Cash-22: Social Protection Not for the Unbanked?

Social policies around the world are shifting to account-based systems. Governments and corporations are using accounts to deliver a wider array of benefits. Between 1980 and 2004, the presence of defined contribution plans with public support increased from 10 to over 50 countries. But account strategies are also growing for the purposes of education, home ownership, health, and benefits directed at children.

Many of these account-based systems, however, are provided by employers and/or assume that persons have relationships with financial institutions, leaving out millions of low- and no-income people. This pattern is repeated in nearly every country.

Take, for example, the obviously frustrated account of Cape Town, South Africa resident who is desperately seeking to do right by her injured employee by helping him receive his unemployment benefits payments (from today’s Cape Times, via Charles Klingman’s awesome “unbanked listserv”):

“Siphendule Ndudane is our gardener. For five years we have contributed to unemployment insurance believing that he could access funds in the event of illness. Not so.In June, Siphendule was knocked off his bike, spent a month in hospital, and was put off work until November. We were told that unemployment benefits could be paid into my bank account because he does not have one. But for the past week, I have gone from one official to another who all sing the same song – without a valid bank account the UIF will not pay out. Siphendule cannot read or write, he lives in a community of RDP houses, there are no utility bills available and his ID book has been stolen. To open a bank account, we will have to get another ID document, which will take 10 weeks. He has just spent another week in hospital and is unable to work. If I pay him, it will disqualify him from getting benefits and if I don’t he will starve. It is inconceivable that the UIF does not recognise that 50% of South Africans use cash only because their circumstances make opening and using a bank account a formidable task and one which offers little benefit to them. So if you are making UIF payments and your employees do not have bank accounts, you might just as well flush the money down the toilet.”

And this in a country that has made great advances in financial access through its advent of the no-frills Msanzi account, innovations in branchless banking through Wizzit, and a financial sector charter aimed to encourage if not mandate financial inclusion.

In fact, the Center for Financial Services Innovation (CSFI) took a delegation of financial services experts (including out own Ellen Seidman) on an “innovation exchange” mission to South Africa just last year. By and large, the trip shored up a lot of excitement for banking products like the Msanzi account and shown a spotlight on the need to figure out Know Your Customer regulations that makes, for some, opening a bank account a quite tedious process. Yet, even with all the innovation, the relative cost of being banked in South Africa (high fees to open, use and maintain an account as well as lack of access) is high. Coupled that fact with the historic distrust of or exclusion from banks among the poor and what results is large swath of the population (about 40%) without any relationship with a bank. Many have no financial identity at all.

Siphundule’s story, and the millions of others like it around the world, reveals to me that, increasingly, the lack of a financial identity (a bank account) will result is even deeper social and economic exclusion. The institutions put in place to provide economic opportunity and social protection shouldn’t be leaving behind those who need both so desperately.