Nepal

Nepal

A Digital Dream Coming True in Nepal

Nepal

A Digital Dream Coming True in Nepal

How going cash-less is making life easier
September 15 , 2017

Subhadra Dahal, mother, entrepreneur and mobile money beneficiary.

Kathmandu, NEPAL - 

“My day starts at 5 am. I wake up, wash and then get on with my house chores. I have a 10 year old son who I get ready and then drop off to school. Around 10 am I open my store. We live in a small community with about 150 people, our village is far from developed but we have access to television, electricity (about 5 hours a day), fresh drinking water from our community reserve and internet. It’s not much but we are happy here.” Subhadra Dahal is a 33-year-old women from a small village in Nepal, 35 km away from Kathmandu. I met her as we were in Panauti shooting a short documentary. Subhadra lives alone in a two-flour house with her son, her husband has been in Qatar for the past 6 year, common practice for men in Nepal to travel abroad for employment.

She is the owner of a small store where I stopped to buy a bottle of water. I couldn’t help but notice her using a ‘smartphone’. With a smile she said it was a gift sent by her husband. A small courtesy chat turned into an hour long talk when she mentioned that she was just about to pay her electricity bill with an App on her phone. She went on to explain that it enabled her to do everything from paying her utility bills, to top-up to checking her accounts online. The name of the App: IME Pay.

The United Nations Capital Development Fund (UNCDF) programme MM4P has been providing technical assistance to IME Ltd to develop their digital finance project. Best foreign practices have been brought in to create an enabling environment for IME team to develop their mobile wallet system.  The mobile money products, namely the mobile wallet is offered through the existing 7000 remittance agent network of IME Ltd.  Reports show that 23 million people in Nepal are registered mobile phone users. The growing rates of internet banking services shows Nepalese people’s genuine interest in moving away from cash to a more cash-less arrangement.

In 2015, the department for payments systems of the central bank of Nepal, released its by-laws on payment and settlements. Since then, IME together with many other institutions that did not belong to the banking sector applied for a license. On June 21st 2017, IME became the first non-bank payment service provider to receive this license for operations in Nepal. This is an excellent news for people like Subhadra who can now reap the benefits of mobile money. “I don’t have to wait for hours in line to pay my utility bills now as I did over a year ago. I remember my customers complained that I closed my store on peak business hours and that was very inconvenient for them. I have also lost many customers who thought I didn’t take my job seriously. Now, those days are behind me and I can truly focus on my work and family.” says Subhadra with a bright smile.

Subhadra’s case is not an exception but a norm in context of sub-rural regions of Nepal. The majority of people who do not have access to personal computers or laptops have access to smartphones, which are their most valued asset. My encounter with Subhadra reminded me of an old saying, “A lack of knowledge creates fear. Seeking knowledge creates courage.” She is a true example of a new generation Nepalese women. Having to take care of her family, she has broken the age-old dogma of women being confined to kitchens and house chores. She has set an example that with the right knowledge and access to digital finance she can very well take on new endeavors to sustain the economic development of her family.

By Aliska Bajracharya, KM Consultant in Nepal

For more information, please contact
Aliska Bajracharya
KM Consultant, Nepal
Additional Information
Aliska Bajracharya
KM Consultant, Nepal

Nepal Agriculture Digital Linkage Study

Nepal

Fri, 08/25/2017 - 14:16 -- anna.ferracuti

‘What drives the Nepalese economy?’- The agricultural sector in Nepal presents an equal number of challenges and opportunities for farmers. Agriculture is the primary sector of the Nepalese economy. Despite the figures, informal financial services still play a crucial role within the agricultural sector. A much-needed digital financial intervention has the potential to counter the financial challenges farmers face on a day-to-day basis.

Building a backbone for the financial sector in Nepal

Nepal

Building a backbone for the financial sector in Nepal

August 18 , 2017
Kathmandu, NEPAL - 

Nepal Rastra Bank (NRB), via its Banking and Financial Institutions Regulation Department, has upgraded its reporting system with support from United Nations Capital Development Fund (UNCDF), UNNATI- Access to Finance (A2F) and the Mobile Money for the Poor (MM4P) programme. They have created an e-mapping platform based on a geographic information system (GIS) that shows all existing financial points in Nepal and enables efficient compliance control, data analysis and policy formulation.

Nepal, a landlocked central Himalayan country in South Asia with 19.2 million adults, is home to 184 banking and financial institutions.[1] Yet, only 40 percent of adults are banked, of which 73 percent reside in urban areas and 27 percent in rural areas.[2] A significant reason why 60 percent of Nepalese adults are unbanked is that they reside in areas where financial institutions do not have a formal foothold.

Establishing a branch in such areas would normally require heavy investment and manpower, but that is not the main reason banking and financial institutions shy away from expanding their services in Nepal. In fact, it is often that they merely lack access to information about the demand for financial services in remote regions.

With a vision of financial inclusion for all, NRB has deployed various policy instruments over the years to ensure that financial outreach makes in-roads to remote, rural areas. With the e-mapping system taking shape, a view of financial service points across the country will allow the NRB Banking and Financial Institutions Regulation Department to prioritize approval of new bank branches or channel points in regions that were previously excluded. 

On 21 July 2017, MM4P hosted a feedback session to give department directors a first look at the e-mapping system, which was unveiled by the Governor of NRB. The system developed by Usabledata Ltd. and Smart Solutions was demonstrated in the session. This platform will be publicly available but will have different access levels for NRB, financial institutions and the public.

The main objectives of the session were the following:

  • Acquainting participants with the real-time analytics and management information system and providing a system overview.
  • Showcasing the GIS-based map of Nepalese financial infrastructure.
  • Providing a step-by-step guide to drill down on the view of financial access to the local-body level and to track development of financial inclusion in different areas.
  • Tracking deposits/loans, including amounts at different levels.
  • Helping to lay the foundation for further advancement and scale-up of the e-mapping platform through recommendations.

As the session concluded and participants looked forward to the official launch of the e-mapping system, the Governor of NRB summarized its potential:

“The e-mapping system is going to change the way financial institutions function in Nepal and in the best possible way. People living in the remote corners of Nepal are a step closer towards financial inclusion. I thank UNCDF-MM4P for their guidance and support for making this a possibility, and we are enthusiastic to further build on this system and make it the backbone of Nepal’s financial sector.”

[1] NRB, ‘List of Banks and Financial Institutions,’ mid-January 2017. Available from https://www.nrb.org.np/bfr/pdffiles/List_of_BFIs_Jan_2017_English.pdf

[2] FinMark Trust and UNCDF-Making Access Possible, ‘FinScope Survey Highlights: Nepal 2014’ (n.p., n.d.). Available from http://www.unnatiprogram.org/uploads/publications/0PBlHqL1h2kifLCSLCS0Dv24xM50jBk9.pdf

 

Photo 1: Governor of NRB addressing the audience

Photo credits to Shubhashish Shahi, 2017

 

August 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 the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States.

For more information, please contact
Aliska Bajracharya
KM Consultant, Nepala
Jaspreet Singh
Regional Technical Specialist, Digital Finance
Additional Information
Aliska Bajracharya
KM Consultant, Nepala

Nepal: Ensuring customer confidence

Nepal

Nepal: Ensuring customer confidence

August 02 , 2017

Nepalese lady at an ATM.

Kathmandu, NEPAL - 

Electronic banking has led to a surge and uptake of digital finance worldwide. It has captured the attention of developing countries and least developed countries (LDCs) alike, where traditional banking—or no banking at all—is still prevalent. Transitioning these populations to digital channels requires shifting customer behaviour, which in turn necessitates building greater customer trust in the system.

Introduction of ATMs: An example to assess the role of trust in digital finance

The automated teller machine (ATM) was the first of several innovations that led to the digital boom. ATMs have steadily dotted the landscape of many developing countries and LDCs, with the pace of ATM infrastructure development heavily influenced by the demand side through the acceptance of cards. The process typically starts with one bank installing the services for its own customers and slowly, as acceptance picks up and other banks follow suit, demand for joining the network and for achieving interoperability in the long term grows.

Metrics to assess trust

Institutions invest in digital banking to increase revenue or to reduce cost. While non-financial transactions, such as balance enquiries and mini-statement requests, do not generate revenue (in fact, they put some strain on resources), these types of transactions build customer trust—first in the machine and ultimately in the system. The behavioural shift by customers to electronic banking and the confidence of customers in the system can be gauged by the volume of non-financial transactions. ATM data from one LDC in South Asia for financial and non-financial transactions underlines this point. In 2013, when ATMs were still in an early period of growth in Nepal, the ratio of financial to non-financial transaction volume was 3.07. It is now 4.57, revealing the growing confidence of customers to use ATMs to withdraw money as well as to conduct other financial transactions and not just to check balances (see figure I). 

Role of central bank to build trust

Many examples from across the globe attest to the fact that adoption and usage of electronic banking channels and instruments take time. The trust in the system that must be developed is linked to customer protection. Most LDCs are in an early stage of market development with technology-based banking. At that stage, the central bank needs to play a key role in ensuring customer confidence in the system through implementation of a robust grievance redressal mechanism and other rules/policies for customer protection. One issue that can erode customer trust in the technology is repeated transaction failure, which may or may not lead to financial loss but ultimately pushes the customer away from using digital instruments and instead to relying more on cash.

Failures that decrease trust

In Nepal, transaction data show the following failure ratios. On the ATM network, the ratio of successful to unsuccessful financial transactions is 3.21. On the point-of-sale (POS) network, this ratio is 3.27. The same ratio for non-financial transactions is 2.44 for both the ATM and POS networks (see table 1).

Reasons for failures that must be addressed to improve trust

There are a number of underlying reasons for these failures (see figures II and III). In the case of ATM transactions, while a lack of awareness on the part of the customer is the cause of a significant number of failures, most failed transactions are on the part of the issuing bank, machine or network (e.g., issuer time-out, issuer down, switch not available). In the case of POS transactions, the high level of failure is singly attributed to the supply side: the bank or acquirer network is unable to process and pass the transaction message (due to various causes).

These are the types of issues that could drive down customer confidence and trust in digital channels and that must be considered as markets prepare to offer digital channels/instruments, especially in the context of achieving financial inclusion goals. A focus on building customer trust by providers can go a long way towards increasing uptake and hence sustainability of investments. In the same vein, central banks must play a key role in establishing platforms to collect and address customer grievances, establishing principles for market players to follow when dealing with customer issues and implementing a strong oversight mechanism to ensure compliance.


August 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 the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States. The designations employed and the presentation of material on the maps and graphs contained in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations or UNCDF concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries.

For more information, please contact
Aliska Bajracharya
KM Consultant, Nepal
Jaspreet Singh
Regional Technical Specialist, Digital Finance
Additional Information
Aliska Bajracharya
KM Consultant, Nepal

Nepal Annual Monitor 2016

Nepal

Thu, 07/27/2017 - 10:43 -- anna.ferracuti

The digital financial services landscape in Nepal is changing, as the Nepal Rastra Bank starts issuing licences to non-bank payment service providers. Non-banks are actively engaging to set up agent networks and develop partnerships to co-create products, and many mainstream financial institutions are investing in new digital channels to deepen their services. 

Consultative Workshop on Digitizing National Retail Payments Systems

Nepal

Consultative Workshop on Digitizing National Retail Payments Systems

Nepal Rastra Bank invites DFS Stakeholders to discuss digital payment strategies
July 14 , 2017

Day 1 of the workshop – a focus-group discussion with officials from Nepalese commercial banks.

Kathmandu, NEPAL - 

A three-day workshop conducted by Nepal Rastra Bank (NRB), the central bank of Nepal, convened participants from mainstream financial institutions, non-bank payment service providers, infrastructure actors and government ministries and regulators. The purpose of the workshop was to discuss the status of adoption of retail payments in the country, particularly digital payments, and the gaps that persist in the market that relate to customers, providers, infrastructure and policy.

The workshop, led by NRB and facilitated by the United Nations Capital Development Fund programme Mobile Money for the Poor, supported a larger objective of NRB regarding payment systems. With the establishment of a payment system department at NRB, the central bank is spearheading the development of a National Retail Payment Strategy. The strategy will internally guide its policymaking objective and will serve externally as a tool to communicate NRB’s policy priorities. The strategy sets out NRB’s vision as the custodian of payment systems in Nepal, and what it aims to achieve in the coming years[1] :

  • Promote the development of a secure, healthy and efficient system of payments
  • Reduce barriers for retail payment services and other retail financial services
  • Level the playing field and provide flexibility in the market to promote innovation
  • Ensure an effective yet proportionate approach to consumer protection
  • Achieve sustained rapid growth and large-scale volumes[2]

On the first day of the workshop, participants from commercial banks and other banking institutions, such as development banks, spoke about their support and inclination towards digital financial services (DFS). It was clear from the first round of discussions that, despite having a positive view of DFS and mobile banking platforms, certain segments of customers (mainly rural and above the age of 45) are still unwilling to shift from using cash to DFS. However, there was a strong consensus from bankers to work cohesively to address this reluctance and to build a digital system that is not only for young, well-educated urban Nepal but for Nepal as a whole in order to achieve the main goal of DFS, which is financial inclusion for all.

The second day of the workshop hosted non-bank payment service providers. The main theme of discussion was the need for more lenient and liberal policies and regulations from the central bank for providers in Nepal. One participant expressed his perception of the current situation by saying, “Fast-pace regulations around DFS in Nepal would help companies like us to forge and foray into the digital revolution that the financial sector of Nepal is open to.”

The third day of the workshop saw the meeting of regulators and government ministries, which included representatives from NRB, Ministry of Finance and Nepal Telecommunications Authority, among others. The main theme of the final session was to address the queries raised by commercial banks and providers regarding the policies and regulations that at times inhibit the scalability and scope of DFS. The officials addressed the matter by saying that their respective organizations are focused on aligning their internal strategies to enhance the outreach of DFS in Nepal. This alignment will translate through refined policies that will pave the way for banks and other agencies to deliver DFS at a simpler but much larger scale.

 

July 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.

 

[1] These are only general outcomes that every regulator aims to address and are not specific to this context. The outcomes are based on the following sources:

European Central Bank, ‘Harmonised oversight approach and oversight standards for payment instruments’ (Frankfurt, 2009). Available from https://www.ecb.europa.eu/pub/pdf/other/harmonisedoversightpaymentinstruments2009en.pdf ;

Harish Natarajan and others, Developing a Comprehensive National Retail Payments Strategy: Consultative Report (Washington DC, World Bank, July 2012). Available from http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/282044-1323805522895/Developing_a_comprehensive_national_retail_payments_strategy_consultative_report(8-8).pdf; and UNSW, ‘Regulatory Diagnostic Toolkit for Digital Financial Services,’ 21 September 2016. Available from https://clmr.unsw.edu.au/resource/digital-financial-services/regulatory-diagnostic-toolkit-for-digital-financial-services-

[2] Since all retail payments by nature are high-volume, low-value transactions, the transition to electronic transactions can only be achieved if the business case for such a transition exists for different stakeholders. Since a large part of this transition depends on the level of trust by the customer, which builds over time, and since the relative cost of setting up the infrastructure is high, the economy of scale is an important factor that drives this transition to sustainability. 

For more information, please contact
Aliska Bajracharya
KM Consultant, Nepal
Additional Information
Aliska Bajracharya
KM Consultant, Nepal

Nepal - Let’s talk about digitization

Nepal

Nepal - Let’s talk about digitization

Stakeholder consultation to move forward Social Security Allowance e-payments
July 04 , 2017

Sharing of the plan for an e-payments strategy in Nepal with stakeholders

Kathmandu, NEPAL - 

A consultative workshop held at Summit Hotel brought together stakeholders to discuss a proposed Social Security e-Payments Strategy in Nepal. The workshop served as a platform for stakeholders to share their input on the proposed strategy and implementation plan, before it is finalized and tabled for approval by the Government of Nepal. The workshop was organized by the Department of Civil Registration (DOCR) working under the Ministry of Federal Affairs and Local Development and in collaboration with the World Bank, United Nations Capital Development Fund (UNCDF), Mobile Money for the Poor and Local Governance and Community Development Programme Phase II.

The Government of Nepal has been providing social assistance to its citizens for more than 15 years. The annual number of beneficiaries now exceeds 2 million, and the types of social security allowances (SSAs) currently include a Senior Citizen Allowance, Single Woman Allowance, Disability Allowance, Endangered Ethnicity Allowance and Child Protection Grant. These grants are currently delivered manually to beneficiaries in cash through a complex institutional framework. The manual process to deliver SSA payments, which comes at an annual cost of Nr1.327 billion (~US$13 million),[1] presents some serious disadvantages, such as errors in recordkeeping due to ghost beneficiaries and system leakages.

DOCR plans to transition from manual to electronic payments, championing a vision for the country where efficient SSA distribution ensures the right amount to the right person at the right time.

The transition aligns with a government directive to transfer all SSA payments through bank accounts. In this context, the World Bank and UNCDF are providing technical assistance to DOCR to develop and implement an e-payments strategy.

The consultative workshop brought together representatives from the Ministry of Finance, Nepal Rastra Bank (the country’s central bank), Financial Comptroller General Office and financial institutions, among others. It kicked off with a presentation of a draft strategy agenda that touched upon the scope of the e-payments strategy in building institutional capacities and partnerships to create an ecosystem with the infrastructure to support widespread cashless payments to SSA beneficiaries and ultimately to work towards a less cash-dependent society. Stakeholders raised questions about banking interventions that are necessary for building such a system. They also identified banked and unbanked areas in each region of the country in order to map out potential hubs to support agents located in various branches, branchless banks and payment service providers.

The workshop came to an end with closing remarks from the DOCR Director General:
“Digitization of social security allowance[s] in Nepal is going to re-structure our payment system. The questions and issues raised by our stakeholders today will not go unnoticed; they will be further discussed in our Steering Committee meeting. I thank UNCDF for organizing this meeting and for their support and guidance towards this project.” With this, the hope of establishing an effective, efficient, transparent and centralized SSA payment mechanism has been set in motion.

 

June 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.

 

[1] Conversion rate: Nr1 = US$0.00968921 (Source: www.xe.com, 23 June 2017).

 

 

Digitization of social security allowance[s] in Nepal is going to re-structure our payment system

DOCR Director General
For more information, please contact
Aliska Bajracharya
Knowledge Management Consultant
Jaspreet Singh
Technical Specialist Digital Finance
Additional Information
Aliska Bajracharya
Knowledge Management Consultant

Digitizing social security allowances in Nepal - Part 3

Nepal

Digitizing social security allowances in Nepal - Part 3

March 22 , 2017
Kathmandu, NEPAL - 

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.

To read Part 1 and Part 2 click here 

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.

For more information, please contact
Jaspreet Singh
Technical Specialist Digital Finance
Additional Information
Jaspreet Singh
Technical Specialist Digital Finance

Digitising Social Security Allowances in Nepal

Nepal

Digitising Social Security Allowances in Nepal

Part 2
March 10 , 2017
Kathmandu, 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.

 

For part 3 click here 

For more information, please contact
Jaspreet Singh
Technical Specialist Digital Finance
Additional Information
Jaspreet Singh
Technical Specialist Digital Finance

Digitizing social security allowances in Nepal

Nepal

Digitizing social security allowances in Nepal

Part 1
March 02 , 2017
Kathmandu, NEPAL - 

This post is the first of three looking at the digitization of social security benefit grants in Nepal. It provides the background of the country’s social security allowance (SSA) programme and describes how the current method of payment works.

Geography may not be destiny, as the saying goes, but when it comes to financial inclusion, it is definitely a key determinant. Nepal, with its rugged landscape and poor infrastructure, is a case in point. As discussed in a previous post, the lack of brick-and-mortar banks and other financial institutions in rural areas is a major obstacle to achieving universal financial access. Today, 61 percent of the population is formally financially included, but this South Asian country presents infrastructural challenges that compound the socioeconomic marginalization of large swathes of the population. While the State relies heavily on foreign aid, private households find a vital lifeline in the flow of international remittances, which account for 32 percent of GDP. As 25 percent of the population lives on US$1.25 per day, the national social protection programme plays a critical role in sustaining livelihoods and smoothing consumption among the poorest.  

In December 1994, the Government of Nepal began making SSA payments to senior citizens, those above the age of 75. Over time, the pool of beneficiaries has been gradually expanded to include other categories of beneficiaries, namely single women, children, widows, disabled persons and Janajatis (members of endangered ethnic groups). The total SSA budget currently amounts to Nr17 billion (~$156 million) per year, and it is expected to be doubled soon. Payments range between Nr200 and Nr1000 (~$2 and $9), delivered three times per year to 2.36 million beneficiaries, distributed across the country’s mountain, hill and terai (plain) regions (see table).

Snapshot of social security allowance transfer

a Individuals may not receive more than one transfer and are ineligible if they already receive a salary or pension from the Government.

b Although the benefit amounts are described in monthly terms, the money is aggregated and delivered three times per year by VDCs and municipalities.

c As explained on the Dalit Welfare Organization website, ‘Dalit are defined as “those communities who, by virtue of atrocities of caste-based discrimination and untouchability, are most backward in social, economic, educational, political and religious fields, and are deprived of human dignity and social justice."’

d The Supreme Court of Nepal recently ruled that all widows, regardless of age, should be eligible for this allowance. To date, this ruling has not yet been implemented.

e MoFALD allocates quotas by district for partial disability beneficiaries. Decisions are made by the Social Security District Coordination Committee in cases where the number of applicants for the partial disability grant exceeds the district quota.

f There are 59 officially recognized Janajati (indigenous) groups in Nepal. Out of these, 10 have been identified as endangered and are eligible for the grant.

 

 

Social security benefit grants are currently delivered manually to beneficiaries in cash through a complex institutional framework. The process begins with the 3,276 Village Development Committees (VDCs) and 191 municipalities in 75 District Development Committees (DDCs). VDCs are in charge of enrolling beneficiaries, or renewing the applications of beneficiaries, and submitting them to DDCs, which in turn forward summary reports to the Ministry of Federal Affairs and Local Development (MoFALD). On the basis of the budget prepared by MoFALD, the Ministry of Finance (MoF) allocates the funds and reconciles the reports.

The process is divided into six steps: communication with existing/prospective beneficiaries to renew/enrol; application process; deregistration of the deceased and others; issuance of beneficiary passbook/identity card; fund disbursement; and reporting and reconciliation (see figure).

Process flow for social security allowance payments


This manual process to deliver SSA payments, which comes at an annual cost of Nr1.327 billion (~$12 million), presents both advantages and disadvantages.

The two major benefits of manual disbursement of SSA payments derive from the familiarity of beneficiaries with VDC and DDC officials, who are primarily responsible for disbursing the payments and carrying out development work in the areas under their jurisdiction. First, since VDCs and DDCs can rely on the administrative infrastructure already in place, there is no need to set up a separate chain of operations. Second, VDC officials can use the pre-existing channels of communication not only to reach out to beneficiaries but also to receive feedback and complaints to be forwarded to the upper echelons. The personal relationship built over time between officials and beneficiaries is particularly relevant for specific segments, such as senior citizens. Indeed, not only do VDC officials verify the age of applicants, which is the determining factor for eligibility, from the citizenship card, but they also assist eligible beneficiaries in completing the application form.

On the other hand, the manual payment system presents many challenges. To begin with, a manual process for data collection, data entry, record keeping, report preparation and benefit disbursement is cumbersome and prone to errors. It creates a heavy workload for VDC and DDC officials, who are therefore diverted from other tasks, and increases the risk that resources might ‘slip through the cracks’ because of the lack of proper control mechanisms. It also exposes the system’s vulnerability to inefficiencies and fund misuse, by hindering the identification of ghost beneficiaries and leakages. On top of that, because of the remoteness of the areas in which most beneficiaries reside, cash distribution to VDCs and fund disbursement can be delayed, sowing discontent among beneficiaries. As a result, in the medium/long-term, trust in the system can erode, thus undercutting the legitimacy of the institutional actors involved.

A question then arises: how can the efficiency of the system be improved while costs are contained?

The next blog post will describe how MoFALD, supported by the World Bank and United Nations Capital Development Fund and in partnership with local banks, are addressing this issue.

Stay tuned!

For Part 2 click here 

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 the views of UNCDF, the United Nations or any of its affiliated organizations or its Member States.

 

For more information, please contact
Jaspreet Singh
Technical Specialist Digital Finance
Additional Information
Jaspreet Singh
Technical Specialist Digital Finance

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