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Electronic delivery of social cash transfers

As social cash transfers grow in popularity relative to other kinds of social transfers (such as food aid), there’s now an effort to investigate innovative ways of delivering cash to recipients effectively and efficiently. A number of public (government to person) cash transfer projects and programmes have experimented with the use of electronic delivery systems.

In a new paper published as part of the Regional Hunger and Vulnerability Programme’s (RHVP) Frontiers of Social Protection series, Katharine Vincent looks at some aspects of the electronic delivery of cash transfers. Below is a summary of her paper. The full paper can be downloaded here.

Why the interest in electronic delivery systems?

One of the arguments in favour of giving vulnerable people cash instead of food (aside from other benefits of cash), is that cash is less costly to deliver. But even so, the delivery costs can take up a larger-than-needed proportion of social protection budgets. While cash is clearly less bulky than food, physical delivery of cash is labour intensive. There is a need to hire security personnel when transporting large amounts of cash, and to hire staff to oversee the process of paying individuals their grants.

Delivery of cash also has costs for the recipients, who must travel to a pay point to receive their transfer – costing them money and lost time.
The solution is to deliver cash electronically. This minimises the risk of money going astray, and reduces the demands on staff time. It is also more convenient for recipients – as they can access their at a place and time of their own choosing.

The electronic delivery of cash can be done through a range of mechanisms – debit card, smart card, or cellphone – and using a range of financial infrastructure – banks, automated teller machines (ATMs) and point-of-sale (POS) devices.

Electronic delivery systems lend themselves to private sector participation, where a private sector company – typically a bank, smart card platform, or cellphone operator – partners with the programme implementer.

Rapid penetration of cellphones in Africa

By the end of 2008 there were over 246 million mobile subscriptions in Africa (out of a population of just under 700 million).

In 2008, 58.5% of the population was covered by a cellphone signal, with some countries approaching 100% coverage of inhabited areas – including South Africa, Botswana, Mauritius and the Seychelles.

Woman farmer with a cellphone round her neck in Limpopo province, South Africa (photo by K. Vincent, 2004)

The rapid growth in cellphone ownership and signal coverage has paved the way for consideration of cellphones as a mechanism for electronic delivery, partly prompted by promising evidence for their adoption in private person-to-person transfers.

Probably the best-known example of the potential for cellphones in delivering cash transfers is the M-PESA scheme in Kenya, operated by cellphone service provider, Safaricom.

Just two years after its introduction, M-PESA has over 7 million registered users and 10,000 agents, reflecting the faith that consumers place in the safety and convenience of the product.

In 2008, Concern Worldwide used the M-PESA system as a means of delivering a short-term emergency cash transfer – the Kerio Valley Cash Transfer (KVCT) project. While there were some challenges to overcome, the KHCT project successfully disbursed a total of US$53,000 to 570 households, showing the system to be secure and cost effective.

Following the success of M-PESA, other cellphone service providers have begun to offer similar schemes in other countries – some in combination with mainstream banks.

Opportunities for banks

The banking sector is an integral partner in the electronic transfer of cash, and has a key role to play in the electronic delivery of cash transfers in southern Africa.  More and more, banks are also starting to see that there are commercial opportunities for them in facilitating the electronic delivery of government cash transfers. Firstly, there is immediate income to be made, as cash transfer programmes typically pay a transaction fee per transfer.

Secondly, there are additional benefits: national cash transfer programmes start to make it viable for banks to invest in new infrastructure in previously under-served regions. The banks can use this infrastructure to provide services to a broader group of people in addition to transfer recipients.  And the recipients of cash transfers themselves often start to make use of additional financial services offered by the banks, such as micro-credit and savings.

Examples of electronic delivery

At present, most of the examples of electronic delivery of cash transfers come from pilot programmes. While these experiences have generally been positive, pilot programmes don’t really offer the chance to show how cost-effective electronic delivery really can be. This is because most of the costs are incurred at the start of a programme – in registering participants and setting up necessary infrastructure. After that, costs are minimal – so it is only in a long term, large-scale programme that the real savings and benefits will start to be seen.

So far only one government-led programme in Africa has embraced an electronic delivery mechanism from inception, and that is the recently launched Hunger Safety Net Programme (HSNP) in Kenya.  HSNP is a phased programme that is targeting 300,000 households in the first three years, with a plan to increase to 1.5 million in the second phase.  All recipients receive a biometric smart card, which they can use to access their cash through Point of Sale devices.

Future plans

A number of other national cash transfer schemes are considering following in the steps of HSNP.

  • Swaziland has already entered the second phase of its Electronic Disbursement Programme, which aims to have all 60,000 Old Age Grant recipients banked (at a bank of their choice) by the end of the third phase.
  • The government department with responsibility for Mozambique’s Programa de Subsidio de Alimentos (PSA) (which is a cash transfer), the Ministry for Women and Social Action (MMAS), is looking at the potential for electronic delivery of the PSA. Currently delivery of this grant costs up to 40% of the value of the transfer.
  • In Lesotho, the Lesotho PostBank has recently received a commitment for funds from the Millennium Challenge account to proceed with smart card-based transactions systems, which would be a potential electronic delivery mechanism for the Old Age Pension (and, potentially, the recently announced Child Grant Cash Transfer programme).
  • Ghana is also interested in looking at electronic delivery systems for its Livelihood Empowerment Against Poverty (LEAP) programme.  LEAP is a government-run and funded programme that began in March 2008, and is due to reach 164,000 households (equivalent to almost 20% of Ghana’s extremely poor households) when the national rollout period ends in 2012.

Billboard advertising the e-zwich smart card and POS system in Ghana (photo by K. Vincent, 2009)

Lessons learned

Systems of delivery, whether physical or electronic, are only as good as the registration system on which they depend.  Registration is a vital (albeit time-consuming and cumbersome) part of any cash transfer programme, with the bulk of input required prior to programme introduction.

If a private sector partner is involved, it makes sense for the recipient to undertake the procedures for both programme registration and bank account/cellphone account registration at the same time.  Close collaboration between the programme implementer and its private sector partner is vital, particularly in the integration of registration of recipients in the scheme, and the payment system(s).

It is very important for project partners to agree on terms of reference before they start work. These should outline roles and responsibilities, specify service standards and stipulate penalties for non-compliance. Such an agreement should also consider a procedure for handling grievances, so that recipients do not end up caught in a situation of not knowing who to contact in case of complaint.

If due attention is paid to these administration and implementation arrangements upfront, there is great potential for electronic delivery systems to become the norm in southern Africa.

Case studies

Swaziland’s Emergency Drought Response

In Swaziland, when Emergency Drought Response beneficiaries were issued with bank accounts they were then able to access their cash through debit cards at the ATM.  The photo below shows the scene at the start of the scheme, when understanding of, and confidence in, the banking system was low — and so recipients tended to queue to withdraw their cash on the day of disbursement. As time went on, there was growing faith in the security of their electronic cash, and they began to access it at their own convenience. This spread out the demand, and so the queues (and waiting period) became much shorter.

Emergency Drought Response recipients in Swaziland queue at the ATM to access the cash that has been disbursed into their bank accounts (photo by S. Devereux, 2008).

Biometric smart cards in Namibia

Namibia’s Basic Income Grant pilot project  provided a universal cash transfer of N$100 per month to 930 individuals under the age of 60 (at which age they are eligible for a state pension) in the settlement of Otjivero-Omitara, 100kms to the east of Windhoek.  In line with the existing state pension, delivery of the Basic Income Grant was made through the use of smart card-based savings accounts issued by the state post office, NamPost.  NamPost opened accounts for all the beneficiaries, and waived the standard N$50 smart card fee.

Beneficiary accounts were credited with the N$100 transfer on the 15th day of every month. After this date, beneficiaries could access their funds through the local NamPost by presenting their card for insertion into a Point of Sale device, and having their fingerprint verified.  Beneficiaries got one free transaction a month. Beneficiaries also had the freedom to access their transfer through any of NamPost’s 122 branches through Namibia, at a time convenient to them.

Kenya’s Hunger Safety Net Programme

In order to comply with Kenyan banking law on “Know Your Customer”, bank accounts and biometric smart cards can only be supplied to people who hold a Kenyan identification card.

However, to cater for circumstances where the beneficiary does not have an ID card, or wants someone else to collect the cash on their behalf, the private sector partner Equity Bank has set up a procedure that caters for beneficiaries (those eligible to receive the transfer) and recipients (those eligible to collect it).

When the beneficiary has an ID card and is willing to collect the cash themselves, they are also the recipient (for backup they are also required to nominate an alternate recipient who must be over 18 years of age and capable of travelling to the paypoint).  When the beneficiary either has no ID, or does not wish to collect their cash in person, they must nominate a primary recipient, who will be issued with the smart card (and an alternate who must be over 18 years of age and capable of travelling to the paypoint).

A biometric smart card – as shown in the photo – is issued to the primary recipient.  The card shows the primary recipient’s name, photo, and their household number (which becomes the account number).  The chip contains biometric data (fingerprint records) for both the primary and alternate recipients.

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