Date Posted: 5/28/2013 2:18:10 AM
Posted By: Moff J Membership Level: Silver Total Points: 485
The financial sector in Kenya is very dynamic. It is one of the best performing industries of the economy with institutions in this sector enjoying huge returns. The banks are reporting big profit margins and they are expanding to the entire region. Nevertheless, the economy has to always come up with ways of making financial transactions cheaper and faster. One of the ways of doing this is by introducing a cashless economy. This not only reduces the costs of handling cash transactions and reducing inflationary pressures due to money supply but also it can be a safer alternative to financial transactions where appropriate safety mechanisms have been put in place. However, such a policy can be counterproductive where the costs associated with the cashless policy might tend to exceed the benefits. The purpose of this article is to expound on the pros and cons of a cashless economy and let policy makers to be the judge.Going for the cashless option in an economy has numerous advantages. Among them includes the stimulation of mobile payment services. This is one of the features of the Kenya financial sector that has made it renowned the world over. Many countries across the world are coming to Kenya to learn how mobile money services work. It is through the mobile platform that a cashless economy can be launched. The steps that need to be taken to hasten this, is by encouraging the use of mobile payment in various transactions which can significantly reduce the cash handling costs.Such a step will also challenge the traditional barriers of financial inclusion and move the country towards financial deepening and provision of low-cost, secure and convenient financial services to the urban and rural areas across the country.Another benefit of the cashless option is the reduction in cost to banks of handling cash. This will provide better margins for the banks and thus will be able to divert their resources to other profitable opportunities which will develop the economy further and improve the living standards of the people of Kenya.There can also a reduction in fraudulent transactions and money laundering activities which bring very harmful effects to the economy. Cashless economy means a reduction in the number of fake notes in circulation in the economy.The cashless option can also provide relevant data to the various government departments on the performance of the economy. Thus, the policy makers can analyze the dynamics of the economy in a better way. Thus the government will be able to plan the development agenda of the country in a better manner.Nevertheless, a cashless economy has a number of detriments. Among them include allowing cyber criminals an open door to defraud bank customers if appropriate safety mechanisms are not put in place. Financial fraud is a huge illegal trade worth billions of dollars in the world and therefore a lot has to be done to protect customers from falling prey into such criminal activities. The banks have to invest heavily in bolstering protective measure to counter financial fraud.With this regard, the banks ought to educate their customers on ways to protect themselves from cyber criminals. Everyone has to be aware of common financial fraud activities such as phishing; where bank clients are duped by fake e-mails, purporting to originate from the banks, into revealing their account details. Each account holder should be aware of such crimes and identify ways of confirming whether it is genuine or not. A customer should contact his/her bank once they get an e-mail from a source purporting to be their bank and ask the reason as to why they want their bank details yet they already have them.Such criminal activities can only be expected to increase especially with the introduction of mobile and internet banking services. It is therefore the obligation of banks to put up protective mechanisms to protect their customers’ deposits.Thus, if the country goes for the cashless option the benefits have to outweigh the dangers and costs. Otherwise it will be an effort in futility if the economy is not prepared for a cashless economy.
Next: Public Sector Budgeting in KenyaPrevious: Rising Concerns about Cancer
Get premium membership