Know Your Customer

If you want to send money across the border to our neighbouring countries and even beyond you will be able to go to a major retail chain which is about to open a foreign exchange transfer service.
This is a major advance in the development of financial services and removes the need, time and cost of using a traditional bank for smaller amounts of money. However, it also points to a failure of the more established banks and financial service provides to meet the needs of customers and take advantage of technology which can wire money anywhere in the world in seconds. The entry of the retail sector into this lucrative business, joining the telecommunication industry mobile money services, facilitates the movement of money both inside and outside countries.
However, there are hidden dangers. While in war ridden regions of the world – such as the Somalia, Syria, Libya, Iraq, Afghanistan and parts of East Asia, this system of money transfer is literally a life saver and allows the diaspora to send money home to keep their families alive.
But the potential down side is that while the largely unregulated system’s humanitarian objective also helps to fund wars, and terror. There is growing evidence that the informal system called “hawala” or, in Somalia as “xawala” is being used to fund the horrific activities of terrorist groups like Boko Haram in Nigeria and Al Shabab in the Horn of Africa.
Who knows whether money from Botswana is being used to fund these terrorist organizations, and foment civil unrest, as well as to transfer money to family and friends.
Which brings us the Know Your Customer (known as KYC) demands needed to access the formal banking and financial services sector. The Bank of Botswana (BoB) and the Non-Banking Financial Industry Regulatory Authority (NBFIRA) require banks, insurance companies and other financial service providers like micro-lenders to collect personal information on their customer, including ID, employer and, proof of residential address. For the majority of Batswana living outside major towns and villages this is virtually impossible to provide because of the absence of a recognized addressing system. It is also difficult to understand how a utility bill can be proof of physical address as they do not contain lot numbers; and an increasing number of consumers are on pre-paid systems.
In the old days, proof of residence could be certified by a chief or district commissioner but compared to 50 years ago, this is impossible, and processes are no longer in place to provide this service.
The objective of the Know Your Customer process is an integral part of global initiatives to interdict money laundering and other financial crimes. Given leaky borders, no financial currency bans, and the mushrooming of informal financial services, it is problematic whether, in Botswana anyway, KYC has made a significant contribution to interdict anti-money laundry and other illicit financial transactions. It is too easy for sectors such as retail and the second-hand car market, which deal in cash, to divert undeclared money and send it out of the country. Another device used to wash money is to buy diamonds and smuggle these across our borders.
In its current form KYC has become a nuisance for both customers and financial institutions which amass information on thousands of their customers. The majority of these customers are honest and may have been using the same bank or insurance company for decades. Why can’t the banks or insurance companies themselves certify that they know such customers.
In addition to its nuisance value, the KYC requirement puts up yet another barrier to the so-called unbanked, who cannot access the formal financial services sector and are increasing at the mercy of money lenders to meet their financial needs.