By Daivi Rodima-Taylor and Michael Kimani (November 2020) A Kiswahili version of this article is available here.
Self-help associations and savings groups have long played an integral role in many African communities. With mobile phones and mobile money now becoming a central feature in many people’s daily lives in East Africa, vigorous efforts are being made to harness new software apps and novel partnerships with the formal financial sector for the management of groups. New technologies are seen to offer better opportunities for digital recordkeeping and information sharing among group members over long distances. This is particularly relevant in the context of the COVID-19 pandemic. On the other hand, they can also lead to the growing formalization of groups, as well as data harvesting that may primarily benefit technology companies and formal financial institutions.
We argue that the interface of informal economic groups and digital technologies in Africa can reveal important changes that are taking place in people’s livelihoods and civic participation in the context of ongoing ‘datafication’ – the processes by which people’s everyday experiences are turned into quantifiable digital traces and governed by algorithms. This blog article explores the historical and cultural embeddedness of self-help or ‘informal’ economic groups in East Africa, and their increasing entanglement with digital technologies. We raise several emerging questions about the implications of this process for people’s livelihoods, their agency as individuals and informal groups, and their internal dynamics of organization and inclusion. The blog article is informed by field research in East Africa as well as scholarly and industry-based literature reviews.
Understanding the history and social context of economic groups
In many African communities, informal groups have long played an important role in mediating local livelihoods and channeling new resources in socially acceptable ways. For example, among the Kuria people of northeast Tanzania, such groups emerged in the distant past for sharing agricultural labor – with records dating back to the colonial era in the first half of the 20th century. While the rise of cash cropping and cooperative marketing societies in independence-era Tanzania made money more central in the economic lives of local villagers, the Kuria groups became important mediators of the new cash economy particularly after the structural adjustment reforms of the 1980s. Self-help groups proliferated in the Kuria areas – and similarly in many other regions of Tanzania – in the post-socialist period. Present-day Kuria groups perform agricultural as well as non-agricultural activities, such as carpentry, brick-making, tailoring and handicrafts. Group members may operate a joint business, store or group farming plot. The groups frequently incorporate rotating savings-credit arrangements and may have a small group fund for emergency assistance and productive investments.
In the past, Kuria groups were mobilized less regularly and operated as part of larger kin or descent networks. Contemporary Kuria work groups are more permanent, with clearly defined structures and by-laws. Despite their hierarchical organizational structure, consensus-oriented patterns still dominate in their decision-making. Similarly, the centrality of oral negotiations that took precedence over written documents has been observed in the self-governing of chama groups in Kenya.
The rise of such mutual help groups in Tanzania can be associated with the decline of formal sector employment and the demise of state agricultural cooperatives in the post-socialist era. A recent increase was also observed in contemporary chama groups in Kenya during the economic liberalization reforms of the 1990s. The groups fulfill multiple functions, including social and economic ones, and proliferate in many activity niches, from market traders to Uber drivers in the expanding gig economy. Some of the groups have emerged as important venues for mobilizing civic activism among low-income or informal workers such as matatu (minibus) or boda-boda (motorbike taxi) drivers. Frequently, people are members of more than one chama, with different activities and benefits.
Growing access to mobile phones and mobile internet in East Africa has spurred chama groups to increasingly rely on mobile money and digital communication options. This has also encouraged financial and telecom industries to explore digital technologies for group management and for connecting the groups to formal sector banking options. Digital group management software packages are being developed by mobile money and remittance companies for expanding last mile outreach, as well as by NGOs, MFIs, and the formal banking sector striving to extend their services among low-income communities.
Digitizing chama groups – comparative examples
In Kenya, several digital options have emerged for the management of mutual help groups. ChamaSoft is a software application that enables groups to manage their bookkeeping digitally. It automates member invoicing, keeps updated statements, reminds members to make payments and helps to track their group’s transaction history. EazzyChama is a web application owned by Equity Bank that automates bookkeeping, member invoicing and communication management for chama groups, providing them a digital platform for managing their internal loans. M-Chama Account is a group account of Kenya’s Post Office Savings Bank (Postbank), catering to registered and unregistered chama groups. Members can make deposits and request loans from the group account on their mobile phones. Deposits can be made also through Postbank branches and M-Pesa mobile money agents.
Digital products that attempt to replicate the structures of traditional savings groups are on the rise in other parts of Africa as well. Tigo Paare is a mobile group savings product in Ghana that emulates the functioning of groups known as paare, enabling the country’s livestock traders to pool their resources and coordinate shared utilities over vast distances. Group savings in the mobile wallets generate interest that is paid out to group members, and the platform helps to connect the groups with external sponsors and partners, including banks and NGOs.
Stokvel groups in South Africa trace their origin back to the 19th century. While traditional stokvels are savings pools that are accessed on a rotational basis, in today’s South Africa they increasingly serve for investment in the formal economy, and many groups have formal bank accounts. The National Association of Stokvels of South Africa makes efforts to coordinate and regulate the groups. The association currently represents over 800 000 Stokvels consisting of 11 million individuals who mobilize about R50 billion yearly. Several mobile apps have emerged that enable stokvels to manage their payments and communication among members. Stockfella manages around 2,000 stokvels with about 14,000 active members, has a license to hold money and operates as a credit provider, offering loans to qualifying groups. Another smartphone app, Franc, enables stokvel members to invest in money-markets and exchange-traded funds.
Challenges, potentials, knowledge gaps
Efforts to digitize the activities of mutual self-help groups have met significant challenges. Digitization efforts typically proceed from the perspective of the vested interests of technology companies, telecoms, banks, and other institutional actors. Often, little consideration is given to demand. At the same time, there is great diversity in terms of the activities and functions of chama groups, which span social as well as economic realms, and interweave group savings with various agricultural and non-agricultural business projects. As such, the templates offered by such software may not correspond to the existing needs of groups. The interface of apps with mobile money and cash-out options frequently remains inadequate. Many chama groups, particularly in rural areas, are still ‘unbanked’ and their members are less likely to use products tied to particular banking institutions – because of fees, lack of formal identification documents, and other reasons. Furthermore, digital group apps are often geared towards smartphones, while less-advanced ‘feature’ phones are still more common among low-income populations across the region. It should also be pointed out that the ideas of fintech companies and self-help groups about the goals, value and efficiency of group activities may fundamentally differ, with groups placing more importance on social purposes than purely financial indicators.
As apps capture the data generated by chamas, concerns about privacy may emerge. Protecting information about the transactions of group members from outsiders is often seen as paramount within such groups. Peer-based group activities can provide a safe space for disempowered women and offer them protection from extended family demands. That confidence about privacy may be eroded as transactional information increasingly becomes the domain of third parties, unknown to group participants. Recent interviews among Kenyan chama groups confirm that the group members are frequently unaware of potential third party access to their information through digital apps and the dangers that it poses for their privacy. They also have very little information about their rights to protect their personal data, and may lack means to exercise those rights.
The implications of the digital turn of chama groups for more equitable access to finance and empowered civic participation are still unclear. Chamas can significantly contribute to financial access among low-income populations. Offering an efficient alternative to formal sector savings and credit options, they are sometimes seen as a threat to existing financial institutions. So are the digital tools being developed simply a means for the formal financial sector coopt and control these groups?
Digital technologies can ease the flow of money and information, and aid group management in certain ways. At the same time, digitization may increasingly dis-embed groups from their social environment. Through mobile apps, groups can be formed between people who do not know each other, and the focus often shifts from joint savings and entrepreneurship to speculative investing. This may lead to denying access to those lacking sufficient collateral or income levels to participate in the new, formal-sector oriented activities. The COVID-19 pandemic poses additional challenges to the in-person interactions and consensus-seeking that are so central to the functioning of chama groups. Instead of empowerment, digital technologies may actually hinder the diversity and viability of groupsby offering one-size-fits-all solutions geared towards greater integration with the formal sector.
Emerging areas for further research
In order to understand the functioning, evolution and diversity of these voluntary associations, we must situate them within their regional histories and economic niches, as well as existing social networks, kin structures and gendered norms. More research is urgently needed into the- on-the-ground impacts of digital apps on people’s savings, credit and entrepreneurial behavior, as well as gender inequalities, civic rights and participation. Do these apps give voice to groups as independent actors in ongoing public conversations around fair labor and workers’ rights in the informal sector and a rapidly growing gig economy? Do they provide an empowering platform for political and civic participation? Do digital efforts allow space for African-based startups and grassroots initiatives – or do they simply help local formal financial actors and foreign technology companies to capitalize on African patterns of cooperation and mutuality? As the activities of the economic groups are broken down into quantifiable digital traces through software, who will have access to this data? Who will benefit from the new visibility of economic informality, and how can group members better govern their own data and protect their privacy? These and many other urgent questions demand answers, in order to evaluate the exploitative or emancipatory potential of these rapidly expanding initiatives that are bringing East African self-help groups into the digital realm.
Daivi Rodima-Taylor is one of the Datafication and Digital Rights Network coordinators and a researcher and lecturer at the African Studies Center of Boston University. Michael Kimani is Fintech Innovation and Strategy Consultant, East Africa, and Creator at Cryptobaraza.