Authors:

Lena Sophia Gronbach (University of Cape Town)

Paper short abstract:

This paper explores the growing role of private financial companies in the payment of social cash transfers in South Africa as part of a broader financial inclusion agenda. It illustrates the controversial impact of the increasing digitization and financialization of social assistance payments.

Paper long abstract:

In recent years, financial inclusion has emerged as a core concept in the international development discourse and the development of new financial technologies has facilitated the extension of financial services to the 'bottom of the pyramid'. In this context, the use of social cash transfers as a mechanism for the expansion of formal financial channels has gained growing popularity among policymakers. According to the World Bank, digitizing SCTs will create a 'triple-win' scenario for the state, financial companies and the poor alike: It will improve payment efficiency, open up new markets for financial corporations, and bring the benefits of FI to the poor. Consequently, private financial actors have started to play an important role in the delivery of social assistance, as well as the promotion of FI more broadly. This has led to significant changes in the power relations between the different players involved, with far-reaching - and often controversial - consequences for the recipients of SCTs. This paper describes and analyses the case of South Africa where the payment function of the country's large SCT programme was outsourced to a private financial company in 2012. This resulted in widespread debit deductions for - often unwanted - financial services from beneficiaries' accounts, accompanied by rising levels of personal debt and a power struggle between the state and its contractor. The South African case vividly illustrates the dangers of the use of SCTs to promote FI and holds valuable lessons for other developing countries, many of which have adopted similar strategies.