Traditional financial behaviour in Africa stems from very different institutional logics of financial management to those in mature markets. However, despite the growth of FinTech, there has been very little research into financial behaviour in this context. This is why Humaniq, aiming to identify the characteristics and logic of individuals with no financial inclusion in Africa, and to explore the opportunities of cryptocurrency circulation in this environment, launched a research project with International Methodological Association specialists. The purpose of this research was to explore the character of the context the new cryptocurrency was operating within and to create adequate mechanisms to incorporate it into unbanked people’s activities.
More than 1,800 people in Nigeria, Tanzania, Kingdom of Lesotho, the Republic of South Africa, the Republic of Cameroon, Botswana and Uganda took part in experimental games for this research. They were organised in open, crowded places: local markets, bus stations, and public squares with participants attracted from passers-by – men, women, even children. The game target was to collect as many “game” tokens as possible during a certain amount of time to win a prize. Players could choose any method for this purpose – to ask other people to donate them, to exchange, to team up to achieve the maximum effect, etc.
Please Note: This is a Guest Post by Alex Fork, Humaniq CEO & founder.
Languages and Literacy
The first insight was that there is no common language in African countries. As a rule, people in the same location speak several different local dialects or languages (up to 6 different languages in one location on average) and sometimes have difficulty understanding each other. With the results showing that 6% of the participants were not able to read or write, 1% were not able to count, 15% has no formal education and only 30% finished a primary school, it is obvious that all the financial content in an App should be given in a clear way that uses infographics.
People will not use cryptocurrency as usual
The original hypothesis implied that people in emerging economies would use cryptocurrency in common ways, like paying for goods and service and making any kind of financial transactions – sending coins, lending, etc. However, this didn’t prove to be the case at the beginning. The reason is that this crypto coins application is possible and simple in the environment where people can search the legal ways of getting and multiplying money, as in developed countries’ economies.
For instance, in one of the experiments’ locations (the fishermen’s village), the participants did not engage in augmenting their tokens through investments. As a fisherman’s outlook on life lacks a mechanism of value accumulation (fishermen catch as much fish as they could sell the same day in the market to get their living), they genuinely did not understand what making contributions and investments was for. Why wait for something when they had a certain amount of tokens on their hands?
This example shows that it is necessary to stimulate people’s imagination, to expand and sophisticate their financial behavior, so that they can acquire new patterns of value augmentation different from those they have been accustomed to.
The experiments demonstrated that there were high levels of distrust in financial activities. People tended to think that they would be cheated and their small savings would be lost, and all the promises wouldn’t be fulfilled. On the one hand, it relates to a high level of financial fraud in Africa, on the other hand, people showed distrust to financial institutions at large.
However, all these worries can be assuaged. The experiments showed that trust can be reached when traditional promotional tools (used for fraud announcements as well) such as advertising campaigns, banners, etc, are avoided. Word of mouth is the best strategy. It is of high importance that people share the information about the project with others for transparency, collectivity, and loyalty.
Demonstration of a real award before the start of a game also influences the level of trust in a positive way. The very first questions the participants had begun asking en masse long before the game leader announced the game started was – why should we believe you? However, as soon as the game leader showed the audience real money (the cash prizes) in local currency, levels of trust and interest increased abruptly.
One of the most frequent triggers for people in emerging economies to participate in a game was a desire to get a decent gain. After a proper explanation, participants were inspired by the fact that tokens can be accumulated and converted into something material or/and valuable.
However, the biggest boost was given in the moments when players received money. It was rather obvious from the winners’ reaction – the moment when they had the real prize in their hands was accompanied by a storm of emotions (both in the winners and in the spectators) and happiness. If such a mechanism is triggered, the number of participants involved in the game may be very large (in some games, the number of participants reached 300 people during 1 hour of the game duration) in spite of the fact that there were just three paid prizes.
Groups play an enormous role in financial behaviour in Africa. Moreover, individual strategies in African financial behaviour don’t work. The roots of this fact should be found in African culture and politics that call people for a self-organisation. In fact, only effective group formations became the winners (not the talented individuals).
The research provided many moments proving this trend. For instance, that a group usually finds a leader and not the other way around (we had no cases with a leader searching for a group of well-known people to play). Then, if a group decides to make a game investment, all the group asked the game moderator to do it, instead of sending their representative.
Curious is the fact that despite the lack of group formation mechanisms integrated with the game, groups started emerging naturally and spontaneously. The principal mechanism that triggered group formations was a trust-based association. Those who united basing on clear rules, gathered people, managed to explain winning conditions, and earn trust, became the winners.
The most effective strategies
The games clearly revealed two methods of handling money: an inter-group loan based on an oral agreement on mutual obligations. In this case, the participants handed over their tokens to one person in their group, he/she then received the prize and distributed it among the group. The second method was ‘mining’ – earning additional tokens in the game through answering questions in interviews or by attracting additional participants into the game. That’s interesting because the crypto market has the same popular mechanisms (however, with the trading prevailing, unlike in the explored environment).
Clear benefit distribution
The question about benefit (rewards) distribution arises in a group every time before the game starts. At first, discussions arose on how to divide the gain (that was yet to be won), and only then, after the group came to an agreement on the distribution scheme, the group started discussing what they were going to do to win the prize.
What should be recognised as a fair distribution? This question always bothers participants. They usually try to reach a consensus here and keep trusting each other. The most frequent decision was to distribute benefits equally. However, it’s important to understand that this moment should be clear enough for users long before they will start to use a financial tool.
The experimental games prove that it is enough for participants to spend 1.5 hours each to master practically the entire game space and its token-integrated possibilities – and to elaborate sophisticated financial strategies. That shows that cryptocurrencies can be effectively brought in the circulation in emerging economies if businesses take into account the financial behaviour of the region.
The experiments demonstrate that it is possible to create an ecosystem where the financial behaviour would be initiated and expanded; and, provided that the organisational structures of the cryptocurrency and its accompanying services have been designed correctly, dissemination of the financial behaviour can occur quickly through the efforts of the users themselves due to mechanisms of participation and informal training in a collective action.
An alternative variant of spreading a cryptocurrency would be creating various financial institutions and establishing a long process of cultivating a habit of handling it when the basic advantages of cryptocurrency may lose their relevance (and don’t forget about distrust to financial organizations).