It’s all about cash in the end...for now.

by Andrew Crawford, Doctoral Researcher (GIGA, Universität Hamburg) and IMTFI Fellow

News about a political upheaval often includes a story about frantic citizens desperately trying to get cash. Recent cases in point are events in Afghanistan and Myanmar. In Afghanistan, the departure of US forces and subsequent Taliban takeover led to a banking crisis with long lines for the limited number of functioning ATMs. Traditional informal money transfer agents, known as hawaladars, faced similar shortages with excess demand for cash that they could not satisfy.  Behind the scenes, the Taliban pushed central bank and finance ministry officials to get to work on solutions, a difficult task considering the brain drain caused by the hundreds of thousands that have already fled the country.   

People line up outside a bank to withdraw cash in Yangon, 5/15/2021 (Photo: Reuters)

Meanwhile, Myanmar faces similar skills shortages as state employees refuse to assist the military junta that deposed their democratically elected government in February and has since killed more than 1000 civilians. Government limits on branch and ATM withdrawals were implemented and in late August the government closed numerous bank branches, under the pretence of COVID-19 safety.  To enter open branches customers had to line up for tokens that later emerged for sale on Facebook. Informal bank account markets also evolved online where people could sell their bank account access data in exchange for physical cash at commission rates of 7-15%.  Even retailers sitting on cash revenue began offering money exchange services rather than try to bank their company takings.

The Taliban inherits a central bank with depleted USD and local currency reserves
(Photo: Elmer Laahne/johan10/Adobe Stock)

Considering the scramble for cash you may be surprised to learn that both Myanmar and Afghanistan had, until recently, digital payment systems. Their provision of mobile money led financial inclusion proponents to suggest that both countries could ‘leap-frog’ traditional banking infrastructure. But the unrest immediately ended this dream and demonstrated the fragility of fintech when government institutions fail. Mobile money agents continued to operate but needed to increase fees to 10 - 12% to compensate for the difficulty of obtaining cash for withdrawals. Myanmar mobile money companies, such as Wave Money, were left desperately trying to provide cash to their agents to stop them charging egregious fees to their 1.3 million clients.

Why not print more cash? The Myanmar junta tried to until the German company supplying their ink and materials for printing, Giesecke & Devrient, suspended their deliveries citing it as “a reaction to the ongoing violent clashes between the military and the civilian population”. This further compounded the sense of panic and desperation for cash and left the junta pleading with other foreign banknote companies, so far to no end.

Myanmar has smartphone penetration of over 80%, a rate comparable to many European countries (Photo: Sasin/Adobe Stock)

So, what happens when people give up on cash? Well cryptocurrency has always been viewed by its proponents as the game changer for such crisis situations. Cuba, for instance, has recently seen the growth and legalisation of crypto currency to facilitate remittances, overcome US sanctions, and prevent inflation.  But the recent legalisation of cryptocurrency in Cuba may not mainstream its use due to unreliable internet access and geo-blocking by crypto exchanges.  

The recent adoption by El Salvador of bitcoin as legal tender may provide one way by which cash shortages may later be avoided. If many Salvadorans keep their funds in bitcoin, they could continue to trade and will not lose their life savings in the case of political upheaval. Whether this happens may depend on how much Salvadorans are willing to put into the volatile cryptocurrency. Additionally, if the Salvadoran government felt threatened, they could still hit the internet kill switch preventing users from trading bitcoin. The security of the government backed Chivo cryptowallet also remains untested. 

Overcoming the internet kill switch is tough and would require satellite internet technology like that offered by Elon Musk’s Starlink (although Starlink is currently not available in countries such as Cuba, Myanmar or Afghanistan). Does this mean the combination of satellite internet, solar generated electricity, and cryptocurrency (along with the knowledge of citizens on how to use all of them) will free people from relying on cash? Well, the missing ingredient that no technology can provide is trust. With such complex technology it may be difficult to have citizens willing to depend on cryptocurrency to protect their life savings. Another barrier may be an innate behavioural instinct to grab something physical and dependable during a crisis (like the hoarding of toilet paper in many countries during COVID-19 lockdowns). Until citizens in an institutional vacuum are willing to trust complex, intangible, hi-tech solutions to both transact and protect their wealth, it will remain all about cash in the end.

“It is easy for women to ask!”: Gender and digital finance in Kenya

NEW article by Sibel Kusimba in Economic Anthropology 5(2). Special Issue Theme: Finance, 10 May 2018 for her IMTFI-funded project, Group versus Individual Strategies: Dynamic Social Networks of Mobile Money among Unbanked Women in Western Kenya.

Abstract
This article examines the role of gender in the use of digital finance in Kenya, including the well‐known case of mobile money but also the emerging use of smartphone apps, payment tills, digital credit services, and digital fund‐raising computer programs. Development professionals have explicitly feminist goals in bringing digital finance to women in the Global South. In several recent reports, they outline the belief that gender norms are a barrier to women's use of finance. They hope digital finance will bring women agency and control over money and consequently shift restrictive gender norms. This article offers a critique of these assumptions based on ethnographic conversations, a diary exercise, and network self‐portraiture conducted in Kenya in 2016 among both rural farmers and urbanites. Adopting a distributed agency perspective, the ethnographic study demonstrates that Kenyan women and men use digital finance not to seek individual control of their money but to produce themselves as connected and trustworthy members of financial groups and collectivities. Gender norms may not hinder women from finance but rather enhance and deepen women's and men's financial relationships and bring women success in amassing funds.

Fig. 1: Consolata, headmistress of a school in rural Western Kenya, draws her social/financial networks.

Article
During a March 24, 2017, webinar on women and financial inclusion, experts from Innovations for Poverty Action (IPA) expressed disillusionment with microcredit as a poverty alleviation tool. Globally, microfinance has reached more than 200 million borrowers, two‐thirds of them women (Garikipati et al. 2017), but the hosts explained that microloans were not leading to “higher incomes or more product investment” (Innovations for Poverty Action webinar, March 24, 2017; see also Banerjee et al. 2015; Roodman 2011). The webinar hosts suggested a new approach: digital finance delivered via mobile phones. They proposed that digital finance could bring women empowerment, control, and agency and lead to positive social change: “We want to create financial tools that will create agency and control for women and shift gender norms.”1

Through reports, studies, and research evidence, development professionals are articulating a new project to bring digital finance to women in the Global South—especially poor and rural unbanked women. They are using data sets of bank account ownership and studies of household economics, including women's bargaining power with husbands (Agarwal 1997), to claim that social and gender norms are barriers to women's agency with money (CGAP 2017a, 2017b). Development thinkers hope that digital finance on mobile phones will “rapidly connect women to digital financial services that enable them to more easily store, transfer, secure and build value digitally, beyond money payment transfers” and that digital finance will bring “empowerment and equitable decision‐making in households” (Gates Foundation 2015, 2; see also Innovations for Poverty Action 2017).

How fitting are development understandings around finance, technology, and gender for Kenyan women? This article defines finance as relations between people, money, and time that are “grounded in practices of everyday life” (van der Zwan 2014, 102). In Kenya, financialization—as I define it, the increasing use of everyday finance—often relies on digital channels and has emerged as a meld of formal (provider‐designed) and informal (user‐innovated) sources. Formal products designed for the low‐income and unbanked include digital credit via mobile phones. Informal user innovations with apps and services are equally if not more common, such as WhatsApp fund‐raising and money pooling and circulation through M‐Pesa, a money transfer service.

In this article, I describe the cultural practices and meanings around gender that influence people's engagement with digital finance. I question the idea that the value of digital finance for Kenyan women is resistance to social and gender norms. My critique centers on the idea of agency. For the development professionals of the IPA webinar, agency is a quality of individuals. It is a noun, “something one has” or does not have (Gero 2000, 34), and from a liberal feminist perspective, it implies autonomy, emancipation, and resistance to social norms (Mahmood 2001). Rather, I suggest that the agency of Kenyan women is profitably viewed as a way of acting and being in particular settings—as “the condition and constraints under which we pursue our goals” (Enfield 2017, 3). This broader view draws attention to agency as joint action in groups, as distributed through relationships between people and material systems (Burrell 2016; Enfield 2017; Pettit and Schweikard 2006).

To access the full article - go to original post:  https://anthrosource.onlinelibrary.wiley.com/doi/abs/10.1002/sea2.12121 or "Recent Publications" on Professor Sibel Kusimba's website: https://sibelkusimba.com/publications/

(Dis)Trust in Mobile Money in Ghana: Yesterday, Today, and Tomorrow

By IMTFI Fellow Vivian Dzokoto, Virginia Commonwealth University and John Kojo Aggrey, Louisiana State University

Yesterday: The Struggle to Gain a Foothold

In the early days of our IMTFI-funded fieldwork on Mobile Money (MM) in Ghana, MTN Mobile Money ads and billboards were out there. Yet, many interviewees either hadn't heard of MM at all; confused it with the e-zwich platform (a biometric smart card); or just didn't feel comfortable about the notion of converting physical cash to electronic value and keeping it on a mobile wallet on a cell phone. What was the discomfort about? For some, the apprehension concerned the non-materiality of the value. If one rolled up one’s cash and kept it in a bra, tied it in the corner of a cloth, or kept it in a repurposed plastic or tin container, one knew where it was at all times, and could access it easily. Intangible e-value was just too…. Intangible. For others, the concerns varied from utter disbelief that such technology could exist (it just seemed too good to be true), to suspicion that politicians must somehow be involved (and therefore it was something to be avoided). Additionally, interviewees from middle to upper income brackets thought that the technology would be hampered by the unreliability of the phone network (with statements like “right now, you need a backup for the backup”). Would the e-value get lost if the transaction was interrupted due to a spotty network? The variety of reasons indicated curiosity and a degree of skepticism about how the technology worked. It just didn’t seem trustworthy from the get go.  But that was in 2009. And 2010. And 2011. And 2012.

Money in the Cultural Context

It’s important to think about the context in which this technology was being launched and relentlessly promoted due to its success in Kenya. Traditional Ghanaian culture puts value on the form in which some payments are made. Apology pacifications may require a sheep, for example, and wedding bride prices come in the form of cash AND a variety of other goods. Yet nowhere has the form of money been more of an issue in contemporary Ghana than in the introduction of money technologies such as Mobile Money (MM). In a largely cash-driven society such as Ghana, getting people to switch from cash to cash-lite means of payments has been an ultra-marathon. While a host of obstacles such as poor infrastructure have been implicated in the failures of different card-based payment options in the early 2000s, trust and the lack thereof has played an important role in Ghanaian adoption rates of money technologies- in particular cell-phone based ones. At the onset, trust was hard to come by.

Today: The Wobbly Foothold

Fast forward a few years and Mobile Money has taken a foothold in the Ghanaian marketplace.  People recognized the convenience of the technology that enabled them to change local currency into electronic value, load it onto an electronic wallet, and use for spending, bill payment, savings, insurance, and remittances. Due to the doggedness of  Mobile Network Operators (MNOs), banking partners, agent networks, regulators and other stakeholders, trust in and use of Mobile Money grew, and grew, and grew some more, ….and then, sadly, ran into a brick wall. Criminals figured out how to exploit Mobile Money, and it was estimated that 50% of customers had been targeted. The criminal network included people from the inside. The modus operandi of the insiders was found to include (i) accessing the MM database of merchants without authorization and altering customer information; (ii) resetting the phone number assigned to the MM account, and then granting access to the new number to change the PIN  and (iii) acquisition of new SIM cards using a false identity, register for MM services. These provided cash outs access to customer and merchant accounts.

Additionally, some merchants were found to have overcharged for their services. Scammers have also been involved in defrauding MM subscribers using several tactics. First, the you-have-won-send-money-to-claim-your-prize scam, a financial crime also perpetrated via email. Once the subscriber sends the money, it is cashed out and the SIM card destroyed. Second, the problem-when-there-is-no-problem scam in which MM subscribers are informed that an amount of money transferred to them has been wrongfully sent as airtime or that there is a general problem with their account. Under the guise of “fixing the problem”, the “customer service” person on the phone takes the subscriber through steps which result in a money transfers to a scammer’s phone or code generation for an ATM withdrawal. Third is the related please-send-back-the-money-sent-to-you-by-mistake scam in which subscribers receive a call about an erroneous transfer meant for someone else. The subscribers motivated to do the right thing end up sending money from their account to these fraudsters. The fraudsters are getting craftier by the day, and so in a new development, subscribers simply receive a notification on their phone that an amount of money has been withdrawn from the MM account. These are withdrawals not authorized or carried out by the subscriber.


Deconstructing Mobile Money Crimes: Technology or Humans?

An MNO representative noted that problematic fraud was not due to a breach in MM platform itself, but due to nefarious human activity. The MNO staff involved were able to do so due to their access to the MM technology by virtue of the work they do with the telcos, and not because they are able to bypass the security systems in place. The fraudsters on their part, used their knowledge of the use of the MM technology to outwit people who are less versed in it and then defraud them.

This framing of the problem is consistent with perspectives about the misappropriation of tools in general and technology in particular for criminal purposes. Cars are not considered bad because some users chose to drive drunk or drag race on public streets, cryptocurrencies are not generally considered evil because bitcoin became the currency of choice in Silk Road and other dark websites, and the internet has not been dispensed with because websites are routinely (it seems) hacked. The question is, will Ghanaians (in a market where mobile money has entered but not dominated the payment space) care about the difference, or will they throw out the baby with the bathwater? Will consumers care that as one MNO representative put it, it’s about the "gullible consumer" and not a “system vulnerability issue”?

Elsewhere in the world, challenges to trust in particular systems and platforms have resulted in shock, but not necessarily in long-term decreases in their patronage. For example, people did not stop investing in the stock market because of Bernie Madoff or after the 2008 financial crisis. People across the world have not stopped using email despite threats to internet security, and it does not appear that people have stopped using Wi-Fi since the recent announcement by a Belgian researcher that Wi-Fi networks using the WPA2 protocol are vulnerable to hacking. However, each of these threats to consumer confidence have occurred in the context of products and platforms that had already successfully penetrated the market - not ones that are in a crucial growth phase as seems to be the case in Ghana. So the question remains: to what extent is trust in Mobile Money in Ghana impacted, and how will this affect subscription, active use, and growth of the user base?

Tomorrow: Finding its feet again, or will the other shoe drop?

Trust in Mobile Money in Ghana and its future patronage will be contingent upon a variety of factors including perceptions of how well the current investigations are going, perceptions of product safety, and perception of future customer vulnerability vis-à -vis the perceived benefits of having a mobile phone-based payment medium.

On the one hand, the fact that MNOs eventually went public to discuss the issue is encouraging, and a testament to their commitment to dealing with the problem. Hopefully it will warrant a few trust points. These “trust points” may further soar with MTN’s publicized sanctioning of a whopping 3,000 members of its agent network in a bid to curb their fraudulent activities, and release of information that contrasted targeted subscribers (up to 50%) with those successfully defrauded (less than 0.1%). Other concerted efforts to curtail the problem that have been discussed in recent weeks include a re-registration of SIM cards, changes in procedures related to agent activities to enhance privacy, industry-wide agent blacklisting, better and more accessible agent identification by consumers, and changes to features in the user interface to provide the consumer with additional control over cash outs, and text filtering to block out identified scam messages. In addition, MM subscribers have been reminded via text, automated messages and via the media to protect their PINs, and change them regularly. In other words, there have been movements at the levels of regulators, MNOs, and the consumer (education efforts) to minimize the likelihood of recurrence of such crimes. Will these corrections and structures boost or repair consumer confidence?

On the other hand, several challenges have been identified in the execution of investigations of crimes involving Mobile Money. In addition to the fact that some scammers have covered their tracks well enough to avoid being identified, there have been some reports of less-than-ideal cooperation from some MNOs. For example, representatives of the Ghana Police Service “expressed worry that managers of some mobile telecom operators do not give the necessary information to the police concerning suspects in mobile money fraud who work in the telcos”.  Additionally, some people who crossed paths with fraudsters are calling for a boycott of specific MNOs altogether in order to regain a sense of agency and the recognition that consumers need to protect themselves. Such calls emanate from the recognition that that there is limited recourse for a defrauded consumer since there is no guarantee of a refund from the MNOs.

So what will happen to Mobile Money in Ghana? Time - and the consumer – will tell. No matter the outcome, it will undoubtedly revolve around consumer trust.

Read their first blogpost, "Yet Another Cashlite Stumbling Block: 'Alarming' Fraud and Mobile Money Uptake in Ghana"

How Nigerian ATM fraud victims are swindled

REUTERS/Akintunde Akinleye

IMTFI Fellow Oludayo Tade, University of Ibadan in The Conversation

It has been three years since the Central Bank of Nigeria introduced the Cashless Nigeria Policy. Its aim was to encourage the use of electronic systems for all monetary transactions.

The policy has yielded benefits: it makes many transactions simpler and safer for more people. But there has been an increase in fraud in the banking and payment systems. These crimes are carried out using the information and communications technology that has flourished in Nigeria since the early 2000s. A 2013 report by the Nigerian Deposit Insurance Corporation identified 14 types of electronic fraud (e-fraud). Automated teller machine (ATM) fraud was in prime position. It accounted for just under 10% of the total value of funds lost to e-fraud and 46.3% of the reported number of cases. The agency’s 2015 report points to an increase in the incidence of ATM fraud in Nigeria.

Despite the apparent importance of e-fraud, little scholarly attention has been paid to understanding how it affects the functioning of the financial system and its impact on victims. That’s why my colleagues and I carried out a study to examine the experiences of ATM fraud victims in south-west Nigeria. We focused on what made a person more likely to be a victim and on the fraudsters’ tactics.

Study results

We found that a number of factors predisposed people to being victims of fraud. These include illiteracy, health problems and issues of vulnerability.
An elderly illiterate man who was interviewed said:

I was given an ATM card and nobody told me how to use it. Outside the bank I gave it to a young man at the ATM to help me withdraw cash. He did it and returned my card to me. After a few days I noticed money had left my account, which I promptly reported to my bank. At the bank I was told that the young man had swapped my card.

Our study also showed that close family members sometimes exploit people’s trust to defraud them. One middle-aged man gave his son his ATM card to draw N5,000 (USD $31.25) ahead of returning to school. He later discovered that his son had instead drawn N10,000 (USD $62.50). “If my son could do that to me while I was trying to help him, who can one trust?” he lamented.

When people are ill, they can be vulnerable to ATM fraud. They depend on others because they can’t get around. A “trusted” person may take advantage.

The story of a young man interviewed during our study helps illustrate this. He was ill and gave his ATM card to a friend to help him buy medication. He was later “shocked” to discover that his friend had drawn an extra N70,000 (USD $237.50) from his account.

The coercion factor

Of course, friends and relatives are not to blame for all ATM frauds. Some occur through coercion, particularly physical attacks and armed robbery at ATMs.

One young woman told us:

I wanted to make a withdrawal on a Sunday evening. The ATM on my street was not working so I had to look for another ATM a few streets away. Unfortunately I was robbed by an armed gang. They made me insert my ATM card to confirm the PIN number and balance. They went away with my ATM card and PIN. I couldn’t do anything until Monday, by which time my account had been drained of N200,000 (USD $1,250). They took my phone so I could not even alert the bank and block withdrawals.

The success of online fraud depends on offenders choosing easy victims.

Stemming the tide

Reducing ATM fraud depends on making people less vulnerable.

For example, anti-fraud education campaigns must use indigenous languages and consider that some bank customers can’t read. Banks must show their customers how their cards work and how to get help when in trouble. Security officers who are not bank staff should not be allowed to deal with customers.

ATM users should be taught to change their passwords sometimes. They must also be cautious about when and where they withdraw money to reduce the risk of attacks.


This article was originally published on The Conversation by Oludayo Tade, Lecturer of Criminology, Victimology, Deviance and Social Problems, University of Ibadan. 
Read the original article.

Read his recently published article with Oluwatosin Adeniyi in Payments Strategy & Systems, "Automated teller machine fraud in south-west Nigeria: Victim typologies, victimisation strategies and fraud prevention"

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

Trust and Money: It's Complicated - New IMTFI Synthesis

IN ____ WE TRUST? WHAT IS TRUST?

In economic matters, trust is often invoked with little explanation. Trust is also used to describe a whole range of experiences and expectations, especially in the mobile money and financial inclusion space. In this new synthesis, featuring IMTFI projects in Nigeria, Kenya, Ghana, India, Mexico and the Philippines, we explore the “how” of trust. Through these projects and across four broad categories – Channels, Intermediaries, Accounting, and the Source – we explore how trust is made, accounted for, built over time, won and also lost. Ultimately, one of the key takeaways from IMTFI researchers’ work on the ground is that trust in new money technology grows when it can be one among many reliable channels for storing and transferring value.

Read "Trust and Money: It's Complicated" synthesis here.

Using the ATM Debit Card to Build Trust and Savings: A Study through Mexico's Oportunidades

by Enrique Seira, from the study "Paying Conditional Cash Transfer Programs in Bank Accounts"

Trust is an essential element of economic transactions. This is especially true for savings where transactions take the form of a promise to future returns. Unfortunately trust in financial institutions appears low across the world and even more so among the poor and less educated. In Mexico, for instance, 25 percent of those with primary school education admitted to having "no trust at all" in banks, while 18 percent of those with more than primary school education expressed some trust in the banks (Gallup World Values Survey). This is not entirely inexplicable, given that in the last 15 years, there have  probably been hundreds of frauds in Mexico which led poor savers to lose all the money they deposited in financial institutions. Researchers have also noted that poorer clients who received assistance in surmounting the initial costs of opening bank accounts often ended up using the account to merely withdraw money from transfers and let the account remain idle the rest of the time. Along with transaction costs, low trust frequently figures as the main reason cited by the poor for not using savings account. Overall, this state of affairs might help us to explain why there is little savings in formal accounts.

In our study we were interested in finding out whether ATM debit cards and mobile banking could potentially alleviate this problem since these technologies potentially lower the cost of monitoring movements in the account and simultaneously increase convenience and access to savings. Ideally, this could be tested using a randomized experiment where we award savings accounts with and without ATM cards randomly. Unfortunately, such a randomized experiment does not yet exist in the given context. Thus, in our study, we look at the effect of giving debit cards to the beneficiaries of a Mexican state conditional cash transfer program Progresa/Oportunidades (now Prospera). The beneficiaries had already received their transfer at a government development bank Bansefi but had not been given a debit/ATM debit card connected to the account. For the study, we have used account level information on more than 300,000 accounts some of which received an ATM debit cards in a staggered fashion.

                              Photo: Will Kay, Flicker, Creative Commons: http://bit.ly/1OVvdtK

At the beginning of the research, we were intrigued in part, by the stories of Oportunidades beneficiaries who complained about money disappearing from their account. We found that this was due to the substantial fees they were incurring by frequently checking their account balances. This was so particularly in the beginning when they did not have any trust in the banks and resorted to making sure that their money was there by checking their accounts several times in a single day. Since there was a transaction cost involved in the process, the beneficiaries lost a substantial amount of their funds in this way. We focused on the increase in the savings account of the group that had received the debit cards. For purposes of comparison, we also had a control group that had not received any debit cards as a part of the program. For analysis, we undertook a differences-in-differences empirical design to approximate the causal effect of receiving the card on savings in the account.

As mentioned in the beginning, we found that when they first got the debit card, customers checked their saving balance frequently, but the frequency of this checking declined over time. Most notably, beneficiaries with more than 6 months with the card checked 57 percent less frequently per bimester. This evidence strongly suggests that initial use of ATM debit cards to frequently check and monitor savings account helps to build up trust. Additionally, the increase in saving was gradual and coincided with the increase in directly elicited trust in the bank account and was not related to the learning curve for the debit card use. We found that in the groups using the debit cards, the savings increased dramatically, almost tripling in a span of 2 years after receiving the ATM card vis-à-vis the control group (without the ATM card). We noted that the increase in trust was contemporaneous with increases in savings amount in the bank account.

In addition, the use of a consumption-income survey showed that the increase in savings in the account comes from new savings and not just from savings shifting. We found that although income did not change, consumption decreased after getting the ATM card. One interpretation of this finding is that the account allows for some commitment to saving and avoidance of "temptation goods" like high sugar foods that would otherwise be consumed. In our final report we lay out some alternative explanations such as mechanical savings where saving increases related to more frequent but lower amount withdrawals, and differential changes due to changes in the amount of the Oportunidades transfer. 

All in all these findings indicate good news. Trust and how to increase trust has not received enough attention in the academic literature. Our results suggest that an existing and simple technology – namely the debit card could increase trust, account use, and savings. Furthermore our findings show that in contexts such as the one examined in this study, the experiment can be easily scaled up. Increasingly, the world over, tens of millions of poor households in dozens of countries currently receive cash transfer programs, more and more into bank accounts. Given the possible benefits, providing ATM cards for these accounts appears to be a worthwhile measure worth ensuring.

The final report of the study on how the ATM card has an effect on trust, savings, and the use of formal savings accounts can be found here.

Following Mobile Money in Somaliland

A new research report by Gianluca Iazzolino with the Rift Valley Institute (RVI)

‘This study provides an interesting and unusual insight into the state-building process in Somaliland. Taking Zaad—our everyday companion here in Somaliland—Iazzolino explores the intricate nature of private and public sector relations. Vividly mapping the landscape of the mobile money transfer system, he identifies the importance of trust as its foundation, and the role that banking, financial institutions and technology have played in the making of Somaliland. This report is a recommended reading for policy makers and academics alike.’

-ABDI ZENEBE, IPCS, UNIVERSITY OF HARGEYSA, SOMALILAND




Zaad, Somaliland’s first mobile money platform, was launched in 2009 and has rapidly become a feature of a financial landscape hitherto dominated by Somali remittance companies. This report charts the distribution of mobile money across the financial landscape of Somaliland. It examines the way the Zaad service is reshaping livelihoods and business practices, as well as implications of its popularity for the relationship between state and non-state actors, and the effect this might have on Somaliland’s political and financial institutions. It argues that the narrative of the role that mobile systems can have in supporting financial inclusion runs the risk of obscuring complex political and economic dynamics, especially in the context of Somaliland’s state-building process. The study suggests that the popularity of Zaad is in part due to the specific context in which it operates as well as the business model and outreach strategy of its parent company Telesom. Fundamentally, in the absence of international banks, Zaad meets a widespread demand to help people cope with a volatile economic situation.

Download the full report at the Rift Valley Forum here.