By Albertus Mutonga Matongela
This is the 5th article in a series of articles on payment systems in Namibia. The present article provides you with cash and paper payment instruments in the National Payment System. Happy reading.
There are several payment instruments that exist in Namibia today than before. In 1990 for example, cash and cheque were very fashionable instruments. The advancement in information and communication technologies in the country allowed other payment mechanisms to come on stream.
Electronic forms of payments came a little later after independence and are now commonplace and the future appears to be bright for them. Payment instruments in Namibia include those that are tangible and those that are non-intangible and enable people to obtain money, goods or services or to make payments. Cash and paper (cheque) payment instruments are briefly explained below.
Cash is nothing else but notes and coins you have in your wallet or pocket. In other words, cash, which is also referred to as hard cash is money that has been converted from other payment instruments. It is money in the form of coins or notes rather than cheque, credit cards, and so on.
Let me use an example to assist you in distinguishing cash from other means of payment. Have you travelled out of Namibia at one point and brought in foreign money from where you went? I guess that when you arrived at a Foreign Exchange Bureau at Hosea Kutako International Airport you asked for your traveller’s cheques to be cashed there.
The end result was that you handed in your traveller’s cheques to a clerk of say US$100 and in return you got say N$650. The local currency equivalent was in the form of notes and coins. This is cash I am talking about. There are many examples to illustrate what cash is all about. I leave this for you to ponder.
In Namibia, cash is still the most common payment instrument for low value payments. This is because it would not make sense if you write a cheque for N$6 to get a loaf of bread from a local merchant. It is common in the sense that it is non-exclusive. What does this mean?
What this means is that cash is generally available even with unemployed people in this country. Ask someone who is not working for a N$5 so that you buy something more essential and pressing. The probability is high that they will give it to you if the agreement is to return it later. What this shows is that cash is available to students, scholars, small and medium sized enterprises, institutions and people.
We know that notes and coins existed in Namibia before independence in 1990. The South African Rand (ZAR) was the only legal tender because Namibia was a territory of South Africa just like any other region in that country.
September 1993 saw the Bank of Namibia issuing the local currency, called the Namibia Dollar (N$) for the first time. From 1993 up until now the N$ has been a legal tender alongside the ZAR. So, the coins and notes in N$ and ZAR that you spend everyday are all forms of cash in Namibia.
Currently, the highest cash denomination in Namibia is N$200, while the smallest denomination is N$0.05 or 5 cents. This is only Namibian currency. Generally, the Namibian currency denominations from smallest to largest are as follows: N$0.05, N$0.10, N$0.50, N$1.00, N$5, N$10, N$20, N$50, N$100 and N$200.
As mentioned already, cash is the traditional form of making payment in Namibia. This is ascribed to several reasons. The advantage of cash is that funds for the transaction are transferred immediately from the payer to the payee at the point-of-sale. The risk of failure to settle the transaction is not there because cash is readily available in the customer’s pockets.
Notwithstanding the foregoing, cash has its own disadvantages. For example, it is inconceivable to carry N$130 000 to buy a 1.4 Volkswagen Polo Classic sedan, for security reasons. What is going to happen if your cash is stolen on your way to a car dealer? You are not going to lodge a claim from anybody. You could, but what if your money is irrecoverable?
This is not to say that there is high crime in Namibia – on the contrary, Namibia is one of the safety places to live-in in the world. Our Government is doing all it can to suppress criminals in this beautiful country. Unfortunately, criminals can come from any corner, so it is always advisable to get prepared for any eventuality.
The abovementioned is one of the reasons why there has been an emergency in other payment instruments not only in Namibia but the world over. So, the success of hard cash as a payment instrument is being challenged by the emergence of new payment instruments.
Cheque as a payment instrument is issued by the banking sector in Namibia.
By banking sector I mean Bank of Namibia as a central bank and First National Bank, Standard Bank, Bank Windhoek and Nedbank Namibia as banking institutions.
All these have customers to whom they issue cheque books that contain individual cheques in them. Customers of banking institutions include individuals and corporates, while customers of the Bank of Namibia include banking institutions and the Government of the Republic of Namibia.
A cheque essentially instructs the payer’s financial institution to debit the payer’s account for a specified amount and either to transfer that value to the payee’s financial institution for credit to the payee’s account or to pay out cash. In Namibia it currently takes up to five (5) days say to realize value from a cheque deposited in your account.
If you provided tutorial services to Victor Simasiku, for example, and he writes a cheque for say N$1 000, which cheque you deposit into your bank account, it will take five working days for the funds to be withdrawable from your cheque account via automated teller machines (ATM) or over the counter of a branch of a banking institution.
It might happen that when you deposit it your bank reflects the amount on your account. This unfortunately does not mean that you can withdraw the funds before five (5) days. It only shows that you have funds in your account that are not yet matured or cleared.
The usage of cheques is still high in Namibia. This is so especially at the corporate level. Corporate entities have bigger payments to make compared to individual customers hence the cheque payment instrument is common to this segment of the payments market.
Individual customers appear to be behaving differently. For some customers, for a payment of N$6 they would rather pay for a product in cash, while they are likely to pay with a cheque if a car dealer requires for example N$130 000.
Cheque as a payment instrument has several advantages. You do not need to have funds in your cheque account at the time of writing a cheque to pay for your goods and services. Let me tell you that it is always not right to write a cheque, which bounces afterwards. The habit of writing cheques that end up bouncing each time can make you have your cheque book suspended. This is not a good situation because if a cheque book is suspended that counts badly on your credit record. The other advantage of cheque payment is that you do not have to carry cash with you for your payment. All you need to do is to write a cheque and present it for payment.
Notwithstanding the advantages that a cheque provides, there are disadvantages as well. There is default risk involved from the point of view of the supplier of goods and services. What is going to happen if Victor Simasiku does not have enough funds in his bank account after having written a cheque out for you? The chances are that you are going to lose your income unless he promises to pay you sometime later.
The time lag between depositing a cheque and realizing value from the deposited cheque is another disadvantage of a cheque payment. As mentioned above, it takes about five days to get value of a deposited cheque in your account. This status quo inconveniences economic activities because it delays receipt of funds that can be used for spending.
In the next article, we will cover card payment instruments in the National Payment System in Namibia.
– Albertus Mutonga Matongela is an economic and payments analyst based in Windhoek. Opinions in this article are his own and should not be associated to his employer or this paper.