Wednesday, June 3, 2020

Part 3: South Africa in lockdown: Innovation in G2P payments

By John Sharp, University of Pretoria and Sibel Kusimba, University of South Florida

Sassa queue outside office in Cape Town. Photo credit: Barbara Maregele

More than eighty countries have increased their social protection programs in the light of the COVID-19 outbreak. At least 58 countries are scaling up cash transfer schemes. Some countries have been more efficient than others in providing funds to low income, elderly and other vulnerable citizens, and the urgency of the human need and the population scale these programs seek to reach are unprecedented.

As in other countries, authorities in South Africa are under social and political pressure to either curtail lockdowns or ameliorate the loss of income and employment that has ensued. Observers have praised the South African Social Security Agency (SASSA) for their rapid adoption of a new method of distributing state grants to millions of South Africans. SASSA was obliged to move fast given that President Cyril Ramaphosa announced, on 23 April, that the state intended to make a brand new social grant available to provide relief to South Africans during the COVID-19 lockdown, and that payment would start in early May.

This grant targets a new category of poor people – those who are of working age but without paid employment during the Coronavirus crisis. Ramaphosa noted that the plight of elderly people, children under 18 years, and disabled people was covered by the state’s existing social grants program, administered by SASSA, but that the lockdown had exposed a gap in the case of working-age people who were unemployed. He said that these people would be able to apply immediately for the new ‘Social Relief of Distress’ grant of R350 per month for six months.

Social distancing tricky in queues for social grants
However, with no information on the people who fall into this category, SASSA has faced challenges in identifying appropriate grant recipients.  The elderly who depend on state pensions, the caregivers of children, and the disabled are on existing databases, but working-age people who are unemployed are not. SASSA solved the problem by deciding that anyone could apply by sending a message via WhatsApp or USSD to the official COVID-19 phone number (hitherto used only to give out information on the virus), that applications would be checked against existing databases of taxpayers, Unemployment Insurance Fund recipients, and recipients of other social grants. Those who qualified would have the grant deposited into their bank accounts or receive it on their mobile phones either as a code that would access cash at an ATM or as a voucher redeemable at selected retail stores.

This solution came together quickly. But whether there is merit in the comment from one observer that this signals ‘a major shift away from the cash payments or deposits via traditional bank accounts that have long bedevilled the already massive SASSA system is an open question.

Two key problems afflicted earlier systems for distributing social grants in South Africa. One stems from the fact that distribution took place all at once – on a set day or set days every month. Grants were paid out in cash that had to be transported – in armoured vehicles – to pay-out points scattered across the country. Recipients – many of them elderly – had to travel to these venues and wait in queues for hours while the cash was disbursed manually. There was an attempt to change this after 2012, when many recipients had bank accounts opened for them by a private financial services company contracted by SASSA to distribute social grants. But all the grants were deposited in these accounts at the same time, and since recipients needed to cash them out immediately, the congestion and long queues persisted. People were still obliged to stand in the sun for hours on end in order to get their grants in the form of cash.

Sassa fiasco: Three pensioners die during long wait for social grants. The South African

This particular grant program, administered by subsidiaries of fintech company Net1, reached more than a third of South Africa’s population, even before the COVID pandemic. Nevertheless, distribution of social grants was preyed on by those seeking to sell a range of financial services to grant recipients. When pay-outs were made in cash, companies selling insurance and advancing credit dispatched agents to pay-out venues; the agents engaged in high-pressure selling which recipients were often unable to withstand. When grants were deposited in bank accounts that had been opened specially to receive them, the private company involved gave its sister companies access to the recipient database, allowing targeted marketing of airtime, insurance and loans, and ensuring a fail-safe method of payment for these services. Payments were deducted at source from the recipients’ bank accounts, and they were paid out whatever was left after the payments had been made.

The new payment system SASSA has developed may make such practices more difficult, but high pressure salespeople pushing insurance and credit can still target ATMs if large numbers of unemployed people gather in front of them at the same time to key in the codes they receive on their mobile phones in order to access the cash they need. Even if the new system is upgraded to a full mobile money system in due course, the problem would not necessarily disappear entirely. If private companies can issue mobile money, they can readily add financial services to their mobile platform. The recent proliferation of mobile loans in countries such as Kenya provides a case in point: people are encouraged to take out ‘quick little loans’ on their mobile phones. The loans are made instantly and have to be repaid, with interest, in mobile money. The ease and speed of the transaction are tempting and lead growing numbers into debt they cannot repay easily.

If the new system of code and voucher transferrals via mobile phone is easy to stagger, this problem will be minimised. But estimates are that some eight million unemployed people will qualify for the Social Relief of Distress grant, and if they all receive pay-outs at the same time (and at the same time as the 18 million South Africans receiving old-age, disability and child support grants in a country of 58 million), the result will be the same as before.

Critics have pointed out that the amount of the new social grant is too low to support the direct recipients, let alone the other members of their households who will depend on them, and that it will be paid out for much less time than they are likely to remain unemployed. These are important issues, with which we agree. But the way in which G2P payments are made is also important.

World Bank experts are recommending that government payments during COVID be designed to 1) ensure social distancing at delivery; 2) minimize costs to recipients; 3) manage risks such as theft, 4) communicate well and 5) put systems in place for the long term. A number of ecosystems could provide these features, both agent-based cash-out schemes and account-based transfers. The overall point is that a new payment technology such as the one developed by SASSA over the past fortnight cannot deal with the problems identified above on its own. No matter how grants are paid out - in cash, into bank accounts, via codes on mobile phones, or indeed, as mobile money – there is a risk of exposing recipients to inadvertent hardship and to high-pressure selling of add-on services.

A comparative study of G2P payments as social protection identified five overriding principles for effective efforts: Cash transfer programs work best when they are: ‘fair, assured, practical, large enough to impact household income, and popular.'1 Reaching a national consensus on these dimensions needs to combine technological innovation with policy expertise and the perspectives of recipients of the social grants themselves. This last point is something to bear in mind for when the COVID-19 emergency is over.

1 Hulme, David, Joseph Hanlon, and Armando Barrientos. ‘Social protection, marginality, and extreme poverty: Just give money to the poor? In J. von Braun and F, Gatzweiler (Eds.) 2014. Marginality: Addressing the Nexus of Poverty, Exclusion and Ecology.  Springer Netherlands. Pp. 315-329.

Read Part 1: "COVID and Digital Payment in Kenya and South Africa: Crisis Innovation?"
Read Part 2: "The war on COVID in Kenya: Will the social networks of mobile money survive?"

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