Ban large banknotes in transactions

Interesting trends from the completion of demonitisation of the old series of Sh 1,000 bank notes. Perhaps most revealing was the fact that not all of the targeted notes came in.

From a total of 217,047,000 pieces of the Sh 1,000 notes on June 1, CBK had received 209,661,000 pieces at the end of the demonetisation period on September 30.

Thus, 7,386,000 pieces of the older Sh.1,000 notes, worth Sh.7.386 billion, were rendered worthless at the end of demonetisation.

According to the governor of the Central Bank of Kenya, Patrick Njoroge, the significant proportion of the bank notes that did not come through represent cash that was held by individuals who were unable or unwilling to subject themselves to the robust check.

Me thinks that leakages through neighbouring countries such Southern Sudan, North of the DRC, Somalia and member states of the East African Community was a major factor. We hardly appreciate that the old Sh1,000 not was the legal tender in parts of the region.

Did demonetisation achieve its objectives? I don’t think so because the main aim was to address grave concerns about illicit financial flows and the emerging risk of counterfeits.

Since we have replaced the old bank notes with new generation notes with enhanced security features, one can say that -in terms of prevention of the efforts being made to prevent fake currency, we have achieved the objective.

Indeed, the old Sh 1,000 bank note had emerged as the currency of choice for corrupt dealings. With the demonetisation of the this banknote, introduction of notes with improved security features, and with the recent tightening of regulations governing the reporting of suspicious transactions- regulators will now be in a better position to flag corrupt transactions and illicit flows.

But we must also accept that demonetisation we have just implemented was a small step. Government policy is yet to respond to the worrisome trends with bolder decisions and with a sense of urgency.

Today, M-Pesa has evolved into a critical part of the national payments system. The systems moves billions of shillings every day, and is an integral part of our significant financial markets infrastructure (SFI).

Who regulates mobile money, and where is the oversight capacity and capability for it? Yet, we all know that money laundering and terrorism financing is real. We have a national payments system that is weak and that repeatedly falls prey to narcotic, cross-border charcoal trade, and terrorist financing.

Mpesa is the platform terrorists used to plan the terrorist attack on DusitD2 Hotel. Indeed, the Dusit attack was a very big eye opener.

From the evidence in court proceedings, we saw how these criminals had become adept at exploiting loopholes in our mobile money systems to effect illicit flows.

The evidence presented in court in the Dusit case also revealed how criminals were able to use false identification documents to obtain subscriber status. By registering multiple distributor agency shops, they managed to withdraw large sums of money from banks while- at the same time- eluding reporting by disguising the huge cash they were withdrawing from banks as ‘float’ being transported to mobile money distributor shops.

My point is the following. By merely demonetising the old 1,000 bank note, we have merely scratched the surface of the illicit flows problem. Let’s follow it by focusing on eliminating the use of too much cash in our transactions.

Too much cash aids corruption. When a flashy, flamboyant and rich politician docks at your church on Sunday to donate millions of shillings and opulently displays thick wads of cash in front of bewildered peasants, is it not just obvious that the money did not come from the inside of a bank and that it most likely originated from proceeds of corruption?

Why don’t they just write cheques to these churches? In today’s world, you have the alternative of channelling the payment through Real Time Gross Settlement Systems (RTGS), which has the capability of transferring the money from your bank straight to the bank of the church or school you are helping.

Even M-Pesa can do it. You just give your bank a list of beneficiaries and instruct it to credit their accounts. Kenya has one of the most advanced mobile payments platforms in the world.

There is also Pesa Link, a bank-based platform that facilitates payments between banks. And all banks have mobile banking platforms.

It time we considered banning the use of large wads of cash in Harambees.