Negotiating and Converting Money in Zimbabwe’s Multicurrency Environment

 By IMTFI Fellows Mahiya I.T and Gukurume S.

Hyperinflation

In 2009, under the banner of 'dollarization', Zimbabwe adopted a multicurrency system after experiencing protracted socio-economic and political quagmires and a world record hyperinflation exceeding a crescendo of 250 million percent in 2008. Under this multicurrency system, Zimbabwe adopted a basket of foreign currencies as official currencies. These included the United States Dollar, the South African Rand, the Botswana Pula, the British Pound and the Euro (and later on the Chinese Yuan) – all of which operated simultaneously in the economy. The beginnings of this multicurrency system coincided closely with the adoption and growth of mobile money services. This blog highlights findings from the 12-month long ethnographic research project that examined the socio-economic dynamics of balancing and negotiating the uses of multiple currencies in the wake of mobile money adoption. To gain a nuanced comprehension of the complex rituals involved in these currency conversions, data collection was done using qualitative ethnographic techniques such as participant observation and in-depth interviews with mobile money users and non-users, and key informants. Large and diversified sample from two communities – rural Chivi and urban Harare – allowed us to compare and holistically capture the complexities of mobile money politics as well as the temporalities of foreign currency conversions.

Multi-currency transactions prior to "dollarization" and the advent of mobile money services

In Chivi, a semi-arid rural community located in the southern part of Zimbabwe, most young men and women of working age migrate to close-by South Africa as legal and illegal migrant laborer or cross-border traders. Considerable remittance inflows from these migrants (locally called majonijoni) has led to a high circulation and usage of the South African rand in Chivi that predates the official adoption of the multicurrency system. 

Harare, on the other hand, being the capital, is the hub of economic transactions and where multiple currencies had been circulating illegally much prior to official dollarization. During the hyperinflationary era, the Roadport section of Harare was even referred to as the Zimbabwean “World Bank” due to the high prevalence of illicit transactions in foreign currencies that found their way in through informal remittance channels of the burgeoning Zimbabwean Diaspora. The crippling cash and liquidity crisis in the country, led mobile money transactions to arguably become the lifeblood of business transactions in Harare and Chivi. And several telecommunication companies providing mobile money services such as TextACash and NettCash (now rebranded as GetCash) have infiltrated the market and Econet’s EcoCash is the most widely used service in Zimbabwe. In Harare, where the government was actively encouraging cashless transactions, we found that many participants did not trust services provided by government controlled mobile operators such as Telecash and NetOne. As one of our respondents sarcastically asserted:

“…the government is about to close down due to bankruptcy, why would I buy a line owned by such a government… it will be a waste of money.”

Billboard for NettCash Mobile Money Service 

Social Capital, IDs and Trust in Mobile Money Transactions

Social capital and trust were important factors in transactions involving currency conversions especially for the rural people of Chivi who were using the US dollar for the first time and required social networks to i) confirm the currency was not counterfeit, ii) to circumvent regulations requiring identity verification based on national ID numbers, iii) and for the mobile phone to be physically present at the point of transaction. Due to convivial relations and social solidarity, mobile money agents often transacted without IDs and some clients even shared their secret pin number with the agents. Tino, a mobile money agent in Chivi explained:

…that young boy is my client’s grandson whom she sends to cash out some money here. I don’t ask for the identification document because I know them by name and even the ID number and above all I trust them. I have a number of such clients who always perform their transactions with me without their IDs.

In Harare, however, it was almost impossible to cash-out money or transact without ID and agents tended to be very strict. This may be because cases of fraud, fake money and theft were not uncommon in the big city. However, we noted that even though social solidarity and social capital were more pronounced in Chivi, villagers sometimes complained of being tricked and cheated due to their mobile money and foreign currency illiteracy.

Accepting and Rejecting Currencies

We observed that, while in Chivi the South African rand was widely accepted for everyday transactions, in Harare almost all retail shops and transport operators were reluctant to accept the rand. During our fieldwork, the value of the rand was unstable and volatile against the widely used US dollar, making it very precarious for businesses in Harare to transact in the rand. One of our participants in Harare, Evans, whose parents worked in South Africa, said:

My parents send me my school fees in rands through ‘EcoCash Diaspora’ but I have to convert it into dollars because no one is accepting rands these days even if you want to pay a taxi, buy tomatoes, groceries let alone paying school fees. I don’t know it just started recently there is nothing I can do.

EcoCash Client in Chivi

In sharp contrast, most businesses in Chivi including mobile money agents accepted the rand. This could be attributed to the large volume of cross border trade with South Africa. Most business operators in Chivi bought their products in South Africa and a large number of traders from Chivi commuted to South Africa on a weekly basis to buy goods for resale back in the community. In fact, Chivi closely mirrored its South African diaspora - most goods and clothes sold in the area were bought in Musina, a small border town in South Africa. One of our participants Mr Jonasi, a prominent businessman at Chivi’s growth point business centre who owns a grocery shop and a clothing shop, is also an EcoCash mobile money agent. We asked him which currency he prefers:

Of course the US dollar is more valuable compared to the rand but here we are not rigid. In all my businesses I accept both the rand and US dollar. You will go out of business if you reject the rand like they do in Harare. People here get most of their money in rands so say if you receive rands from South Africa and you want dollars to pay fees then I will convert it for you on the exchange rate of that day. I convert rands to dollars here everyday and the good thing is I buy my products in Musina in rands so I don’t make any loss by transacting in rands. 

Exchange Rate Fluidity, Conflicts and Calculative Risks

Exchange Rates in Chivi

Interestingly, we also observed informality and fluidity in the exchange rates especially in Chivi where people relied on information obtained from Zimbabwe-South Africa border. The exchange rate was not static but changed over time, varied from place to place and was often negotiated, which at times led to conflict and serious quarrels. We observed long and protracted discussions lasting ten to twenty minutes before currency conversions were decided upon and completed. For instance, Keresina, a female mobile money agent at Chivi turn-off along the Masvingo-Beit bridge highway got most of her clients from commuters and villagers. She said:

I had a nasty experience with one woman in the village, she thought I had cheated her because her husband had send her some US dollars through EcoCash but she wanted to buy grocery in Musina South Africa so I converted her dollars into rands. When she got to the border she was told a different exchange rate but you know these rates differ from place to place. So when she came back she confronted me and demanded more money - we ended up at the police station. From that day I just accept dollars only and I don’t convert unless it’s a person I know and we have agreed.

In Harare, the few people who accepted the rand and the Botswana Pula had to take calculative risks. First thing every morning, they gathered information on the current value of the rand from their social networks, which determined whether they would accept the rand on that particular day. We also observed that the prevailing cash shortages in the country almost paralyzed cash-out mobile money transactions as agents struggled to provide clients with cash. Driven by the crippling cash crisis, mobile money operators and foreign currency dealers also traded the dollar against itself. One dollar in cash from black market dealers and mobile money agents could be charged a premium and cost $1.07. Moreover, getting cash from a mobile operator was now being regarded as a favor and ‘appreciative’ clients would give small amounts of money (one or two dollars) to the agent for giving them cash. It became the norm for agents to ‘reserve’ cash for these clients. Some clients would even leave their phones and access pin codes with agents so that once cash was available, the agent could cash out on their behalf. This was in part fueled by banks imposing a maximum withdrawal of $500 per week due to the biting liquidity crunch. Other financial practices such as MMM Global have emerged where participants invest and donat money, particularly through EcoCash, and earned 30% interest, that some have framed as Ponzi schemes.

The Zimbabwean monetary ecosystem continues to transform on a daily basis. The government intends to introduce a surrogate local currency called ‘Bond Notes’ allegedly equivalent to the US dollar. This will undoubtedly influence and add new dimensions to mobile money adoption and currency conversions and in effect provide fertile ground for future investigation and research.

Read more in Mahiya and Gukurume's Final Report

Intermediaries, Cash Economies, and Technological Change in Myanmar and India (Part Two)

By IMTFI Researchers Janaki Srinivasan | IIIT, Bangalore, India and Elisa Oreglia | SOAS, University of London, UK

In our previous blog post, we described why we mapped how people borrow and send money around before and/or outside the formal financial sector. Our goal was to understand the value that intermediaries bring to financial transactions in Kerala (India) and Shan state (Myanmar). This led us to unearth a vibrant eco-system of intermediaries, who offer a variety of services and are often in competition with each other – a very different picture from the stereotypical idea that a lack of formal financial services is the same as a lack of financial services. The arrival of mobile money and mobile banking takes place in the context of an already crowded market of competitors. Clients have more choice – and digital financial service providers have to demonstrate their value relative to these existing ways of moving money.

The relatively newly established bank accounts for lower income sections of the population in Kerala are largely restricted to the depositing/transfer of money from the state under public schemes or subsidies. In Shan, state bank accounts are specifically targeted at people with some savings or traders. In both places, therefore, the introduction of mobile money services merely adds to the range of formal financial channels. People are aware of and are even beginning to use these channels, some to greater and others to lesser extents.

In Shan state, traders with a significant volume of business are opening multiple bank accounts to take advantage of free intra-bank money transfer, and thus be able to send money to clients for free regardless of where their clients have their bank account. Despite the digital banking applications, however, much of the work of signing up clients, helping them with deposits, transfers, and other operations still happened face-to-face. Banks would send their young marketing people around town to explain their services to potential clients, to tell them who else was already signed up and who was in the bank, thus allowing the client to establish a sort of trust by proxy: did they know the director of the branch? Any of the employees? Was any person they trusted already a client? This trust “check-list” was followed by regular, in-person visits to the bank even when the client did use mobile banking.

The increase of formal financial services has therefore resulted in an increase of formal financial intermediaries (regulators, banks, local telco operators in almost all cases) and the persistence of ‘old’ intermediaries, who still create value for their clients by moving around and lending cash.

Consequently, our second question in our fieldwork was about the different kinds of value that human intermediaries create. We have identified five such areas where the involvement of a human intermediary appears valuable enough to clients that they choose that route over using unmediated and/or digital modes of conducting financial transactions

1. Negotiating time
The intermediaries we identified were able to offer or move money at short notice, which was important in the largely agrarian communities we focused on. Economic transactions such as the sale of crops or fish are not always “cash-in-hand.” Very often, the markets for these commodities are far away (even international) and payments for goods sold are routinely delayed. Small-scale farmers seldom have the wherewithal to wait for payment. Therefore, they may decide to sell their goods to locally known traders for less than they could get if they sold directly to the final buyer, just so they receive immediate, cash payments. These decisions on when to sell, or who to sell to, are often made in the context of the farmer’s life at a given moment and their life phase – are there children to send to school? Is the farmer older and care more about receiving some cash now, than more cash at a later time? If a fisherman returns after a few days at sea and wants to buy himself a drink, he might care more about selling the fish quickly through his usual intermediary at a known market in order to get the cash he needs for that drink, rather than waiting to find the best price and market. (In the absence of a guarantee that digital money will be accepted, the need for physical cash is great. Cash is universally accepted, including at small- time liquor stores, a point that came up repeatedly in conversations with interlocutors at Kerala beach). What intermediaries offer their clients is thus an opportunity to negotiate how quickly they can access useable money.

2. Negotiating Space
Negotiating space is a second area where intermediaries add value. Intermediaries traverse geographical distances, going between villages and markets frequently – e.g. buying a crop from farmers or fish from fishermen, then selling at a market or to a factory, etc. For farmers, spending time going to markets (even with decent roads) represents a greater loss in income than the lower price they receive after a trader takes his/her cut.

3. Situated Expertise
Most of the informal intermediaries we met were themselves members of the communities where they transacted and had long years of experience in their work. This led to their status as local experts, who knew financial transactions and networks in their domain. In Kerala, fishers viewed their auctioneers as having experience with and deep knowledge of the local fish economy and the process of auctioning. They could be relied on to gauge the prices of different varieties of fish, their seasonal availability and demand across geographies. Similarly, in Shan state, traders are seen as experts in, for example, the national tea markets – as those in the know about which tea to send where. As local and export markets are increasingly intertwined, traders play an essential role in promoting, marketing, and establishing new markets for local produce.

4. Negotiating Visibility
Those involved in financial transactions are often concerned about the visibility of these transactions for a variety of economic, social, and legal reasons. Different formal and informal intermediaries are able to monitor the circulation of money to different extents. Importantly, the implications of their monitoring are also different. Money moved through formal and trackable channels, be they bank accounts or mobile money wallets, can potentially be monitored by the state and tied back to those involved in the transaction. In fact, in the Indian case, the Reserve Bank of India itself envisions digital money as a way to get a better and more reliable sense of the volume (and location) of financial transactions taking place in the country. However, medium to large-scale actors in a market often do not find being tracked by a telco or the state an attractive proposition.

On the other hand, smaller-time, informal intermediaries might not have the wherewithal (nor often the motivation) to track and document the transactions of those they transact with in as comprehensive a way (though they do ‘keep track’ of their borrowers). Moreover, sellers might be in a position to negotiate with intermediaries with whom they have a long-term relationship over how much they are being tracked, or what aspects of the seller’s transactions intermediaries are keeping track of. Thus, informal intermediaries (and cash transactions) keep actors much less legible to the state, which these actors might often find valuable.

5. Social fit
This is a tricky category that is as much about societal perceptions of fit. For example, in Shan state, Burmese-Chinese dominate the tea trade and many other agricultural commodities (especially those exported to China) because of language but also family networks. It then becomes difficult for non-Chinese tea farmers or traders without such extensive networks or skills to enter this market. But there are more subtle differences, such as gender (as other IMTFI researchers have pointed out) or educational level, that make people feel out of place in certain spaces. An intermediary, then, is the person who is able to bridge these divides, or who opens up access to some of these networks, because of their social location.

Studying intermediaries in the specific environment where they operate shows a rich variety in the roles they play and the value they create for their clients. Together, these can explain why clients might choose to go through human intermediaries rather than use their mobile phones directly to conduct many of their financial transactions. 

For Part One of this blog post series, see here.

To read more about their IMTFI funded research see their project page here.

Link to their one-day workshop this Friday, November 11th at IIIT-Bangalore featuring industry experts from Eko, Microsoft Research India, McKinsey Digital Labs, the Gates Foundation, India and the National Payments Corporation of India.

Stay tuned for Oreglia and Srinivasan's final report!

Intermediaries, Cash Economies, and Technological Change in Myanmar and India (Part One)

By IMTFI Researchers Janaki Srinivasan | IIIT, Bangalore, India and Elisa Oreglia | SOAS, University of London, UK

M-pesa, perhaps the best known and most successful mobile money service in the Global South, credits its success in large part to the widespread network of human agents that has facilitated wide adoption. But why do human agents continue to be important, when one has a mobile phone and could easily do without them? As the GSMA blog post that inspired our research puts it, “So here’s the puzzle: why do so many consumers … continue to rely on agents to make mobile money transactions… when sending money directly from an account registered in their own name is cheaper, faster and more convenient?” (Mann & Mutemi, GSMA’s Mobile Money for the Unbanked, 2015)

We set out to explore this question, starting from the viewpoint that if financial intermediaries persist, they must add some kind of value to the transactions they are involved with. What is this value, then? To uncover the value that human intermediaries bring to such encounters, we studied the roles they perform in financial transactions. We then analyzed which of these roles were amenable to being taken over by mobile money and phones, which ones were viewed as strictly linked to humans and why. 

To answer these questions, we conducted multi-country field research on financial transactions in Kerala, southwest India (Srinivasan) and in Shan state, northeast Myanmar (Oreglia). In Kerala, our focus was on fishers and in Shan state, on agricultural communities. In order to understand “who” moves money in these contexts, we took a step back and started from “how” money moves. Separating the “how” from the “who” turned out to be the first step in recognizing that intermediaries do not merely perform a function that can be accomplished instead with the use of technology. Rather, they create value for their customers in complex ways that a functional description such as “moving money from place x to place y” does not fully capture.  

Our fieldwork thus started by asking people how they sent around and borrowed money In both sites, we observed that there are a multitude of intermediaries available to farmers, small traders, shop keepers, and others who needed to perform financial transactions, both within and from/to other countries. A large proportion of these intermediaries did not operate through officially sanctioned or formalized institutions, working instead through more informal channels and networks. Overall, the complex web of such intermediaries we identified at the two sites included the following types:

1. Hundi, a system to transfer money (like hawala) that is based on informal networks of agents in different areas of a country - or even across borders - who transfer and lend money very quickly. In the Burmese context, these are often also traders, so they can move money around while also moving merchandise. While hundi is in fact a financial tool, in Myanmar people also referred to the agents themselves as hundi. 

2. Transport companies are used to transfer money for remittances or for commerce all over Myanmar. People give money directly to drivers, or to the bus company, which might then keep the money – acting rather like a clearinghouse with correspondents all over the country.  

3. Family and friends were used to move money around, and to borrow from, at both our sites. These transactions were governed by complex rules on whether / when to charge interest and how much. 

4. Traders, who are typically very mobile and have somewhat more liquidity than their average client, can transport (and loan) money easily. Such traders were present at both our sites. At the Kerala site, for example, many fishers would be loaned the money to purchase their fishing craft and equipment by medium and larger traders of fish  in return for the right to auction the fishers’ catch and a percentage of their fish sales on every trip.

5. Specialized money lenders (called ‘blades’ in Kerala) lend money at very high interest rates for short periods of time to clients (in this case, small-scale female fish vendors) who need an unpredictable amount of cash every day to purchase their produce (here, fish) because of wide fluctuations in the volume, quality and variety of the daily supply.

These ‘informal’ intermediaries take on great significance in light of how formal channels of finance function in the sites we studied. In Myanmar, they played a crucial role during the years of the military dictatorship (1962-2011), when the formal financial sector was limited to urban areas and to a very small segment of the population, and when the majority of people did not have other alternatives to move money around. In India, and especially Kerala, formal financial services, including international money transfer services, have been relatively more accessible for a large proportion of the population. Even here, however, fishing communities have been outliers.

By mapping out the existing solutions to move and borrow money outside formal financial services, we see that there are many services available even in places without banks and mobile money. In some cases, these intermediaries are in competition with each other, which keeps service charges down. For example, in Shan state there were so many different options to send money around the country that it was often a free service – as opposed to mobile money, which always charged a service fee. However, it is not only cost considerations that explain the persistence and reliance on these intermediaries, as we will discuss in our next blog post.

Read Part Two of this blogpost series.

*Building on this IMTFI-funded research, Srinivasan and Oreglia are hosting a one-day workshop this Friday, November 11th at IIIT-Bangalore. CLICK HERE to register and view the program, and join the research discussion with expert panelists from Eko, Microsoft Research India, McKinsey Digital Labs, the Gates Foundation, India and the National Payments Corporation of India.


1 While cooperatives and banks also offered loans to fishers in Kerala, the number of loans they could offer was far exceeded by the demand for loans in sites such as the one I studied.

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