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Case study: Protecting vulnerable members of the South African informal sector through social insurance schemes.

What happens to the most vulnerable members of our society during a personal or economic crisis? Individuals working informally for themselves are very vulnerable to any disruptions in their working and personal life – a problem that has been known for a while but became shockingly obvious to everyone during the Covid-19 pandemic and related lockdown period. In South Africa, it is estimated that ~30% of the population work in the informal sector, with great entrepreneurial skills – they learned how to make a living without any support. They make some money and don’t live in absolute poverty. But they struggle to access social protection systems in South Africa, which are largely limited to the formal sector. They are called “the missing middle” and are particularly affected during times of a personal crisis or economic shock – in times when other workers access social insurance schemes.


The UNDP wanted to explore the social insurance scheme options for the informal sector in South Africa and strengthen them through a Joint SGD Fund Joint Programme. TRi Facts supported these efforts with research to provide recommendations for this project. We conducted a nationwide survey of more than 5000 in person interviews with members of the informal sector to understand their daily experience, and three focus groups to discuss possible support structures and solutions. We also tapped into our network and conducted expert interviews with representatives of industry associations, membership-based organisations, and researchers focusing on the sector. In addition, we analysed good-demonstrated practice of social insurance of protection schemes for the informal sector in other countries to identify what makes them successful. The study had a focus on women and youth, who are particularly vulnerable.


How do members of the informal sector experience vulnerability, and what factors lead to these vulnerabilities? Firstly, their work environment is shaped by unemployment, poverty, poor infrastructure as well as service delivery. Like reclaimers who transport their goods on the side of the road without any shelter or protection and report difficulties to run their businesses amidst restrictive regulations by the municipality and police controls. Secondly, their incomes are low and unstable, while their working environment is highly insecure and unpredictable. Like most hawkers, who have no certainty if they will be able to sell all the stock they bought. In addition, they often carry many financial responsibilities for both their household and business and are left without any income if they can’t work due to hospitalisation or a vehicle braking. Most must use personal savings in difficult times to purchase new stock or pay for repairments to continue working.


What can be used to possibly support members of the informal sector? Social insurance programmes can be important tools to help members feel a new sense of control, as it helps them to plan their future and feel less anxiety. Stokvels, funeral parlours, and community savings schemes show that members of the informal sector are willing and able, to contribute to schemes financially, however minimally it might be. Members of the informal sector see a need for social insurance and ranked it as the third most helpful form of support in our survey, after financial support in the form of grants and better health care. We recommend establishing nationwide insurance schemes for unemployment or loss of income as well as retirement or pension. In addition, we suggest developing creative schemes to protect members of the informal sector against a loss of assets or negative impacts due to ill health.

Which challenges do social insurance schemes face and why? Firstly, people in the informal sector struggle to regularly pay contributions, especially because they have low and uncertain incomes; they might be able to afford now but are worried they will fail to pay instalments in the future. Secondly, financial exclusion remains a challenge, as most people working informally can’t provide the financial documentation required for such social insurance schemes; some members make use of cash transactions as their primary form of payment and have no bank account. Thirdly, we noticed a lack of trust in existing schemes. Creating a sense of awareness for social insurance schemes and how they work is a first step in addressing these challenges.


How can a social insurance scheme look and how can we improve it from what we learned during the Covid-19 pandemic? TRi Facts created recommendations in the form of a newly designed scheme. Firstly, membership contributions should be at an affordable rate and, if possible, subsidised. Secondly, the requirement for financial documentation should be eased to avoid financial exclusion. Thirdly, benefits and incentives should be customised to the needs of individuals in the sector. Fourthly, accountability and transparency should be ensured. And fifthly, members should be supported and engaged with, through personal contact with agents.

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