Indo-Africa march towards to common goal of digital economy

  • February 10, 2017

A resident of Delhi, the capital of India, was on her way home from work, when she decided to stopover at a market near her locality to purchase some groceries. As she entered the market, she saw scattered groups of people engaged in discussions about some news they had just heard. They looked appalled. Though intrigued to know what had happened, she decided to make her purchases first. As she took out a Rs 500 note to pay for the items she had bought, the vegetable vendor shook his head and simply refused to accept the currency. It was the night of November 8, 2016; “Demonetisation” of Rs 500 and Rs 1,000 had dawned on the citizens of India!

Narendra Modi, the Prime Minister of India appeared on national television to announce his Government’s decision to demonetise Rs 500 and Rs 1,000 currency notes, with a window of 50 days for a smooth transition. Being a master of the masses, he, with his signature confidence, assured that the move was aimed at curbing corruption and counterfeit currency and for stagnating the “parallel economy” by bringing the “unaccounted” black money under the financial system.

For most of November and December, millions of Indians stood in long queues outside banks and ATMs to deposit and exchange their old currency notes of Rs 500 and Rs 1,000. According to the Reserve Bank of India – the nation’s central bank – Rs 500 and Rs 1,000 accounted for 86% of the total value of currency in circulation, India faced a situation that came to be known as “cash crunch”.

As the citizens of one of the most promising economies in the world scrambled for cash, people realised the need for an alternative to paper currency for carrying out their daily activities. And that was when, with certain apprehensions, they turned towards “cashless transactions”.

Subsequently, soon after the announcement of the demonetisation move, mobile payments and e-wallet companies in India claimed a surge in their business, as more and more people began opting for cashless transactions,more out of necessity than their will. While the Paytm’s value of money grew by 1000%, the number of downloads for its application increased by 300%, according to reports. Similarly, MobiKwik had claimed a 2000% increase in the addition of money and transaction value.

Thus, the note-ban that was primarily aimed at unchaining India from the grip of corruption and black money, became a blessing in disguise for “digital transactions” as it accelerated the push towards an electronic payments system which prior to November 8 had little diffusion in the country.

R Chandrashekhar, the President of the National Association of Software and Services Companies (NASSCOM), India’s IT trade body had said, “If most of the black money is brought into bank accounts or into the tax net, there will be far less reasons to deal only in cash, and far more reasons to transact through electronic payments”.

As per the Reserve Bank of India, electric payment had relatively little penetration in India with cash accounting for 78 per cent of all transactions by value. Noting this fact, Chandrashekhar, who also functions as the member of the Ministry of Finance Committee on Digital Payments, had said in a Press statement, “The move (demonetisation) was a major dent on unaccounted or ‘black money’, rendering it valueless unless it is taken to a bank to get exchanged, potentially bringing it into the tax net.” However, smart phones and internet may not be a viable option for India’s rural economy that comprises about 70% of the 1.25 billion population of the nation. And an important aspect for the progress of an economy lies in the financial inclusion of all its citizens including the last man standing.

India should, therefore, take a lesson from Africa, which used the mobile money route to go cashless. Mobile money is a form of electronic money through which one can conduct financial transactions using mobile phone. In recent times, Africa has been successful in making cashless transactions using basic feature phones and Unstructured Supplementary Service Data (USSD) systems technology. In a city called Dar es Salaam, Tanzania, more than half the payments made by commuters to the city bus is through this mode.

As the citizens of one of the most promising economies in the world scrambled for cash, people realised the need for an alternative to paper currency for carrying out their daily activities. And that was when, with certain apprehensions, they turned towards “cashless transactions”.

Even though some parts of Africa have adopted the USSD technology for transferring money, the continent is not lagging behind in opting for other modes of digital payment as well. According to the Africa Frontiers Forum, between 2011 and 2013, Africa recorded a 52% penetration rate in 2012 and a compounded annual growth rate of 36% in mobile subscriptions. The penetration of M-Pesa, Africa’s first mobile money platform, has been such that today, 96% of households outside Nairobi have at least one M-Pesa account.

South Africa, one of the most prosperous countries of the continent, is ahead in this transition towards going digital as it accounts for 30-35% of the 10% retail payments in Africa conducted through electronic payment systems. Nigeria, too, is at the inception stage of becoming a digital economy with MasterCard gaining popularity in the payments industry.

In sub-Saharan Africa, particularly where the scope of traditional banking is limited, mobile money has emerged as a low-cost and convenient option for carrying out digital transactions. Digital transaction is an innovation in the financial services sector that brings a host of benefits along with it. Apart from providing a hassle-free mode of payment, it ensures that the “unbanked” population comes under the net of banking systems, thus increasing financial inclusion. When people deposit their money in bank accounts, they earn an interest on their savings. Further, these savings improve the scope of future investments. Increased investments would lead to more entrepreneurial ventures, creating employment, increasing output and finally aiding the Gross Domestic Product of the nation.

Access to mobile money served as a bridge out of poverty for more than 1,00,000 households in Kenya, which were pulled out of extreme poverty as per a recently published study on the long-term effects of mobile money on economic outcomes in Kenya. The study also mentioned that women, who were earlier engaged only in subsistence farming, ventured into business-related occupations after the expansion of mobile money in the country. Different states of India and varying regional economies of Africa are in a transition phase as they are biding adieu to the traditional cash-dependent transactions system and adopting digital payment modes in financial services. Mobile operators too, are innovating in line with different needs of the people. An example in this regard is the pilot project of “Payments Bank” launched by telecom operator Airtel in Rajasthan that offers a 7.25% percent interest rate on deposits.

The Indian government too, went a step ahead and steered its push towards a digital economy by launching a new e-wallet app, BHIM, named after the nation’s founding father Dr Bhim Rao Ramji Ambedkar. The mobile payment application will allow users to make digital payments directly from their bank accounts. The Indian Prime Minister added that the BHIM app is being improved upon so that eventually one would not be dependent on the Internet or smart phones and only use their thumb for making cashless payments.

Leading companies in India and Africa have recognised that new digital technologies present multiple growth opportunities for them and for the citizens in general. Capitalising on these macro-economic forces that are affecting daily change in the way corporates function, BluOcean Digital Frameworks, an Information Technology company, has taken steps to delight their customers with heightened convenience and customization options, using technology to operate faster and better. The company has set up online payment gateway and developed an integrated platform for mobile wallet for transferring money, paying utility bills and facilitating e-commerce.

Over the last decade, the Indo-Africa trade has increased by 32%; thanks to advancement in digital technology. One of the many characteristics that Africa and India have in common is that their objective of macro-policy focuses primarily on economic welfare. Thus, their march towards an e-economy aspires to empower their citizens financially using digital technology. But as they say, every revolutionary change is accompanied by some discomforts. The citizens may have to go through initial short-term hiccups for procuring long-term gains. The journey has just begun.


Notably, there are four popular methods of carrying out digital payments. The most popular of them all is credit/debit card. At the opening of a bank account, it has become customary for the bank to provide a credit or a debit card to their customers. These cards can then be used at ATMs or Point of Sale devices. Your mobile phones and desktops can also double up as banking portals via the Internet. The users can transfer money, manage beneficiaries and apply for various banking privileges using this payment method.

However, digital wallets have become the easiest mode of cashless transactions. Paytm, MobiKwik and Freecharge that saw the light of the day in India’s non-metro locations after note-ban, have now become an efficient substitute for cash.

Do not have access to the Internet? Anxious about how will you become a part of the “going cashless” revolution? Relax! Unstructured Supplementary Service Data or USSD transfer is the word for you. The communication technology is used to send text between a mobile phone and an application program in the network. The user can access various banking options by merely dialling a USSD code from any phone with a SIM card, provided the mobile number is registered with the bank.

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