The sight of scattered and waterlogged banknotes following the floods that ravaged businesses in downtown Kampala was striking. It laid bare an outdated and risky way of storing money, while exposing how many Ugandans still lack access to formal banking services.
In addition to ravaging properties of mostly traders in the central business district while exposing Kampala’s plan less city infrastructure, it has emerged that the recent floods also damaged some cash.
The culprits, from what BD Life has gathered, were a few traders who keep or hide their last-minute sales in their places of work.
Soggy or moldy paper money can deteriorate quickly and become worthless.
The quality of damp paper money, like the ones a couple of downtown merchants claim, is twice as susceptible to deterioration compared to well-handled and kept currency.
Should the cash be damaged, it will require replacement, but at what cost?
Who picks up the cost?
BD Life could not verify how much in total of the affected merchant’s cash was flooded and therefore risked being rendered useless.
However, in an interview with leadership of the traders, this was not an issue to cause an alarm as most currencies were not exposed to floods despite pictures making rounds of salvaged cash carefully spread for the sun to evaporate the moisture.
The director of research and policy at Bank of Uganda, Dr Adam Mugume, reveals that on average, printing costs of money are in the range of about 20 percent to 30 percent of the face value of the note.
In other words, this means for each Shs1,000 note about Shs200 to Shs300 may be required to print it.
According to Dr Mugume, replacing a damaged Uganda shilling note follows a particular procedure.
He says: ‘If the signatures are visible and the security features can authentically be proved, then the note can be replaced at the Bank of Uganda branch. But if the notes are severely damaged and the security features are unable to be verified, it would be difficult to replace the notes.’
So, the traders at the city centre whose merchandise was either destroyed in full or partially, better be sure that their money which they kept or hid in their stores, was not damaged to a point that the security features are now unrecognisable.
To bank or not?
The formal-informal divide is deeply entrenched in service provision across many economic sectors, according to the United Nations Capital Development Fund (UNCDF).
Further, it is no longer a secret that most economic systems and institutions are designed to serve the formal sector with the expectation that those operating in informal settings must cross to the ‘other side’ for them to count and get served.
An Economic Policy Research Centre (EPRC) study shows that formal financial service providers often cite the high cost and risk of serving people in informal settings.
Meanwhile, potential customers in informal environments still complain about the strict requirements and high costs of joining the formal financial system.
Despite the informal sector employing by far the largest share of the population, estimated at 85 percent in Sub-Saharan Africa and 75 percent in Uganda, only half of the players in informal operations have a bank account according to EPRC findings.
Informal traders also don’t use banks due to lack of trust and financial illiteracy.
Some people view banks as institutions meant only for the wealthy or the educated who work in the formal economy.
Others feel that banking procedures are very complicated, with high minimum balance requirements.
Those operating in urban areas often have to endure poor mobile network coverage when attempting to use digital channels or platforms.
Therefore, the need for systems and solutions to serve the informal sector is undeniable.
It would be unfortunate if people still kept money as part of the merchandise in shops when bank branches are readily available, plus their agents.
Amidst all that, Dr Mugume, referring to traders’ flooded money, believes it is incomprehensible in this age for merchants handling millions of cash to avoid the services of a bank.
‘The role of the banks, among other things, is to protect against loss of cash in unfortunate events like floods, fires or thuggery,’ Dr Mugume tells BD Life.
Not as bad
In an interview with the board member of Kampala City Traders Association (KACITA), Mr Kanakulya JJemba Mulondo, it emerged that whereas some cash was waterlogged, particularly from the sales made after 5 p.m, the biggest damage was on properties and merchandises.
He says: ‘It will be an exaggeration to suggest that traders lost hard cash to floods that ravaged their places of businesses. Many have a proper safe except for a very tiny minority. ‘
He, however, concurs that for those whose money was affected by floods risk counting more losses should the currency get damaged ‘beyond repair.’