SADC migrants in South Africa remit approximately R16.6 billion home annually. These remittances constitute the financial lifeline of many families back home. However, without access to sufficient, or any legal identity, financial institutions are unable to provide migrants with access to these important financial services.
‘Providing legal identity for all by 2030’ has been identified as one of the goal targets of UN Sustainable Development Goal (SDG) 17. In line with this, there is increasing focus on the importance of legal identity within the global development community, with significant projects across the world currently running to work towards the achievement of this goal. Why has so much emphasis been placed on identity?
It’s easy to forget how reliant we are on our IDs, but in fact, this document gives you the ability to effectively participate in society. Without a legally recognised identity - one cannot vote, qualify for social services and importantly, one cannot access financial services. The World Bank estimates that 1.1 billion people globally do not have access to a legal identity and of this total, 138 million people are living within the SADC region.
A deeper look at the SADC region indicates that not only are there a significant number of people without a legal identity, but there exists a great degree of variance across the region in terms of the quality of national identification systems. In other words, for individuals that do hold a legal identity document, this may not be recognised in other member countries. This identity crisis within the SADC region is highly problematic given the prevalence of migration within the region and the resultant reliance on financial services. In South Africa, there are approximately 3.3 million migrants of which at least half, regularly send money back home.
FinMark Trust data on remittance market monitoring studies indicates that SADC migrants in South Africa remit approximately R16.6 billion home annually. These remittances constitute the financial lifeline of many families back home. However, without access to sufficient, or any legal identity, financial institutions are unable to provide migrants with access to these important financial services. This reality drives individuals to use informal channels, evident in our findings that the informal market comprises approximately R12.55 billion of total remittances sent, which means that informal remittances constitute an alarming 75,6% of the total market.
Although the newly introduced ‘risk-based approach’ under the Financial Intelligence Centre Amendment Act has introduced a more inclusive approach of simplified due diligence for low-value remittances and low-value banking services, a lack of identity remains a key risk for exclusion. Establishing identity from a government-authorised source remains a minimum requirement in South Africa and anonymous transactions are prohibited. Thus, FinMark Trust recognises the significant link between legal identity and financial inclusion. In line with this, we strongly believe that the development of a digital financial identity, in other words a digital identity specifically for use within the financial sector, can address the identity crisis within the financial sector across SADC.
Follow our updates as we embark on the colossal journey of developing a digital financial identity for domestic, and ultimately cross-border use across the SADC region. First stop – a feasibility assessment for digital financial identity for defined use cases to promote domestic financial inclusion in Malawi and Lesotho, with the DRC to follow shortly. More on this in our next post! World Bank, ID4D Dataset http://data.worldbank.org/data-catalog/id4d-dataset
FinMark Trust Updating the South Africa – SADC Remittance Channel Estimates, 2017. FinMark Trust Remittance Factsheet, 2017
For more information contact
Nikki Kettles Head of the SADC Financial Inclusion Programme
Tel: +27 (0) 11 315 9197