THE Reserve Bank of Zimbabwe (RBZ) has accused EcoCash — a subsidiary of Zimbabwe Stock Exchange (ZSE)-listed Cassava SmarTech — of allegedly engaging in practices that are fueling the country’s foreign exchange black market.
Responding to a High Court application by EcoCash in which the mobile payment solution is seeking a reversal of the RBZ’s recent decision to freeze the accounts of some of its agents with transactions exceeding $100 000 a month, the central bank accused EcoCash of acting illegally.
The RBZ also alleged that some EcoCash agents had illegal overdraft facilities on their accounts in excess of $39 million, which it claimed were used to buy foreign currency on the black market and thus inflating parallel market exchange rates.
In the RBZ’s court papers, governor John Mangudya also said that the devaluing of the Zim dollar that was allegedly taking place on the Ecocash platform was destroying the economy.
He further said that the RBZ had also discovered that unlike other electronic money platforms, EcoCash did not engage in immediate settlements of payments. “What the general public does not know is what happens in the interim.”
The funds that have not been credited to the vendor or the recipient are then available for trading on the EcoCash platform in the foreign currency market.
“In effect, the delays allow a certain person, who was the subject matter of an investigation, to buy and sell foreign currency in the intervening period,” Mangudya said in the central bank’s responding affidavit.
He also said EcoCash had failed to explain the overdrafts, adding that because of this, the platform was acting illegally. “The applicant can only operate the payment systems in a lawful way.”
“Operating the payment systems unlawfully through a Ponzi Scheme and shadow banking amounts is a violation of the law and does not give rise to any rights that the applicant can seek to enforce in the manner sought,” he said.
EcoCash recently approached the High Court after the central bank issued a directive for the freezing of some accounts belonging to its mobile money transfer agents with transactions exceeding $100 000 per month.
In the company’s court affidavit, Eddie Chibi — a director of EcoCash and the chief executive officer of the firm’s holding company, Cassava SmarTech — told the court that the RBZ order issued on May 4 must be declared null and void.
“The directive of May 4, 2020 must be set aside. It does not have a place in our constitutional democracy which enshrined the right to be heard. “The respondent as an administrative authority empowered to administer the Act must do so lawfully, reasonably, rationally and in a fair manner.“
“That obligation requires the respondent to hear the applicant and its agents before making any directive,” Chibi said.
In the urgent chamber application, he also said the mobile money transfer platform — that was introduced in September 2011 — had more than 11 million registered users, who constituted 90 percent of the country’s adult population, adding that the number of registered agents was also way higher than the combined number of banking branches of all banks in Zimbabwe.
“The agents are the pillar of the Cash In and Cash Out functionality. During the month of April 2020, there were 40 861 active agents.
“The number of active agents could have been higher had it not been for the current lockdown due to the Covid-19 pandemic.”
“For an EcoCash customer to be able to send money, the customer will have to deposit cash with an agent. The agent will then credit the customer’s EcoCash wallet with equivalent e-money. This process is referred to as Cash In,” Chibi said.
He said in recent times, there had been a surge in the demand for cash in Zimbabwe, due to the current macro-economic factors — adding that the demand had grown exponentially with the rise of inflation, and people had been buying cash at a premium using bank balances and e-money in their EcoCash wallets.
Chibi also said the company was investigating incidences of abuse of the EcoCash system, and where users had been found abusing the system, their accounts had been frozen.
“Since June 2019, various amounts of agents and individuals have been frozen on allegations of money laundering and abuse of the EcoCash system,” he said.
Chibi said as a result of the demand for cash related to the macro-economic factors, EcoCash had been engaging the RBZ towards increasing the limits of transactions that were done through the mobile platform.
He said the central bank had promised to increase the transactional limits, following a change from where the local currency was at one to one with the United States dollar, to now where there was a growth of business transactions in the local currency. While the transactional limits were increased for a month, they were later reversed in April, before the May 4 directive kicked in.