J-PAL Africa launches the Digital Identification and Finance Research Initiative (DigiFI Africa)

J-PAL Africa, based at the University of Cape Town, recently launched the Digital Identification and Finance Research Initiative (DigiFI Africa). Supported by the Bill and Melinda Gates Foundation, this USD$7 million research fund is designed to study the impact of innovative government and private sector payment systems and digital identification (ID) reforms on citizens and governments across Africa.

Policymakers across Africa are increasingly investing in large-scale digital identification and digital payment systems. Because these systems are so new, little rigorous research exists on how best to design and implement such systems in low-income contexts. How do these rapid changes affect the lives of citizens? How can they best be structured to lead to the most benefit? Are any groups adversely affected by these reforms? 

DigiFI Africa will cluster research around these questions, supporting research that evaluates impacts on citizens and generating results that provide guidance on critical design questions as reforms go to scale.

Improving efficiency in public spending through digital finance and digital identification has the potential to have large impacts across Africa. For example, these technological innovations have the potential to enhance record-keeping and transparency by collating administrative data and automating transactions, decreasing the potential for delays and errors in payment systems. Digitizing payments can reduce both the need for travel to access financial services and the time burden of engaging with administrative processes. In addition, digitizing the process of business registration and firm regulation can bring more firms into the tax system and raise revenues for the government.

The DigiFI Africa framing paper lays out the research agenda for the initiative. DigiFI Africa promotes research to address the following questions:

• From a government’s perspective:

  • How can digital ID systems assist with targeting and efficiency in public programs? Do digital ID systems assist or hinder in reaching marginalized populations?

  • Can digital ID systems and digital payments reduce rent-seeking? What are the generalized equilibrium effects of digital payments on rent-seeking? 

  • How can digital ID systems and digital payments assist in building incentive systems to motivate public servants?

  • How can payment design (such as targeting a specific household member to receive the transfer or changing timing the payment) affect its impact? 

•  From a citizen’s perspective:

  • How do government services linked to digital IDs affect citizens? What are the best ways to design these linked services for the greatest impact at the lowest cost? Do digital ID systems and digital payments encourage or dissuade take-up of government programs? 

  • Do digital ID systems improve the overall efficiency of government programs? If so, do these efficiency gains reduce poverty?

  • How do digital IDs affect voter participation, the fairness of elections and electoral outcomes? Does increased enfranchisement affect policy decisions? 

  • Can digital IDs promote further digitization in financial systems and thus enhance financial inclusion? How does this affect short- and long-term poverty outcomes?

  • Can digital payment schemes empower traditionally weaker household members or affect the allocation of household resources?

• Fiscal capacity:

  • Can expanding the formal economy increase the tax base through incentives and simplified processes introduced by digital payments and digital IDs?

• Externalities:

  • What is the impact of digital ID and digital payment systems on market-level general equilibrium effects? What are their impacts on wages and employment? Are there impacts on occupational choice or migration?

  • What are the spillovers on non-beneficiaries of digital ID and digital payment systems?

• Private sector impacts:

  • Can digital ID systems encourage businesses to enter the formal sector? Do these reforms reduce entry costs to entrepreneurship and enable productive investment?

  • Can digital ID systems help strengthen law-enforcing institutions and in turn affect private investment?

DigiFI Africa will run a competitive research fund with requests for proposals (RFPs) twice annually through 2022. The initiative will support researchers in conducting two phases of work:

1. Formative research that includes pilots and high-frequency monitoring systems to assess the status and health of digital payments and digital ID programs at various stages of reforms.

2. Rigorous randomized impact evaluations to test the impact of roll-outs of promising digital payment and digital ID reforms. 

Funding is open to J-PAL affiliates, invited researchers, researchers with a PhD based at an academic institution in Sub-Saharan Africa (details here), and PhD students who have a J-PAL affiliate on their dissertation committee. The Round 1 RFP closes on September 20, 2019. For more information, contact Aimee Hare.