Mobile money as a financial system was introduced to support the non-banked population, mostly in rural African agrarian communities, to perform financial transactions efficiently. The basis was that the financial institutions found it costly to set up “retail banking centres” in rural areas. It was also argued that there were high risks associated with the informal systems in which these unbanked populations managed their finances, mainly theft.

It was also argued that the unbanked population, primarily farmers, do not save their money in a financial system but rather invest it in farming activities, making them prone to the risk of losing their funds through the usual risks associated with farming (drought, yield losses, etc.).  

So, let’s see where farmers’ money is protected through mobile money. David Quartey did a beautiful analysis in 2018 on the transactional cost mobile money inflicts on the poor whom the money is supposed to save. If anything, this has become much worse in 2022 due to the introduction of the digital tax by Ghana.

Below are two different graphs developed by David with raw data from the telcos, demonstrating the cost of transferring via mobile money. The reason why it’s essential to understand the transactional cost associated with the amount of money transferred is due to the kind of transactions that people in rural areas make.

Whereas Koa may be causing significant sum transactions to the farmer via mobile money (incurring less overall transaction cost), the farmer uses their mobile money to perform smaller daily transactions within the Ghc10 and Ghc100 range.

The graph shows how regressive the mobile money system is as lower sum transaction attracts high transactional cost as opposed to more significant sum transaction. Graph 4 shows that one is charged at least a 10% transactional fee if they transfer Gh¢10 with MTN mobile money transfer to another network, attracting as high as 15.5% transactional costs. As opposed to transfers of Gh¢1000, the minimum transaction cost was estimated at 0.85%, with the most increased transactional cost being Airtel/Tigo transfer to MTN at 2.485%.

Graph 4: How much will be paid in fees if Gh¢10 is transferred?
Graph 5: How much will be paid in fees if Gh¢1000 is transferred?

Well, it isn’t Koa’s fault that the mobile money transaction cost is this cutthroat and instead feeds on the already low-income farmers receive. First, suppose you compare Banks to Mobile Money providers. In that case, banks reward their customers with interest on monies in their account and free withdrawals rather than charging them for making intra and inter-mobile money transfers. Just think about it, the farmer is being paid via a system that forces them to incur these unnecessary costs, ironically being used due to its advantages of supporting the data generation required for reporting on the transparency system.

Fig 2 below by David highlights how all the telcos in Ghana’s mobile money is so retrogressive in structure, with lower transactions attracting higher cost and vice versa. Again, to reiterate, mobile money was introduced to assist the unbanked communities, mostly in rural areas and primarily agrarian in the profession. Per Fig 1, 2 and 3, MTN was the provider with the highest transactional cost in the lower sum transfer category.

Fig 2: Comparison of Mobile money fee structure among Telcos in Ghana

I am sure you would ask why I am saying this, as that is not the fault of Koa. Yes, it isn’t the fault of Koa. However, developing a system that purports to demonstrate the economic gains the farmers are making from doing business with you without considering how the partnering systems like mobile money heavily regress the financial impact you seek to showcase is quite concerning. While this may not be the intention of Koa, it can come across as being in a hurry to virtue signal with minimal care on the impact the system has on the economic well-being of the farmers. The implication is that MTN is making a minimum of over 10% of all the revenues Koa is paying to the Farmers via its platform.

According to myjoyonline, MTN recorded a year-on-year profit of 53.7% and Gh¢707.4m in the 1st quarter of this year. Mobile money earnings represented Gh¢515m, forming over 72% of its earnings. This differs from the money multiplier advantages MTN has over these monies sitting in their accounts. MTN, like the banking systems, uses these monies sitting in their systems as interest-free loans to finance their business expansions, etc.

To be clear, the farmer pays more for transferring money on mobile money within a second than securing a loan from Switzerland payable within a year. The mobile money platform was implemented to connect the poor and unbanked to the banking system but inflicts more transactional costs to the poor than the rich, who use the banking system and the mobile money system to perform financial transactions. So, Koa associating with a payment platform that implements a regressive system where the poor pays the higher transactional cost for the lower-sum transaction is counterproductive and exploitation of the poor.

Can we say it’s okay for the farmer to bear this cost for Koa to demonstrate to the world the impact they are making in the farmers’ lives? I will leave that for us to discuss. Should the farmer trade-in the cost of transacting via mobile money for implementing a transparency system that allows Koa to gain goodwill and public legitimacy in honour of their promise?

Will it be a good idea for Koa to foot the transaction cost the farmer incurs transacting via mobile money? The answer is no. This is because Koa paying off the transactional cost on behalf of the farmer to the mobile money platform owners will be a needless donation to MTN. It can be argued that the absolute income Koa gives the farmers is reduced due to the mobile money transactional costs, hence affecting the credibility of the gravity of the economic impact they are making in the lives of farmers.

Also, Koa stating that they are collaborating with MTN to deliver this transparency system paints a picture of how MTN contributes philanthropically when they are unreservedly making money from the system. So, there is no need for Koa to mention their brand name, “MTN”, so they don’t accord them goodwill they do not deserve.

Koa may have highlighted that mobile money was the most convenient payment system for rural farmers. Whereas that may be a factor, I would argue that they used mobile money as a means of payment to facilitate the functioning of their transparency system. This means demonstrating to stakeholders that their virtue is more important than the cost it inflicts on their subjects.

Koa should only mention MTN’s brand name if they have provided philanthropic support, like waiving off all the transactional costs for cocoa farmers using their system. This may sound callous or outrageous, but if not, why do you give them a mention? Koa said they are discussing issues around their high transactional cost with MTN. They believe that their association with MTN and the vast amounts of money transacted on their platform can leverage that to negotiate for farmers in the future.

The Effects of Ghana’s E-Levy on the Income of Cocoa Farmers working with Koa

In addition to the regressive transaction cost, there is a mobile money platform levy imposed on the low-income population by the Ghanaian Government. This new national levy targets mobile money users in Ghana. In March 2022, Ghana introduced a very controversial Levy called the E-Levy. This 1.5% E-Levy is applied to the “Total amount”, not the “transaction cost” when making financial transactions of more than Gh¢100 via mobile money and other electronic payment systems. This levy means that farmers will at least have 1.5% of their incomes earned from Koa being sent to the government free of Charge.

Secondly, Koa, as the money sender, will be giving 1.5% of the value they are sending to farmers to the government in the form of E-Levy. Together 3% of the total income value from the cocoa pulp purchase and selling will end up with the Ghana government. This 3%, in addition to the 10% transactional cost farmers will be paying for transacting via mobile money, reduces the actual value of farmers’ income from pulp trade by 13%. Remember, the 1.5% paid by Koa while paying Cocoa farmers could have equally been given as additional income if they found another means to pay farmers.

According to recent research on “Mobile Money Taxation and Informal Workers: Evidence from Ghana’s E-levy,” 83% of the respondents disagreed with the implementation of the E-levy. This research outcome is consistent with Afrobarometer’s research, where only 19% agreed to the okay-ness of the E-Levy Policy. But the most critical aspect of this research was the reasons they gave to support their disagreement, which goes a long way to buttress the stress the poor and those in the informal sector, especially our farmers, deal with daily.

As shown in Figure 11 below, the three highest responses that supported the respondents’ disagreements were: “it will particularly affect the poor”, “The tax burden is already too high”, and “it’s not particularly a fair tax”. These three responses are consistent with the very reason why mobile money was introduced, i.e. to support the poor, not to burden them instead. This evidence supports the need for Koa to use another system that does not inflict much financial cost on the farmer.

Source: Nana Akua Anyidoho, Max Gallien, Mike Rogan and Vanessa van den Boogaard,
 ICTD Working Paper 146, Mobile Money Taxation, and Informal Workers: Evidence from Ghana’s E-levy

In the end, Koa needs to find a new system other than mobile money in paying farmers such that farmers not losing money will be the priority than sacrificing it to demonstrate transparency. Or they can negotiate with the mobile money provider to waive the entire transactional cost for cocoa farmers. Whom do they seek to hold to account with this transparency system?

Whom do they seek to hold to account with this transparency system?

Koa felt that they needed to hold themselves to account and use that as a tool to demonstrate to their consumers that they practice what they preach. They also hoped that implementing this system indirectly would hold other stakeholders within the sector, especially chocolate manufacturing companies, to follow suit. But the question is if you take a stakeholder like Lindt, Koa’s customer, which uses Koa’s cocoa pulp as an ingredient in one of their products, can leverage the Koa impact information on the system to boost their overall ESG scores (The social aspect of the ESG Scores). I advised Koa to ensure that they are meticulous in providing that their system, like Fairtrade, is not used by their Business-to-Business Customers to signal a more significant impact they are making when it is extremely little too.

Koa ended the interview by acknowledging that the system is new and has much room for improvement; hence as they grow, they will take in all this feedback to enhance it. I appreciate how difficult this interview is for Koa as a start-up, as I delved into almost every aspect of their business operations. I hope they found the helpful discussion and my suggestions good enough to consider in enhancing their business operations and the transparency system. I give them a thumbs up for stepping into a section of the cocoa industry that has been heavily under-explored. But in the end, I advised them not to see the farmer as someone they are “Helping” but rather as a business partner they would like to trade with ethically.

After putting this article together, we sent it to Koa for their overall comment, and we received the following:

We’re a business that takes responsibility for its supply chain. To ensure that farmers profit, we collaborate closely with them and tackle the challenges that we face due to a dynamic environment and an unbalanced cocoa sector. Founded in 2017, we are a startup committed to transforming the cocoa industry.

Increasing the income of smallholder farmers is the core of our business, and as of today, 2,200 cocoa farmers have been profiting from the extra income through the upcycling of the cocoa pulp. With our second factory, we’ll multiply this number to set an example of how to make an impact on a large scale.

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