Could we use digital remittances to upend the way we think about informal business support in Southern Africa – and let businesses themselves decide what they need?

An interview with Matthew MacDevette, a Frontier Tech Pioneer

By his own admission, Matthew MacDevette began his career in the investment space thinking that finance was “a little bit evil”. But it was while he began working on how to get private investors into risky and impactful sectors in Africa that he began to warm to the topic. “I was working for a consultancy, and I got more and more interested in the intersection between investment and social impact,” he tells me from his office in Johannesburg, “and I saw that finance was a big part of the development puzzle, no matter where you looked.”

His current role at the Foreign, Commonwealth & Development Office took him further in that direction, but he found that the field was split in strange ways. “On the one hand, you have all this work trying to figure out how to use investments to develop the private sector – grow businesses, create jobs, that sort of thing. And on the other hand, you have a lot of work on how to use grants to support people and communities. But the two don’t often speak to each other: the investment people are often wary of grants and the grants people are often wary of investments.” 

There was one topic, however, that seemed to cut across the divide: remittances. These are essentially money sent across borders, usually by one family member to support others back home. Recent work in that space, including by FCDO, both recognises the ‘grant-like’ social and community value remittances bring and tries to support the private remittance market to grow and innovate through digital payments channels, which have recently brought down the costs of sending money quite dramatically.  

It was while working on a COVID-19 income support fund for migrant families in Southern Africa that Matthew started to think about using remittances to support the private sector in a much more direct way. “Essentially, huge numbers of people in South Africa were sending money to family abroad or in the region and then suddenly, because of COVID-19, many weren't able to do that,” he tells me. “So the idea was to step in and compensate for that loss. A partner of ours, FinMark Trust, came up with it. Most of the remittances were used to just get by in a very difficult period – food and medical expenses featured a lot – but then we found that around 15% of recipients were also using the money to help their businesses.”

What if remittance payment channels could be used to help grow informal enterprises?

“Informal businesses are notoriously hard to find and reach,” he says, “but if a fair number of the people using remittances are also running businesses, that gives you a route in. A really good one, since digital remittances now reach into a huge number of difficult places that banks and other, more traditional channels don’t cover.”

With the help of FinMark Trust, the non-profit that ran the COVID-19 income support fund mentioned earlier, and Mukuru, an innovative financial services provider in Southern Africa offering digital remittances and also a partner in that same fund, this eventually became the idea for the Frontier Tech pilot Matthew is now running. 

“It’s three parts, really. First, we use existing data held by Mukuru to see whether we can identify those remittance users that are also informal business owners – respecting privacy at all times, of course. Second, we ask that group if they’re interested in a cash grant to support their businesses and to tell us a little about themselves and how they’ll use the money – hopefully via mobile phone. Last, we use Mukuru’s payment channels to pay the money directly to the businesses, and see what happens so we can do better next time.”

The exact size of the grants and the number of recipients is still being decided, but the idea is to go for between £250 and £500 each. It’s enough to make a difference to very small businesses and also reach a fair number of them with the existing budget. 

At its core, Matthew explains, this is less about one-off cash transfers and more about changing the way we think about informal business support in the development community. 

“Informal businesses are vital for people and communities left out of the formal system, but we don’t really know how to support them. The usual way is to design a very complicated programme with lots of research, ‘convening’, and consultants… But at the end of the day, you’re often left asking how much of the money actually went to helping the businesses themselves, rather than ‘building the ecosystem’ around them. I think that needs to change.”

Instead of endless analysis trying to understand exactly where and how to support informal businesses that few donors really understand anyway, why not leave it to the businesses themselves? That’s Matthew’s argument, anyway, and why the pilot places no conditions on the cash transfers themselves, only gathering basic information about the intended use for very broad targeting and for tracking impact later on. Not everyone is on board with the approach.

“There's this idea that it would be really foolish to provide money to these businesses to spend as they see fit,” Matthew says. “Like it’d be wasted somehow. And hey, maybe some of it will; that’s the nature of taking risks. But I don’t see how folks sitting thousands of miles away are in a better position to figure out what an informal business needs than the business itself.”

There will be challenges involved, of course, and many things need to work besides just the money.

“Look, finance is rarely enough – there are a whole bunch of other challenges these businesses face. Broken markets, poor infrastructure, low and expensive connectivity, you name it. But money can make a big difference, and if we do this again and again, using data and refining the initial means of targeting, we can get better and better at figuring out where it makes the biggest difference.”

That’s the goal, Matthew says: to move from a series of individual programmes supporting informal businesses to a more systematised set of products and services that improves over time.

“We don’t know exactly what it’ll look like right now,” he says, “but it’s probably more a delivery mechanism than a standalone piece of technology. You’d need automated technology, of course, so we can use the massive datasets already out there to really target where the money makes the most difference, but also processes and people to make sure it runs right and responsibly. A tech-enabled team or unit able to help anyone do informal enterprise support better and more affordably, maybe, rather than a piece of software.”

Whatever form it will take and whatever the outcome, Matthew points out, it’s worth trying to change the way we think about supporting informal and small businesses.

“This may fail completely, but that’s why it’s called a pilot! But even if it does, we’ll get to learn a lot about whether this sort of approach makes sense, and how to make it work next time. At some point, we need to find a way to put the people we’re trying to reach more in the driver’s seat. And this is one way to try and do that.”

If you’d like to dig in further…

👀 Follow this pilot’s journey on their pilot profile page (regularly updated)

📡 Read our multimedia story about Cycles and Cellphones in Zambia, where mobile money enabled a group of female dairy farmers to grow their businesses (long read)

🤑 Explore our learning journey on the Future of Money, exploring how fintech, cryptocurrencies and CBDCs will shape our world in 2030 (learning journey)