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?" 

Mediating microinsurance: the techniques of translation

Article in the Journal of Cultural Economy by Christopher Paek, The American Institutes for Research

Abstract

Over the past decade, microinsurance has taken off in South Africa. The strength of this market is fuelled almost exclusively by funeral insurance, unsurprising considering the immense cultural value South Africans place on funerals. Moreover, insurance companies have achieved scale by working through brokers who are embedded within community-based institutions like burial societies and funeral parlours. The incursion of ‘insurance culture’ into this sphere has thus resulted in an ecosystem in which formal and informal institutions are in fluid states of tension and cooperation. Mediators sustain this ecosystem and enable the extension of microinsurance into low-income communities. I employ Bruno Latour’s notion of ‘translation’ in my analysis of three types of mediators: insurance agents, funeral parlour operators, and burial society administrators. The paper, which is based on fieldwork I conducted in Cape Town, South Africa, focuses on these actors’ specific techniques of translation, i.e. the different strategies/practices used to reconcile the disparate rationalities and institutions of the formal insurance system with those of the informal risk management sphere. An analysis attuned to the various social identities and positions embodied by these brokers reveals the dislocations, ambiguities, conflicts, and opportunities generated by the expansion of microinsurance markets into the low-income terrain.

Access Journal of Cultural Economy: https://www.tandfonline.com/doi/full/10.1080/17530350.2019.1639528

Access through ResearchGate: 
https://www.researchgate.net/publication/335637013_Mediating_microinsurance_the_techniques_of_translation

Read up on original IMTFI-funded research project: https://www.imtfi.uci.edu/research/2015/paek_2015.php

Academics, Innovators and Regulators at "Digital Finance in Africa’s Future"

By Sibel Kusimba, American University and Solène Morvant-Roux, University of Geneva

Sean Maliehe, Lena Gronbach  (Human Economy Program, University of Pretoria)

The international colloquium entitled “Digital Finance in Africa’s Future: Innovations and Implications” was held in Johannesburg South Africa on 22-26 Oct. 2018, organized by the Human Economy Research Programme at the University of Pretoria and the Johannesburg Institute for Advanced Study (JIAS), in association with Disrupting Africa.

The colloquium was unusual in bringing together and encouraging interaction amongst academics studying digital finance along with African innovators (entrepreneurs), regulators/consultants and development professionals to discuss the latest developments and their impacts. For academics it was a unique opportunity to engage more with important actors in this space especially regulators and innovators. List of presenters can be found here.

John Sharp, Director of the Human Economy Program of the University of Pretoria, put it succinctly: “You need corporations and big money if your human economy is going to work. We need to think about how to bring the people with power into the conversation.”

One distinct aspect of the colloquium was the relatively small size of the group, with less than 20 participants. The live internet feed and the large public talk that launched the colloquium on the evening of Oct 22 brought larger numbers of participants, giving the meeting both an intimate feeling as well as exposure to the public and a medium to broadcast the talks and discussions to online viewers.


Innovators and Providers’ Perspectives on Academic Knowledge

The emerging and rapidly changing field of digital finance and its entwinement with development policies is often hard for academics to study. Financial services and development interests produce large amounts of data and studies, often very detailed but with an aim to find use cases for financial products, so their claims are difficult to evaluate. Often the perspective of academia feels too critical or not relevant (too complex) to innovators or practitioners. Our discussions often tried to broach these differences.

For example, we discussed the uses of well-known financial diaries developed by scholars with a view of better capturing people’s financial behavior. The collective discussion ended up challenging the broad industry belief that these reports represent a kind of pure empirical or ethnographic view of financial behavior - partly because of their detailed recording of expenditures. These industry reports and the understandings of finance they produce often focus on inflows and outflows over relatively short periods and may assume financial explanations for peoples’ behavior without assessing alternatives. In one often-cited example from Kenya, a family cannot raise enough money for a sick person, but a few weeks later raises abundant money for her funeral after she unfortunately dies for lack of care. This story is frequently used to posit a need for different financial tools that can nudge a more rational response to illness. However, a lack of trust in medical care and many other cultural reasons, important in their own right, could also explain a lack of fundraising for a hospital stay.

At the same time, our discussion showed that the more inductive approach of anthropology seems to collect information that providers and innovators may not find clearly relevant. For instance, one professional in insurance offered that his experience with oft-touted “Human Centered Design” (which is a kind of “fast” ethnography) had led to assumptions that actual users ended up refuting once the product was rolled out. Anthropological studies presented by Kusimba and Morvant-Roux also came to a fuzzy conclusion. People want to be interconnected with others using financial technologies, but they want to be autonomous as well. More work needs to be done to further understandings that can make sense for product development.

Sibel Kusimba (American University)

The study done by Nnamdi Oranye on undocumented migrants in Nigeria also highlighted that meeting social obligations is as important as being able to fulfill personal projects and aspirations (and therefore call for specific financial services). This result was confirmed by Morvant-Roux from a study on undocumented Mexican migrants living in the USA. Financial services around international remittances would do a better job by acknowledging such a duality rather than trying to induce a rationality that doesn’t really exist.

It was humbling and also inspiring to learn more about the perspectives of innovators. For them the Silicon Valley catchwords like “disruption” have a lure and a kind of hope for African innovation that academics might take more seriously. At the same time the entrepreneurs also revealed that their pitches for funding often must refer to frameworks around charity and African development, which many felt influence the kinds of fintech that get funded in Africa. One innovator located his company in the Philippines after being frustrated by this mindset among Western venture capitalists.

The Regulatory Future of African Finance

The final area of great interest and a real opportunity for new exposure for an academic was the important talks by regulators. Dr. Steven Nduati was a Central Bank of Kenya payments regulator behind the M-Pesa legend, who felt that regulation must anticipate how financial technologies eventually work but must also be flexible and responsive to how these new technologies end up being used. The former Finance Minister of South Africa, Trevor Manuel, gave a compelling keynote. Speaking around “the intersection between finance and data," he noted that in the past politics involved land and physical assets – but in the 21st century, there will be an economy of data. How will African governments deal with privacy and security issues, and who controls and owns the data? A marked example was the case of South Africa’s innovative government cash transfer programs.  In the case of Sassa, Gronbach brought evidence that the South-African State has let a private tender taking advantage of the most vulnerable population segments through massive unauthorized deductions from the social grants and therefore undermining the social protection floor. Mesfin Fikre from University of Addis Ababa University and previous IMTFI alum added, “if the pace of M-pesa of Kenya continuous, for sure it will capture the data of almost all Kenyans, which gives it an upper hand in the future digital economy. This is because, having (owning) data means owning a weapon. So, it is high time to consider ‘who owns and control such data?’. Given the participation of foreign companies (investors) in the area, this scales up the problem. For example, in Ethiopia, mobile money related data is captured by foreign companies working in the area (BelCash and M-Birr).”

Manuel also warned that mobile money was largely becoming a solution for the poor, and expressed concern that African fintech would eventually lead to two solutions—remitting solutions for the poor, and traditional banking and investing for the affluent.

Nnanmdi Oranye (Disrupting Africa), Mario Fernandez (GoSocket), Funmi Arewa (Temple Law)

“The engagement of representatives of industry and academia offered an opportunity to engage with real world contexts within which digital finance technologies are actually used. The contributions by anthropologists (particularly Morvant-Roux and Kusimba) enabled a better understanding of varied on the ground uses and understanding about technologies,” says Olufunmilayo Arewa, Professor at Temple University’s Beasley School of Law and IMTFI Academic Advisory Board member. “Conceptions and uses of digital finance technologies in Africa and elsewhere are complex and multifaceted and constantly changing. A dialogue that includes both industry and academia offers needed insight into technology practices on the ground.”

Ideally more interaction between regulators, innovators, and academics—bringing “the people with power into the conversation”—one could imagine new futures for digital money in Africa that would prevent both the abuse of the data economy and the potential isolation of mobile money and remittance products from broader fintech innovations.

See blogpost 1 here: "Colloquium on ‘Digital Finance in Africa’s Future: Innovations and Implications’"

Photo credit: Riaan de Villiers, acumen publishing solutions

Colloquium on ‘Digital Finance in Africa’s Future: Innovations and Implications’

by Lena Gronbach and Prof. John Sharp

An international Colloquium entitled ‘Digital Finance in Africa’s Future: Innovations and Implications’ was held in Johannesburg, South Africa, on 22-26 October 2018.

Opening Keynote: Mr. Trevor Manuel

Organised by the Johannesburg Institute for Advanced Study and the Human Economy Research Programme at the University of Pretoria, in association with Disrupting Africa, the colloquium brought together African innovators in the field of digital finance, as well as academics from various disciplines within the humanities, to discuss the latest developments in this increasingly important field.

The participants were drawn from a variety of academic institutions and FinTech companies, including the University of Geneva, the University of Addis Ababa, The Institute for Money, Technology & Financial Inclusion (IMTFI), Temple University, and the American University, as well as MFS Africa, eTranzact, Creditable, Wala, Inclusivity Solutions and Gosocket. The South African Reserve Bank and the Central Bank of Kenya were represented as well.

The Colloquium had two complementary aims. The first was to give some key players in the field of digital finance in Africa the opportunity to highlight the extent and sophistication of their innovations, and to discuss their successes as well as the obstacles and challenges they face. The second aim was to bring these innovators into conversation with academics with a special interest in the social, political and economic implications of the innovations in question.

South Africa’s former Minister of Finance, Mr. Trevor Manuel, opened the colloquium by emphasizing the importance of understanding the social and economic implications of new payment technologies and the need for prudent yet enabling regulation: “We must build on the success of mobile money, where Africa is recognized as a world leader. But much depends on the extent to which existing institutions can respond the demands of rapid, repeated structural and cultural shifts, and, at the same time, drive financial access to better serve all people across Africa.” Further, he acknowledged that “we have to focus on whose interests will best be served by the race to digitalization” – in other words, to consider the social impact of FinTech innovations in addition to their technological feasibility and financial profitability.

Mr. Manuel’s keynote speech led into an open discussion guided by Nnamdi Oranye, FinTech author and founder of Disrupting Africa, and Stephen Mwaura Nduati, former head of the Central Bank of Kenya’s national payment system.

Stephen Mwaura Nduati (former head of the national payments system of the Kenyan Central Bank) and Mesfin Fikre Woldmariam (University of Addis Ababa/ IMTFI alumni)

Eight working sessions took place over the next four days, each consisting of presentations by an innovator and an academic or a regulator, followed by group discussion. The topics included mobile money and digital payments, regulation, agent networks, remittances, G2P transfers, insurance, start-up capital, and the blockchain. While the number of delegates was kept small to allow for in-depth discussion among the delegates, ‘virtual participants’ from across the globe could follow the sessions via a live streaming platform and submit their comments and questions online.

The consensus that emerged from the lively and highly interactive discussions – frequently extending beyond the allocated time slots – was that there is a strong need for innovators, regulators and academics to engage in regular and interdisciplinary debate. While most innovators are aware that the technological feasibility of an invention does not guarantee that it will be socially beneficial, they do not always have the expertise to consider the wider implications of their technological prowess. And while humanities researchers can provide these insights, they do not always fully understand the technological complexity involved or the financial and regulatory challenges faced by innovators. Finally, regulators need to balance the interests of governments, banks, and FinTech start-ups with broader concerns about social and economic development. This difficult task requires insights into both the technological and the social implications of FinTech innovations and new financial products.

As one of the delegates put it: “Every innovator in Africa should have a Humanities scholar, such as an anthropologist, alongside them for the journey. The insights that emerged when we brought innovators and academics together were exceptional and far exceeded anything we could have imagined.”

Nnamdi Oranye, founder of Disrupting Africa

Other noteworthy points made by the delegates included the need to incorporate FinTech-related topics into academic curricula in order to prepare students for their future in a digital and globally connected world in the context of the Fourth Industrial Revolution. Further, the participants emphasized the need for a focused, interdisciplinary research agenda that explores both the technological and the social implications of FinTech innovations in different geographic, cultural and regulatory settings.

With these goals in mind, the organizers would like to encourage individuals, companies and institutions with an interest in these issues to join our emerging network of scholars, innovators and regulators (contact details below). The highly successful format of this Colloquium lends itself to replication in other parts of the world where innovations such as mobile money have already had a transformative impact or will do so in the near future.

From left to right, back row: Mari-Lise du Preez (i2i), Olufunmilayo Arewa (Temple University), Ubuhle Zwane (MFS Africa), Sean Maliehe (UP), John Sharp (UP), Dare Okoudjou (MFS Africa), Peter Vale (JIAS), Stephen Mwaura Nduati (FinTech consultant), Sechaba Ngwenya (Creditable), Nnamdi Oranye (Disrupting Africa), Solène Morvant-Roux (University of Geneva). Front row: Observer, Hennie Bester (Cenfri), Sibel Kusimba (American University), Lena Gronbach (UP), Marc Wegerif (UP), Mario Fernandez (Gosocket), Mesfin Fikre Woldmariam (University of Addis Ababa).  

The detailed deliberations of the Colloquium will appear in the form of a conference report in early 2019. Recordings of the sessions and the opening event are now available here. Regular updates on the progress of this emerging project will be made available on the conference website.

Read up on conference insights from IMTFI alums Sibel Kusimba and Solène Morvant-Roux: "Academics, Innovators and Regulators at 'Digital Finance in Africa’s Future."

Authors:
Lena Gronbach, Researcher/Administrator: The Human Economy Research Project (Lena.gronbach@up.ac.za)

Prof. John Sharp, Programme Director: The Human Economy Research Project (John.sharp@up.ac.za)

Photo credit: Riaan de Villiers, acumen publishing solutions

Mobile Phones, Insurance and a Funeral: A Closer Look at South Africa’s Mobile Micro-Insurance Market

By IMTFI Fellow Christopher Paek 

About halfway through my fieldwork in Cape Town, South Africa, tragedy befell Goodwill Nxusani for the second time. He had been one of my key sources and interlocutors, connecting me to local residents of his township, Khayelitsha. Earlier that year, his grandmother had passed away and he was generous enough to invite me to her funeral. Just a few months later, he received word that his father-in-law, who lived in the Eastern Cape, had also passed. As the only income-earning household in the immediate family, Goodwill’s family was responsible to pay for the whole funeral.

A traditional Xhosa funeral in Khayelithsa, South Africa (Photo credit: Christopher Paek)    

Funerals are sacred among the Xhosa. Whether poor or rich, families do whatever they can to ensure that their beloved kin are sent off properly in death so that their souls can join with the ancestors. Goodwill’s father-in-law, the male head of household, was to be honored, as customs dictated, with a slaughtered cow. Since he died near Cape Town, transportation would also have to be arranged so that his body could be returned to the Eastern Cape, a common story for many Xhosa who had migrated to the Western Cape in search of work.

Between the transportation costs, the livestock, food, and the funeral ceremony itself, Goodwill faced a price tag of R42,040 ($3,123). If Goodwill had spent every rand he earned, which was R2,000 ($148) per month, it would still take him nearly 2 years to fully pay for the funeral. Fortunately, Goodwill was among the lucky few who had taken out a funeral insurance policy that covered R14,000 ($1,040) of the cost. Still, the death of his father-in-law posed a considerable financial burden on his family. As he broke the bad news, he informed me how he and his wife had gone three days without food in order to pay the first installment on the cow.

Economists and insurance professionals see Goodwill’s story, which is fairly common in communities across South Africa, as a story about financial risk. In their view, the financial toll imposed on a grieving family can be alleviated by finding ways to extend financial services into low-income spaces…no easy feat. Insurance, widely considered a grudge purchase, is a hard sell to even middle-upper class people. How do you convince the poor to spend what little they have on insurance?

South Africa is unique in this regard because demand for micro-insurance (insurance products designed for low-income clients) is high, driven by the cultural imperatives placed on funeral rituals. Of the nearly 62 million lives insured by micro-insurance on the African continent, South Africa alone accounts for more than half of these lives, making it one of the world’s largest micro-insurance markets.

While microfinance enthusiasts might see these numbers with unbridled optimism, there is an important caveat to consider. Micro-insurance sales in South Africa are almost exclusively driven by funeral insurance policies. Other products including life, health, and asset insurance have found no success in the low-income market. Many are hopeful that exposure to high-quality funeral insurance products can serve as a sort of Trojan horse into this market, but this is yet to be seen.

As might be expected, building profitable micro-insurance markets presents a number of challenges, especially the need to achieve scale, since the sustainability of insurance operations relies heavily upon building a sizable risk-pool. Fortunately, the advancement and proliferation of technology across the developing world, particularly mobile phones and its networks, have been a game-changer for many industries including micro-insurance. Since mobile penetration is deep in South Africa (mobile phone subscriptions per capita stand at 1.47, according to the World Bank), insurance companies have partnered with mobile network operators (MNOs) to tap into this expansive distribution network. Insurance products that are sold through and with mobile operators are commonly referred to as mobile insurance, or m-insurance for short.

By overlaying their operations upon a mobile infrastructure, insurance companies have been able to generate efficiency gains across the entire micro-insurance value chain from product design, marketing and sales all the way to enrollment and claims administration. From the MNO perspective, m-insurance is an appealing product insofar as it stimulates average revenue per user (ARPU) and reduces churn, i.e. increased loyalty/retention. And for the end-client, efficiency gains translate into affordable premium rates that compare favorably to traditional micro-insurance products or even their informal sources of insurance coverage. Sensing the market opportunity, insurance companies and MNOs launched several varieties of m-insurance products including (but not limited to):

1. Loyalty Based Models- Clients receives “free” coverage paid for by the MNO if the client behaves in an incentivized way (e.g. more airtime usage, data purchases, etc.)
2. Airtime Deduction Models- Clients can make their premium payments with their airtime balance.
3. “Dumb Pipe” Models- The mobile phone is used only for data capture, enrollment, and communications functions, but not for premium collection/payout.

A non-exhaustive typology of m-insurance products on the South African market    

It would seem, then, that South Africa, with its high demand for micro-insurance, a corporate commitment to m-insurance, and high levels of mobile penetration, would be fertile ground for the wide-scale uptake of mobile-based micro-insurance. But it came as a surprise to many in the industry when the anticipated m-insurance market failed to achieve scale. What happened? And what does this mean for other financial service providers who are looking to break into the low-income market through mobile channels?

The research I conducted in Khayelitsha, a large township outside Cape Town, indicated that a major reason why this market failed to materialize had to do with trust. Even longtime micro-insurance clients who were well familiar with how insurance worked, would not trust using their mobile phones to conduct financial transactions. What drove this mistrust?

To answer this question, it’s important to understand clients’ experience with m-insurance within a much wider context of mistrust in which they live and operate. For township residents, in particular, this environment is typically characterized by high crime rates, lack of formal legal recourse, a lack of consumer advocacy and education, countless experiences with money/phone scams, and high unemployment. Anthropologist Erik Bähre observed how, in the midst of such a volatile environment, township residents would seek out and form “islands of trust” where they felt safe enough to keep/grow their money (i.e. informal financial mutuals).

Filtered through this perspective, it’s useful to see m-insurance products as operating outside the boundaries of these islands of trust. M-insurance was instead interpreted through a lens developed and used over time to guard against fraud. For example, many respondents dismissed m-insurance because of their past experiences dealing with phone and money scams. When they come across so-called “free” insurance coverage (i.e. loyalty-based m-insurance), they are understandably skeptical.

What may have been the most unexpected finding was the extent to which even very poor clients were willing to pay a higher premium to deal with insurance sales staff face to face. When presented with an m-insurance product that had a stronger monetary value than traditional retail insurance, clients often expressed how important it was to them that their premium payments and claims were being administered in an office. An office is tangible, it can’t disappear in the night; it is, for lack of a better phrase, Bähre’s “island of trust.”

A funeral m-insurance product. 

A partnership between an insurance company, Hollard 

and a clothing retailer, Pep (Photo credit: Christopher Paek)    

Among m-insurance developers, there is an on-going debate as to the virtues and drawbacks between “high-touch” products, which incorporate sales agents into their models and “low-touch” products, which are typically passive models that eliminate sales agents in order to lower cost. Results from this project seem to suggest that at least initially, a more high-touch approach is required to first develop trust, especially in environments where the use of mobile phones to cross-sell financial products have become synonymous with fraudulent activities.

A related example may reinforce this point. When ATMs were first introduced into South African townships, initial reports suggested that there was widespread mistrust among residents. It took concerted time and effort—i.e. bank tellers would walk through each step with individual customers again and again—for clients to eventually trust ATMs enough to deposit their hard earned cash. Examples like this demonstrate that trust in m-insurance products can eventually be earned, but that an initial investment in time and financial resources may be required to do so.

As this research shows, efficiency, convenience, and price are necessary but not sufficient factors in building a successful m-insurance market. If the trust gap can be overcome, insurance companies may be in a good position to fully leverage the potential of mobile phones and networks to deliver financial services at a meaningful scale.

Read Christopher Paek's Final Report