Two years ago, CGAP embarked on a research project to uncover the evidence base for social cash transfers and financial inclusion. We sought out social protection programs that were making payments electronically into financial accounts at scale. We specifically looked for programs that had moved past the pilot stage because we wanted the most rigorous results we could find. These criteria provided us with a pretty short shortlist. We ended up looking at the programs in Brazil, Mexico, Colombia, and South Africa in CGAP Focus Note Social Cash Transfers and Financial Inclusion: Evidence from Four Countries.
As it turned out, this group of countries consisted mainly of middle-income countries. We received good feedback on the paper, but the main critique was that while the lessons from Brazil or South Africa were useful, it was hard to translate those experiences to more challenging environments. For example, the transition from cash to e-payments linked to financial inclusion will undoubtedly look different in Brazil than in Uganda.
Photo Credit: Joseph Molieri
In order to get a more complete picture, CGAP commissioned Bankable Frontier Associates, with the support of DFID and on behalf of the Better than Cash Alliance, to conduct a a new research project that specifically examined social cash transfer programs in lower-income countries. This new study was designed to examine the opportunities and challenges in implementing electronic social cash transfers schemes linked to financial inclusion in countries that struggle with weaker infrastructure, newer banking and payment systems, and less experience administering social protection programs. In contrast to the first study, this follow-up study considered programs at the pilot stage or in early implementation. This was also a great opportunity to examine a few programs that had experimented with mobile payments to understand how this innovative payment method worked in a G2P context.
The results of this research can be found in CGAP’s latest Focus Note Electronic G2P Payments: Evidence from Four Lower-Income Countries. The programs we researched were Ti Manman Cheri (TMC) in Haiti, Cash for Assets (CFA) in Kenya, the 4Ps in the Philippines, and Social Assistance Grants for Empowerment (SAGE) in Uganda. The Focus Note presents an overview of each program’s payment systems and their associated costs. (Full case studies were also written on each country.) Based on these experiences, we present six findings and five lessons for programs and payment service providers embarking on e-payment schemes in social protection programs, specifically those in low-infrastructure contexts. Let me share here two of the findings and one of the lessons to whet your appetite.
Finding 1: Country-level readiness, especially for mobile solutions, was overestimated. To varying degrees, these four cash transfer schemes rolled out before adequate infrastructure had been established outside of urban areas. Some programs even had to resort to cash payments to ensure delivery. In Haiti, Digicel’s mobile money agent network was not strong enough outside of Port-au-Prince to easily facilitate payments. The government had decided to expand the program to rural areas much quicker than had been originally discussed with Digicel. As a result, the program contracted a second payment provider to make payments in these areas in cash. In Uganda, MTN lacked the agent or network presence to use their actual MTN Mobile Money product for payments, instead using specialized pay phones to process payments on a mobile money platform. MTN even made 20% of payments in cash.
Finding 5: Recipient capability was greatly affected by program and payment method training as well as the availability and timeliness of payments. The research showed that recipients needed program literacy just as much, if not more, than financial literacy. That is, recipients had a very weak understanding of how the program worked, how much their payments should be, how frequently they should get paid, and how the payment process worked. In Kenya, interviewed recipients received 13 weeks of financial literacy training from Equity Bank, but were still unclear why they received the amounts they did and how much the agent’s commission should be.
If payments are made consistently over time, recipient ease with the system will increase. As opposed to the other three programs, the 4Ps program in the Philippines is well past the pilot stage now having reached scale at 4 million recipients. At the start of the program, however, many recipients asked security guards to help them with their ATM cards to retrieve their payments. But now five years in, recipients expressed little anxiety or concern about using their PIN at ATMs and knew how much to expect at each payment cycle.
This leads to one of the most important lessons coming out of the research…
Lesson 1: Ensure reliable payments first. Getting payments reliably to recipients is a necessary precondition to meet any other program priority, including financial inclusion objectives. An e-payment system will not be effective and could even have adverse effects if it does not work well. Program managers should consider the proper sequencing of priorities, starting first and foremost with consistent and reliable payments that arrive on time in the correct amounts to recipients. Then all the other benefits of these payment schemes can be incorporated.
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