policy areas that are recommended for regional harmonization within the model policy, “The Single Retail Payments Policy for Micro Small and Medium Enterprises”.

The policy areas include anti-money laundering and combating the financing of terrorism; electronic transactions act; interoperability of various digital financial services providers; cybersecurity to ensure that the digital platforms for payments are well protected from any cyber-attacks; consumer protection guidelines for digital financial services; non-banks and banks settlement system operating rules; national financial inclusion framework about micro-finance policy aspects; and mobile money guidelines.

Observing the vastness of the region’s digital payments’ potential, Mr. Marday Venkatasamy, Chairman of the COMESA Business Council noted, “the digital payment system platform dividend for COMESA and Africa at large, can be enormous with potential gains in growth of regional trade (sourcing and supply) which is currently below 20 percent. But turning this vast potential into reality will require the collective efforts of our governments, the private sector, and development partners.”

COMESA, a market with a population of 583 million people, covering a geographical area of 12 million (sq km), presents the largest trading bloc in Africa. As of 2019, COMESA exported goods worth US$112 billion, imported goods worth $212 billion, and had a trade deficit of $76 billion. Intra-COMESA exports were worth $10.9 billion, and intra-COMESA imports were worth $11.2 billion. The total intra-COMESA trade stood at $22.1billion.

Consumer protection and cyber security concerns

The meeting considered the proposal within the model policy, dubbed, the Single COMESA Digital Retail Payments Policy, on harmonization of national consumer protection policies at a regional level, as this is accepted as a global standard on consumer protection and data information privacy.

The report further recommended that a harmonized model consumer protection guideline be considered, to ensure that data and money are well secured during cross-border transactions, especially in the area of cyber security and data protection.  It will also incorporate robust and clearly defined complaint mechanisms and refunds procedures as an integral part of the Real Time Payments. Cyber security policies will protect both users and the data hence enable users to enjoy frictionless and safe money transactions.

“Cross-border payments have long served as the engine enabling cross-border trade and investment, and have been instrumental in the emergence of today’s global economy. Small-value one-click payments, or platforms bring solutions for SMEs participation in international and regional value chains,” cited Mr. Michel Sebera, Permanent Secretary of the Rwanda Ministry of Trade and Industry.

Mr. Michel Sebera, Permanent Secretary, Rwanda Ministry of Trade and Industry. PHOTO | COURTESY

Applicability in Member States and benefits

The scheme is necessitated by the diversity and divergence of digital payment and financial markets infrastructure across the COMESA Member States, that are also at significantly different levels of development.

“There is need for national multi stakeholder working groups that are composed of ICT, Finance Regulators and, Private Sector including of Micro SMES, Manufacturers and Corporations, to take the recommendations within the model policy and ensure they are in harmony with the national laws and that they’re complementary to local initiatives.

There’s also need for continued dialogue at a regional level, so that a common, and harmonized approach is used, with complementarities across Member States, and not duplication in the implementation processes” said Mr. Innocent Muhizi, CEO of the Rwanda Information Society Authority.

Mr. Innocent Muhizi, CEO of the Rwanda Information Society Authority. PHOTO | COURTESY

The President of the Trade and Development Bank (TDB), Mr. Admassu Tadesse observed that the high-level event provided an opportunity for COMESA Member States, regional organizations and other industry players to move the financial inclusion regional initiative forward.

“I believe that every one of us in our respective capacities must assume responsibility for the regional financial inclusion strategy. It is therefore important to note that our greatest responsibility is to embrace a new spirit of togetherness in this era when many people across the region lack access to the financial services, they need to achieve even modest levels of financial well-being,” noted Mr. Tadesse.

Mr. Admassu Tadesse, President & CEO, Trade and Development Bank (TDB), speaks during the CBC-TDB high-level public-private dialogue held in Kigali, Rwanda on January 20, 2021. PHOTO | COURTESY

MSMEs need to embrace the digital economy amidst Covid-19

The meeting noted that particularly in this pandemic period, the private sector, as a strong advocate for enterprise growth and development of local and regional markets, had the responsibility and opportunity to mobilize the resources needed to boost MSMEs’ capacity to trade online.

“While the Covid-19 pandemic is set to increase the use of digital financial services, it has also posed challenges for the growth of the industry’s smaller players like SMEs and highlighted unequal access to digital infrastructure. Several actions will need to be taken to ensure maximum inclusion going forward,” stated Mr. Robert Bafakulera, Chairman of the Rwanda Private Sector Federation.

“A key observation across the pilot countries is that MSMEs constitute the dominant percentage of the business community, of which a large number rely on cross-border trade. It follows therefore that for the efficiencies of digital financial services to be realised, an inclusive digital economy is needed to connect this market segment to the merchants, schools, clinics, governments, and employers that they interact with,” said Ms. Rekha C. Mhango, Deputy Governor – Administration, Bank of Zambia.

Ms. Rekha C. Mhango, Deputy Governor - Administration, Bank of Zambia. PHOTO | COURTESY

When observing the performance of MSMEs in the economy today, it was noted that only one in four enterprises have adjusted their business operations to embrace digital technologies. However, the Covid-19 pandemic has drastically changed this dynamic in light of approach and direction of businesses towards digital trade facilitation.

Ms. Sandra Uwera, CEO, COMESA Business Council. PHOTO | COURTESY

Ms. Sandra Uwera, the Chief Executive Officer of CBC cited, “we are convinced that our joint efforts can contribute efficiently to bring down the barriers that undermine the full potential of digital inclusion in COMESA.

This policy will enhance the delivery of low-cost, instant, inclusive and real-time regional digital financial services solutions that can cater for the underserved, and the Micro-Enterprises, women cross-border traders. This should be paramount to inclusive and sustainable financial systems.”

Affordable digital transactions anytime, anywhere

The policy has a vision of enabling MSMEs to initiate and complete financial transactions anytime, anywhere, on any device and via any channel. This promotes mobile money initiatives as convenient financial management tools for the everyday person and cross-border trader, which is a critical value proposition to driving the uptake of digital financial services by MSMEs.

Amb. Kipyego Cheluget, COMESA’s Assistant Secretary General-Programmes, commended the meeting’s stakeholders on their willingness to forge a strong pathway that will facilitate eased digital payments across markets. He stated, “the private sector, as a key policy driver & engine of economic growth, seeks to strengthen existing digital trade facilitation ecosystems to boost intra-regional trade considerably, which is our common goal as African leaders.”

Recommendations towards a digital common payment policy for Micro, Small and Medium-sized Enterprises in COMESA

The High Level Public-Private Dialogue concluded with some key recommendations that will inform the finalization of the model policy. Among them was accelerating implementation of national digital financial inclusion policy within COMESA Member States and developing technical capacity development programs to enable SMEs access cross border digital financial solutions and e-commerce platforms in the region.

“Every country in COMESA has some level of digitization that supports some basic form of digital payments. In cases where traders or merchants show resistance to virtual payments, lack of digitization is therefore not always the cause. There are various cultural nuances with respect to ways of doing business, that come into play; cultivating consumer trust is key,” said Mr. George Odhiambo, Managing Director of KCB Bank Rwanda Plc, and member of the CBC Digital Financial Inclusion Advisory Committee.

Mr. George Odhiambo, MD, KCB Bank Rwanda Plc. PHOTO | COURTESY

The meeting agreed on the need to enhance awareness and sensitization programs for capacity development of Micro Small and Medium Enterprises to address customer relationships and trust.

Stakeholders in the meeting, noted the need for stronger collaboration between financial and ICT regulators and industry players within the said sectors.  The meeting also further agreed that the cost of transactions for money transfer should be as low as possible, to strengthen incentives towards digital payments use by MSMEs.

The recommendations specifically considered cross-border harmonization of the said eight policy areas that will ensure affordable, transparent, real-time and secure digital cross-border payments for MSMEs and effectively increase intra-COMESA trade.

The meeting appreciated and recommended strengthening partnerships between banks and non-banks (mobile network operators), as well as tackling consumer risks and security issues. The latter is particularly important as MSMEs may be weary of new technologies, from ATMs to mobile phones.

The meeting recommended that the policy would inform the formation of a digital inclusive instant payment scheme for MSMEs, that will deliver maximum benefit, including compliance with international standards and best practices, while at the same time providing a platform for 80% of the MSMEs in the region to grow their value, productive capacity and scale up to formalized markets at a national and regional level.