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.

References
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?"

Part 1: COVID and Digital Payment in Kenya and South Africa: Crisis Innovation?

COVID and Financial Technologies in South Africa and Kenya 

A Three-Part Blog
Part 1: "COVID and digital payment in Kenya and South Africa: Crisis innovation?"
Part 2: "The war on COVID in Kenya: Will the social networks of mobile money survive?"
Part 3: "South Africa in lockdown: Innovation in G2P payments"

Business groups want to end lockdown restrictions.
In the caption, a worker sanitizes a truck performing food delivery.
South Africa’s Sunday Times May 10, 2020. 

Part 1 of 3: "COVID and Digital Payment in Kenya and South Africa: Crisis Innovation?" 

by Sibel Kusimba, University of South Florida

How will the outbreak of COVID-19 and the response to it affect the use of mobile money and financial technology in sub-Saharan Africa? In this three-part blog series we will take a look at Kenya and South Africa during COVID-19 pandemic. How have sudden imperatives, from social distancing to lockdowns to transportation restrictions, effected the use of money transfer, banking and loans? Will the dire economic threats to both the informal economy and the global markets spell the end of pro-poor innovations, or will new forms of payment create lasting money relations?

Mobile Money: Disaster Innovation? 
Disasters upend normal life and introduce new risks or dangers. Yet, disasters and their aftermath have catalyzed some of the most successful fintech innovations. After China’s 2008 Wenchuan or Sichuan earthquake killed hundreds of thousands of people and displaced 5 million families, charity donations received more than 100 billion yuan in donations over digital channels like WeChat1. Remittances are a valuable response tool in the wake of natural disasters such as the earthquakes in Rwanda and Haiti2.

M-Pesa’s 2007 roll-out was followed just a few months later by a disputed national election. Accusations of vote rigging triggered months of post-election unrest, especially in opposition areas, and led to 1500 deaths; roads were blocked and stores and banks closed. Anthropologist Olga Morawczynski was in Western Kenya at the time3.  She found that the use of M-Pesa increased dramatically during the period of violence - with hundreds waiting in line to visit agents - and that money flows also actually reversed. Usually Kibera residents sent money and airtime their rural relatives. But during the political crisis urban residents relied on relatives in the western Kenyan locality of Bukara to send them money. In turn they used airtime to keep relatives in Bukara informed about their safety. Morawczynski’s account suggests that unusual circumstances may be more important for the origin story of M-Pesa than is commonly acknowledged.

Many parts of the South have been greatly effected by the coronavirus outbreak and the response to it. In the developing world, harshly enforced restrictions have been implemented with the hope of slowing the spread of the virus in densely populated areas. But lockdowns, work restrictions, and police harassment are preventing informal work, which many residents of those very areas rely on for income. Many workers have decided to return to the rural areas, and confusion around transportation and movements may have helped spread the virus. Disruption of the global economy has begun, including loss of tourism, global supply chain disruptions, and drops in manufacturing. Investors have turned away from emerging markets. The month of March saw more than US$100 billion dollars in capital flight from the developing world - which will weaken currencies and cause prices to rise4.

The fallout may hit Africa especially hard. About half of Africans face unemployment. Small businesses will not only have fewer customers, but global trade could also be disrupted. Higher prices, food shortages and income loss threaten informal workers and farmers. Funding for microfinance is likely to suffer. In Kenya, the crisis has put the spotlight is on P2P payments. The way agents and rural-urban family networks respond to the crisis will again be key to the story. In South Africa, G2P payments are the focus. The government is facing political and economic pressure to expand an already extensive social grants system without exposing beneficiaries to further risk from the virus.

Kenya’s Pandemic Response: Curfews, Transport Bans, Digital Payment
On March 6 Kenya made public their first case of COVID-19 in a college student returning home from the US. The authorities immediately quarantined and tested 27 persons who had contact with the student, revealing two more positive cases. Three days later official country-wide response began, including social distancing and closing off the country to international flights. A nightly curfew began in mid-March to reduce informal workers’ activities without cutting of their livelihoods altogether, and the President hosted Christian, Muslim and Hindu clerics for a televised National Day of Prayer on March 21. On April 7, all passage in and out of major cities was cut off, causing chaos on roads and buses.

In the March 7 edict, President Kenyatta made a point of putting money at the center of the country’s coronavirus response. He encouraged Kenyans to use electronic payment channels, warning that passing cash from hand to hand could hasten the spread of coronavirus. In sync with his directive, providers in Kenya and Uganda have cut or lifted the fees for mobile money services for the foreseeable future. If President Kenyatta’s directive spurs a turn to digital payment, the COVID-19 pandemic will be the second time a crisis has facilitated the adoption of mobile money in Kenya.

The current pandemic response could, like the events of 2007 and 2008, further drive use and innovation with money transfer. Without reliable transportation for the foreseeable future, the mobile channel will be the only mediator for in-country remittances. Furthermore, the reduction or cancelling of fees could demonstrate the effects of a free service and the value of a public infrastructure for digital payments. Another area that might be lifted is digital microinsurance. For example, Equity Bank customers build up “hospital cash” as a reward for using the bank’s digital channels and loans; claim submission process requires submitting a digital photo of a hospital bill. The Kenyan government has received the assurance from the insurance industry that COVID-19 claims will be accepted. If hunger, food shortages, and illness spread widely, relief through cash transfers or in-kind distributions could also become a focus.

Social grant queue in East London - The South African. Photo credit: John Sharp

South Africa: Lockdowns and Social Grants
South Africa’s first case of COVID-19 was announced on May 5 in a returning citizen visiting Italy. The very next morning, the biometric security system at the University of Pretoria campus where I am a visiting fellow was disabled to prevent spread of the virus. President Cyril Ramaphosa declared the coronavirus pandemic a national disaster ten days later. Afflicted persons were put under isolation, including 60 German tourists who arrived just before flights ceased. On March 16, the university closed altogether. Within three days the 30,000-student campus and dormitories seemed completely empty. Finally, on March 26, with 1000 cases recorded and two deaths, the country went beyond Kenya’s curfew approach and called a national five-week lockdown. Dog walking and sales of alcohol, cigarettes and cosmetics were proscribed. On May 1, a phased reopening approach began outside of hotspots.

BBC News wrote that “South Africa seems to have acted faster, more efficiently, and more ruthlessly than many other countries around the world.”  The country won deserved recognition from the World Health Organization for assertively confronting the virus, including door-to-door testing in at-risk communities by 28,000 health workers.  The result has been a flatter curve than other countries; but it has come at a price. There has been looting and illicit trade of alcohol and cigarettes. Like elsewhere, domestic violence has increased. The actions of police and army have included mass arrests, violence and moving the homeless into camps and sports stadiums. As in many countries, social distancing is a privilege; while the middle classes and white-collar workers can work from home, the many informally employed are unable to pursue their activities. Rituals and celebrations are out; unemployment has affected mining, retail, and manufacturing. Poverty and food insecurity have suddenly deepened in the past weeks.

April 27 was Freedom Day in South Africa, commemorating the first democratic elections on that day in 1994. In 2020 it was also day 32 of a strict national lockdown and its economic and political fallout. In televised remarks to the nation, the president and some of the opposition addressed the nation. First came words by Julius Malema of the Economic Freedom Fighters (EFF)– a populist leftist group borne of but now sitting in opposition to the ruling African National Congress. For many South Africans poverty and hopelessness has increased over the past 25 years.  The EFF have advocated a massive redistribution of South Africa’s wealth to the black majority and has called out the banking industry for its failure to serve the average citizen. Malema has proclaimed 2020 “a year of action against the racist financial sector.” Malema spoke of how the lockdown had underscored poverty, inequality, and police brutality. But he cautioned the government not to lift restrictions too soon and instructed his supporters to respect the policy. President Ramaphosa spoke next and acknowledged the challenge of social inequality, calling the pandemic an opportunity to “reimagine equality in South Africa.” The dueling speeches underscored that the sacrifices required by the lockdowns were not being borne equally.

To walk the tightrope between the lockdown and the public health challenge, officials have donated parts of their salaries to the country’s solidarity fund. And most importantly, they are relying on financial technologies – specifically an expansion of G2P payments - to help the vulnerable and maintain public support. On April 23 President Ramaphosa announced that grants to the elderly, child caretakers and the unemployed will be increased; the program is expanding to the unemployed for at least six months.

Some question the value of lockdowns in Africa, which is imposing unachievable social distancing constraints and shutting down the livelihoods of the majority of Africans who are informally employed. Lockdowns have also been misused in countries where state power is routinely directed against the poor.  Unfortunately, as elsewhere they have contributed to a public debate in which public health is falsely pitted against economic thriving.

Will brave Kenyan mobile money agents stay open again? How will South Africa’s expansion of social grants pay out amidst the COVID crisis? What will the upheaval reveal about financial inclusion, and the relationship between digital finance and the state? Stay tuned for two more pieces about P2P in Kenya and G2P in South Africa.

References
1 Richart, Rebecca. 2018. “Rocking the Earth: Natural Disasters and the Roots of Philanthrotech in China.” California-Shanghai Innovation Dialogues. Irvine, CA, Sept. 28; see also Shieh, Shawn, and Guosheng Deng. 2011. An Emerging Civil Society: The Impact of the 2008 Sichuan Earthquake on grass-roots associations in China. The China Journal, No. 65, 181-194.

2 Joshua Blumenstock, Marcel Fafchamps and Nathan Eagle (2012), “Charity and Reciprocity in Mobile Phone-Based Giving in the Aftermath of Earthquakes and Natural Disasters.”

3 Morawczynski, Olga. 2009. Exploring the usage and impact of “transformational” mobile financial services: the case of M-PESA in Kenya Journal of Eastern African Studies 3:509-525.

4 Canuto, Otaviano. “Coronavirus Brought a Perfect Storm to Developing Countries. Webinar by PrakalsaTalk, Effects Household Over-Indebtedness in the Corona Driven Recession, April 14, 2020.

Stay tuned for Part 2: 

"The war on COVID in Kenya: Will the social networks of mobile money survive?"