Launch of Malawi Government Payment Roadmap
The Ministry of Finance, Economic Planning and Development, in collaboration with the United Nations Capital Development Fund’s MM4P programme, the Better Than Cash Alliance and the United States Agency for International Development (USAID), is pleased to inform the general public that it will launch the Malawi Government Payments Roadmap on Thursday, 30th March 2017 at Umodzi Park, Bingu International Convention Centre (BICC) in Lilongwe.
As a next step to membership of the Better Than Cash Alliance in 2013, the Government Payments Roadmap is the Malawian Government’s strategic framework for digitizing government payments in Malawi. It sets the main targets for the coming years to improve the accountability, efficiency and transparency of the payments system and advance the national financial inclusion agenda.
Digital financial services (DFS) are widely cited as transformative for financial inclusion and the achievement of the 17 Sustainable Development Goals. In Malawi, where more than 80 percent of the population is rural and approximately 70 percent lives with less than $1.90 a day, the financial inclusion rate is only 18 percent.
However, a shining light has appeared. During the period 2012-2016, active DFS users grew from less than one percent to 15 percent of adult population. Increased demand and supply of DFS as well as a good regulation have been game changers for the digital shift.
In this framework, the Malawi Government Payments Roadmap champions the vision of a country in which:
“Every Malawian is financially resilient. The public and private sectors work together to ensure all Malawians, especially those who live in rural areas, have access to digital financial services that are easily accessible, affordable, reliable, transparent and secure. The Malawi policy, legal and regulatory environment works as an enabler to address payment infrastructure challenges and makes […] [digital finance a] sustainable business to service providers.”
Mobile Money for the Poor (MM4P) is a programme launched by UNCDF in partnership with the Swedish International Development Agency (Sida), the Australian Department of Foreign Affairs and Trade (DFAT), the Bill & Melinda Gates Foundation and The MasterCard Foundation. MM4P provides support to digital financial services (DFS) in a selected group of least developed countries (LDCs) to demonstrate how the correct mix of financial, technical and policy support can build a robust DFS ecosystem that reaches low income people in LDCs.
About the Better Than Cash Alliance
The Better Than Cash Alliance is a partnership of governments, companies, and international organizations that accelerates the transition from cash to digital payments in order to reduce poverty and drive inclusive growth.
Based at the UN, the Alliance has over 50 members, works closely with other global organizations, and is an implementing partner for the G20 Global Partnership for Financial Inclusion.
The Alliance is funded by the Bill & Melinda Gates Foundation, Citi Foundation, Ford Foundation, MasterCard, Omidyar Network, United States Agency for International Development, and Visa Inc. The United Nations Capital Development Fund serves as the secretariat.
UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries (LDCs). With its capital mandate and instruments, UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development. This last mile is where available resources for development are scarcest; where market failures are most pronounced; and where benefits from national growth tend to leave people excluded.
Launch of Payment Flow Diagnosis for Government Payments for Zambia
PFIP Focuses on Service Design with HCD Innovation Labs
Human Centered Design (HCD) is providing South Pacific financial service providers with new motivation and tools to tackle the problems that have frustrated their initial attempts at mass market finance. Most of South Pacific financial service providers have invested in digital infrastructure, launched cash merchant networks and signed up customers. But few customers have adopted the services and the providers have yet to build commercially scalable business models. The providers themselves acknowledge that their systems are not producing satisfactory results, but at this point they lack the confidence that additional investment would produce better results. In this context, HCD has helped restore confidence.
The core problem in these cases is in fact to define service-related challenges. Our assessments of these implementations quickly reveal significant ground to be gained with improvements to transaction functionality, pricing, marketing, products and agent network management. Our customer-centered diagnostics reveal very specific features that are undermining the customer experience. And this defines the problem in a way that it can be addressed.
Senior managers are also finding inspiration in the project structure of these HCD-inspired initiatives. PFIP-funded projects are structured as “innovation labs.” They are isolated from the providers’ core business and resourced with core staff, outside design experts and funding to test variations of services, pricing, transaction channel functionality and marketing until they achieve a commercially sustainable level of customer adoption. For the senior manager who knows from experience that the dynamics of the core business tend to undermine new initiatives, the HCD innovation lab model is a compelling new approach.
PFIP’s innovation lab projects are still early stage. At this point, our confidence in the outcome builds on the early success of BIMA. Our partnership with BIMA is the oldest and has produced the most impressive results to date. BIMA entered the Papua New Guinea (PNG) with a product concept they had developed in other markets. They adapted the product to the local context and they designed product features, pricing, sales channels and payment instruments completely new to the PNG market. Once they validated the demand, feasibility and profitability of their product, they convinced a local insurance company to underwrite the products, and then quickly issued over 500,000 policies to low income customers, an unprecedented achievement in South Pacific markets. After validating the business model, PFIP partnered with BIMA again to replicate the model in Fiji and three other South Pacific markets. BIMA is well on its way to replicating the PNG success.
We have ambitious expectations as well that come from seeing our other service provider partners work deliberately at creating a better customer experience. PFIP just launched a project with the Westpac innovation lab in the highlands of PNG. Our service design specialists helped Westpac identify quick first generation solutions for improving the customer experience with the enrolment process and with the in-store cash merchant network. The innovation lab team is reengineering and testing, and this is building genuine excitement as they prepare to scale.
The unique look and feel of the BIMA customer experience, and the robust customer response, are compelling validation of HCD methods. And the market took notice. PFIP now has eight innovation lab projects underway, experimenting with mobile money, branchless banking, micro pensions, agricultural value chains, and savings groups to build a commercially scalable service that makes the daily financial life of Pacific Islanders better. We’ll keep you posted as we move forward.
PFIP is a Pacific-wide programme helping low-income households gain access to financial services and financial education. It is jointly administered by the UN Capital Development Fund (UNCDF) and the United Nations Development Programme (UNDP) and receives funding from the Australian Government, the European Union and the New Zealand Government.
PFIP aims to add one million Pacific Islanders to the formal financial sector by 2019 by supporting policy and regulatory initiatives, funding innovation with financial services and delivery channels, disseminating market information, and empowering consumers.
PFIP operates from the UNDP Pacific Office in Suva, Fiji and has offices in Papua New Guinea, Samoa and Solomon Islands.
Digitizing social security allowances in Nepal - Part 3
This last post wraps up the discussion of the digitization of social security allowances (SSAs) in Nepal. It takes stock of the main insights of the pilot project and sketches a strategy to scale up the alternative payment method, so far tested in three districts on full scale, across the country.
The pilot project, discussed in Part 2, offered a glimpse of what SSA distribution across Nepal using a digital payment method would look like. ‘Going digital’ is hardly an easy task: the country still relies on a manual procedure, which is entrenched in the existing administrative infrastructure, as explained in Part 1. But innovative partnerships, political commitment and strategic vision can catalyse the efforts of all stakeholders.
Several lessons can be learned from the pilot project. A key lesson is that digitizing SSA payments implies a rethinking of public-private partnership—in particular, a redefinition of roles and responsibilities of each stakeholder, as evident when comparing the procedures in the traditional versus the alternative system of payment.
In the former, Village Development Committee (VDC) officials are in charge of disbursing cash to beneficiaries and submitting a report to the Ministry of Federal Affairs and Local Development (MoFALD). In the latter, these tasks are performed by the bank or a payment service provider (PSP), which is responsible for arranging the supply of cash float, disbursing cash at pre-determined ‘pay points’ at, or near, beneficiaries’ residence, and processing the beneficiaries’ data for reconciliation and auditing purposes. Once the branch or agents have released the money to the legitimate recipients upon the swipe of a personalized card or through other payment instruments (viz, mobile), the data are simply uploaded from the agents’ point-of-sale (POS) devices to the bank or PSP database or Core Banking System (CBS), which in turn compiles and submits a report to MoFALD. While activities at the identification and enrolment stage remain a prerogative of District Development Committees and VDCs, the bank takes over the disbursement part of the process. It is therefore not about dismantling the existing administrative arrangements, but about dovetailing the State’s resources and capacities with the ones of the financial sector. This shift has the potential to create a win-win situation for both the State and its private partners.
Outcomes of the pilot project suggest there are clear benefits for the Government of Nepal: re-routing the payment of SSAs through agent banking is very likely to lead to greater efficiency, security and cost-effectiveness. Similar programmes rolled out elsewhere have shown that these benefits are achievable. In Brazil, for instance, the usage of agent banking to transfer social payments to over 12.4 million beneficiaries of the Bolsa Família social welfare programme has reduced administrative costs from 14.7 percent to 2.4 percent of the total grant value. Similarly, in South Africa, administrative costs of delivering social transfers for the South African Social Security Agency fell by 62 percent after shifting to bank account transfers.
However, under current conditions, there is not such an obvious business case for banking and payment service providers in Nepal. The country’s digital financial service landscape is still fledgling, with fifteen banks gingerly venturing into this field along with non-bank PSPs preparing to venture and get license (includes remittance companies). Although sensitive to the prospect that the delivery of SSA payments through agents could increase the financial awareness of beneficiaries, the private sector has so far been reluctant to throw its weight behind an initiative that might prove costly before turning profitable, particularly when considering geographical challenges and uneven population distribution. For instance, in the mountainous district of Taplejung in eastern Nepal, some VDCs have as few as 91 beneficiaries. Moreover, many VDCs are inaccessible by roads; it can take at least an hour to walk from a main road to reach the nearest VDC.
This is where the Government could step in—by offering incentives to banks to set up their agent networks. This approach would assist banks to overcome their current hesitancy and help them to envisage future benefits, deriving from the delivery of a full suite of financial services to a rural population who is increasingly financially aware. Although the responsibility of making fixed cost investments to set up an agent network is typically borne by the bank, in this case the Government could support through a commission pay-out scheme for bulk payments in which large remunerations are gradually scaled down as transactions on the agent channel increase in volume and annual operating expenses decrease. To be noted is that a large portion of beneficiaries live in municipalities, where bank branches are more likely to be, which means lower transaction costs for the Government. Thus, the Government should expect higher costs only for locations that are not covered by branches and where there is a reasonable demand for setting up the infrastructure, notably agent points.
The expectation is that, while in the early years (years 1 and 2) most transactions at the agent level will be SSA transfers, over time user awareness of agent banking will rise and consequently demand for a broader range of financial products will grow. At this point, the business case for banks and PSP will be evident. Therefore, the commission amounts given by MoFALD for SSA payments through the agency channel can be higher in the initial two years (years 1 and 2), can gradually diminish over the next two years (years 3 and 4) and can be stabilized or discontinued thereafter (a decision to be made after a comprehensive review of the prevailing situation after four years). See the figure for a view of commission over time.
It is worth considering that, agent banking will probably struggle to perform timely and efficiently unless it reaches a certain scale with regard to customer demand. This implies that local conditions remain relevant when scaling up the digital method at the national level.
In hard-to-reach regions, continuing with the old way of working is not a bad option. Contrarily, this would allow the government to scale digital channels in a phased wise manner across the country. In hard to reach regions VDC secretaries could be provided with POS devices to record the disbursement of benefits upon biometric authentication of beneficiaries - the receipts of the transactions to be reconciled later. Moreover, the government should cultivate synergies with other financial institutions that provide similar services in rural areas, such as remittance service providers and mobile network operators acting as payment service providers.
Mobile money is already proving to be an effective and increasingly popular solution to transfer SSAs to beneficiaries. Among its strong points, delivering payments through a mobile-based interface is much cheaper than using a POS device.
Learn more from other examples of social protection programmes using mobile money.
March 2017. Copyright © UN Capital Development Fund. All rights reserved.
The views expressed in this publication are those of the author(s) and do not necessarily represent those of the United Nations, including UNCDF, or their Member States.
The process for this diagnostic was carried out by the Mobile Money for the Poor programme, in collaboration with the Zambian Ministry of Finance, in order to map the landscape of payments by the Government of the Republic of Zambia and to identify which payments are made in cash and what proportion is digitized. The diagnostic used a methodology designed for the Better Than Cash Alliance that has been used in five other countries.
This diagnostic was carried out by the MM4P, in collaboration with the Zambian Ministry of Finance, in order to map the landscape of payments of the Government of the Republic of Zambia and to identify which payments are made in cash and what proportion is digitized. The diagnostic used a methodology designed for the Better Than Cash Alliance that has been used in five other countries.
The process for this diagnostic was carried out by the MM4P programme, in collaboration with the Zambian Ministry of Finance,, in order to map the landscape of payments by the Government of the Republic of Zambia and to identify which payments are made in cash and what proportion is digitized. The diagnostic used a methodology designed for the Better Than Cash Alliance that has been used in five other countries.
Digital money today or cash tomorrow?
Coffee is Uganda’s top-earning export crop. Most importantly, it is estimated that approximately 20 percent of the entire population earn their cash income from coffee.
The coffee season in Uganda begins in July or August and, depending on the rain, stretches up to January or February. In this period, coffee farmers travel to the washing station every day and often several times per day. With their laborers, they harvest and, at half crop, send someone from the family to the washing station to have the coffee weighed against a receipt for the payment. At the end of the day the story repeats itself.
The waiting time is between three and four hours to get paid in cash, as the same individual who verifies the weight is authorized to make the payment. And the two tasks have to be performed separately.
The washing station is busiest at the end of the day between 3pm and 8pm. The waiting time stretches till night falls and payments can only be processed the next morning, which means another trip to get paid.
Farmers are under pressure to pay quickly. Laborers do not like to be paid the next day, food has to be bought today, school fees have to be paid on time. Considering that schools are generally very far from the village, travel and lodging expenses also sum up.
Plus, farmers worry about security. Carrying cash around can be challenging when it is obvious that you just received a big payment. Getting robbed on the way home is thus another big worry.
Cash is not always instantaneous, after all!
In 2015, UNCDF MM4P partnered with Kyagalanyi Coffee Ltd, a leading coffee company in Uganda, to digitize the payments to its 7000 farmers around Mount Elgon.
The main difficulty was that there was no electricity or network on the scenic slopes of Mount Elgon, therefore no phone. How do you roll out digital payments without electricity, network and phones? You team up.
MM4P brought together MTN, Yo Uganda and Fenix. MTN provided network coverage and mobile money services, whereas Yo Uganda designed the bulk payment solution and Fenix offered subsidized phone loans and solar charging solutions to the farmers.
Thanks to the new network and the phones, Kyagalanyi can communicate real-time prices to the washing stations, where larger volumes of coffee are now delivered. Staff are paid digitally and have become the ambassadors of digital payments in the community of farmers.
On the farmers’ side, the Kyagalanyi-MTN-MM4P partnership has changed their experience with payments by offering new options.
Today, farmers can choose to be paid for the coffee partially or entirely in mobile money on the basis of the receipt released at the washing station. Since last August, small-holder farmers have the option to access a new digital financial service through their MTN subscription: MoKash. Thanks to MoKash, they can save and borrow for immediate needs – ex. to buy spray of fertilizer or cans, and to pay laborers – as well as for school fees, which can be paid via mobile money.
Since last October, to encourage uptake of the digital services that come with a cost for farmers, those who chose to be paid digitally are pre-reimbursed the withdrawing fees in mobile money. This has proved to be a great incentive to try out complementary mobile money services such as saving via MoKash, performing peer-to-peer transfers and buying airtime.
To facilitate the uptake, a trained network of 129 agents was deployed in the Mount Elgon villages. A management information system (MIS) was piloted to keep real-time track of agent float & cash balances. As a result of a reliable agent network, approximately UGX 190,000,000 (USD 53,000) had circulated within the agent network in the first month of the MIS deployment.
Community trainings on how to use the services were rolled out. Furthermore, farmers benefit from a 50% to 100% bonus on loading airtime – you top-up UGX 3,200 (USD 0.89), MTN loads UGX 3,200.
Among the farmers who are now active users, those who chose to be paid in mobile money can leave the washing station as soon as they have the paper receipt. They receive the corresponding value plus the equivalent to the withdrawing fees instantaneously, as soon as the washing station manager starts to process the payments.
Nowadays in the slopes of the Mount Elgon, farmers who go to the washing station every day during the coffee season are now experiencing the option that comes with digital finance. As they have their coffee weighed, they are asked: “do you prefer to be paid digitally today or in cash tomorrow?”.
M-Dorado: Fact or spoof ?
Have you ever heard of M-dorado? The all-digital heaven, where digital financial service (DFS) transform - improve- people’s lives, make it easier and more affordable to do business, enhance transparency and defy corruption and bad governance. Without jumping the gun, you can say Africa is well on its way to M-dorado. Take Kenya: in 2015, over 15 million M-Pesa mobile money accounts were active and over 58% of the country’s adult population used a digital wallet. At the same time, more than 43 % of Kenya’s GDP was actually transacted via Safaricom’s M-Pesa. Today, there is little you can’t do with M-Pesa in Kenya: buy airtime, send money, settle bills, buy groceries and services, borrow money, withdraw cash, and so much more …
Benin, like most African countries, is NOT Kenya. But the digital revolution is about to happen also in this West African republic! On January 19, 2017, Cotonou hosted the first DFS Working Group of this year. This physical peer-to-peer learning platform set up by UNCDF-MM4P was chaired by Benin’s Ministry of Economy and Finance and the national representation of West Africa’s Central Bank (BCEAO). DFS are expanding in Benin. In 2015, over 1 million e-wallet accounts were active, and DFS active use ratio was over 30%.
The DFS Working Group’s meeting gathered the industry’s major stakeholders: financial services and telecoms regulators, mobile operators, microfinance institutions, banks, etc.; a sign that interest in digital finance can no longer be debated. Another sign that is rarely deceiving was the intensity and quality of the exchanges. The meeting started off with a session on fundamentals of digital finance, so all participants could be on the same page on concepts and definitions. Then came a session on the legal and regulatory framework in digital finance. Participants discussed present regulations in the West African Economic and Monetary Union (WAEMU) on digital payments and requirements imposed to mobile money providers. They also brainstormed on Benin’s present regulations in banking and DFS, and looked into compliance and local AML regulations.
Participants then had an extremely rich discussion on DFS’s potential to boost financial inclusion. How do we fast-track new - and working- types of partnerships and products to better address clients’ needs, and boost adoption of DFS for low-income populations?
Last, the meeting focused on challenges/constraints to the adoption of DFS, and notably users’ fear of mis-manipulation (how to get your money back when you send it to the wrong number), or protection against cyber criminals. Many suggestions were made: setting up supporting measures to better manage complaints, improving user interface, menus and functionalities on mobile devices, partnering with police services in charge of cyber-criminality or running massive customer education campaigns.
Here is another positive sign: discussions ended on a consensus to create sub-commissions to follow up on suggestions and, in occasion of the next DFS Working Group meeting, to propose concrete actions to addressing them. All that to demystify digital finance, to boost its adoption and guarantee user security.
M-dorado, here we come!!!
Digitising Social Security Allowances in Nepal
The previous post described the current method of payment of social security allowance (SSA) in Nepal and highlighted its perks and drawbacks. This new episode presents a pilot project to digitise SSA payments and discusses a few preliminary insights, ahead of drawing a full lesson in the next post.
By relying on an existing institutional infrastructure, the Nepalese SSA payment system currently in use benefits from longstanding and trusted relationships between government officials and local communities. Trust is a precious resource which lubricates the pipeline through which social protection payments are funnelled to the beneficiaries. However, how previously argued, this pipeline is worn out, leaking cash along the way because of duplicate and ghost beneficiaries. This makes the system likelier to buckle under piling inefficiencies, thus driving up costs and draining resources – human and financial – that could be better spent on strategic sectors such as public health and education. In the long run, these dysfunctions could erode the trust on which the delivery mechanisms of SSA, and the channels of communication between the state and the citizens, relie.
Against this background stands the initiative of Nepal Ministry of Federal Affairs and Local Development (MoFALD) through its Department of Civil Registration (DOCR), and supported by the UNCDF and the World Bank, to digitise the delivery of SSA to Nepalese citizens and reconcile efficiency and thoroughness. The challenge is ambitious, as the project aims at allowing greater control over state resources and thus improving governance. But the digital switch is not an overnight change: it requires fresh arrangements, both technical and organisational, and, therefore, new public-private partnerships in which responsibilities are redistributed among old and new stakeholders. While DOCR strengthened its safety net systems through the establishment of a Management Information System (MIS), essentially a digital Registration, Entitlement and Payment (REAP) platform, for capturing information relating to beneficiaries, the World Bank was instrumental in laying the ground for the digitization of all payments in three Nepalese districts, Baglung, Banke and Surkhet, and UNCDF supported an education grant program managed by a local bank in two different districts, Kanchanpur and Daldhuera. But let’s focus on the digitization project. Its premise was to shift the complete responsibility of payment from the village development committees (VDC) to a commercial bank acting as a Payment Service Provider (PSP) and managing a network of agents.
The procedure is as follows:
VDC officers are in charge of enrolment by collecting the application forms as in the traditional method; the data are submitted to DDC officials who enter the details of each beneficiary on to the MoFALD database and submit a report to MoFALD. On the basis of this report, MoFALD provides a list of the beneficiaries to the PSP Bank, which manages the process of account opening by instructing the branch managers in the areas where the benificiaries reside. Bank agents collect all the necessary information, including scanned copies of the documents to meet KYC requirements and pictures of the beneficiaries. The data are uploaded in the database of the bank, which deals with the issuing and distribution of the smartcards to the beneficiaries. Three times per year, the SSA funds are transferred by the MoFAD to the PSP, which sends the list with the amount to be disbursed to the respective bank branch managers. The branch manager then credits the individual beneficiaries’ accounts with the benefit amount they are entitled to receive. The branchless bank agents are provided with a list of the beneficiaries (in hard and soft copy) and are credited with the amount for their area of coverage. The agent communicates the date in which he will visit a specific village to local authorities, who alert the beneficiaries. Upon verifying the identity of the beneficiary and disboursing the amount, a receipt is issued in two copies, one for the recipient, the other for the agent, which subsequently hand all the records of the payments to the PSP branch for reconciliation. The agent would also resort to the PSP branch to replenish cash float.
The figure below highlights the process flow and the stakeholders involved in the integrated banking system for cash transfers.
The infographic shows that district development committees (DDC) and village development committees (VDC) continue to be in charge of most activities at the identification and enrolment stage, although the extent and the scope of their involvement are reduced. The main differences with the traditional method of payment lie rather in the disbursement of cash to beneficiaries. In the pilot, this task was performed no longer by VDC but by bank agents, who also played an important role in helping a large number of beneficiaries with their queries, clarifications, documentation, and other tasks. By relieving village officials from the arrangement and the transport of cash, and the reporting and reconciliation of cash and accounts, the bank agents make possible a substantial saving of time and risk to VDC and DDC staff, who would, therefore, be able to focus on their core activities.
The preliminary results of the pilot seem thus to vindicate the initial expectations, also in terms of savings: the operational cost of delivering the social protection payments would decrease by more than 60%, if we consider that there is a time saving factor, given the time spent by state officials in managing the process of cash delivery and record keeping, and that would be freed up for other tasks, such as revenue collection and so on. Based on the time spent by state officials the cost of delivery comes to 1327.54 million (UD 12.44 million) and the maximum cost for delivering payments through PSP channel should not exceed 475.09 million (USD 4.46 million) benchmarked against best practices for delivering payments in context of Nepal, this resulting in substantial saving.
But the benefits can be far-reaching. Digitising the national SSA payment systems can not only smooth the process but, more broadly, contribute to strengthening the trust in the institutions and in their capacity to meet their responsibilities. Indeed, this alternate system would allow greater control on the leakages through data digitisation and de-duplication checks; simplify the report generation process through a digital management information systems (MIS), and secure authentication mechanism for beneficiaries through either biometric, where available, or card and PIN readers.
There are, however, some major challenges that test the public-private partnership on which this method is based. The next post will clarify the strategy to scale up the pilot and ask which lesson can be drawn from this experience.