NB Financial Innovation
Eight Principles for Digital Payments in Humanitarian Response
Since 2010, USAID’s Office of U.S. Foreign Disaster Assistance (OFDA) has funded at least 80 projects per year with cash or voucher elements, while the Office of Food for Peace (FFP) distributed $448 million in emergency funding through cash or vouchers in fiscal year 2015. Other bilateral donors and foundations are similarly shifting toward more cash-based programming with the recognition that, given appropriate market conditions, cash can be an empowering and efficient tool for humanitarian response and recovery.
This shift toward the provision of humanitarian aid via direct cash grants to beneficiaries creates opportunities to build markets for lasting financial services, particularly low-cost digital payment systems accessed through mobile phones and local agents. The use of these services can improve the efficiency and transparency of cash disbursements while continuing to help poor households manage risk and access economic opportunities during times of protracted crisis or post-disaster recovery. By creating demand for services and identifying individual recipients – a process called “know your customer” – the very act of disbursing humanitarian aid can help overcome some of the obstacles to providing commercial financial services to vulnerable populations.
Despite these potential benefits, many practical challenges remain for programs that try to leverage commercially provided digital payments. After a disaster, the priority is to get payments out to those affected as quickly as possible. Often, and especially in nascent markets where digital payments do not yet have a large user base or supporting agent infrastructure, the logistics of using digital payments – such as signing memorandums of understanding with the private sector, registering beneficiaries and ensuring that there are appropriate cash-out locations – can cause unacceptable delays.
In light of these challenges, digital payments, if used at all, are often disbursed through closed-loop systems. These are payment platforms created abroad, often for short-term use. They do not connect recipients to an account that they can use for storing, sending and receiving funds after the humanitarian response has ended.
Recognizing both the practical challenges to using locally available digital payment services and the powerful opportunity to leverage humanitarian spending to build inclusive, lasting financial infrastructure, OFDA, FFP and the U.S. Global Development Lab convened partners in Barcelona, Spain, in February 2016 to answer a complex question:
How can we use digital payments to benefit humanitarian response and boost resilience of economic infrastructure, communities and households?
The two-day workshop brought together participants representing 24 public, multilateral and nongovernmental organizations across the humanitarian and financial inclusion sectors. The participants started with brainstorming for rapid idea generation, followed by design exercises to identify, prioritize and finally narrow down to eight principles for the humanitarian response community’s use of digital payments. Following the initial convening, a smaller advisory committee expanded the definition of each principle to provide further clarity. The eight high-level principles are:
- Select payment mechanisms for recipient empowerment.
- Collect data that is relevant and proportional.
- Safeguard the right to data privacy and protection.
- Facilitate pathways to financial inclusion where possible and appropriate.
- Prioritize and build on local systems and infrastructure.
- Invest in organizational preparedness to quickly leverage digital payments, when appropriate.
- Develop institutional and collective capacity for effective humanitarian/private sector engagement.
- Coordinate the use of shared and multipurpose platforms.
You can review the eight expanded principles and full list of participating organizations in their entirety here.
The principles – and the ongoing dialogue that has arisen from them – have two explicit aims. First, we want to increase dialogue around the use of digital payments between the humanitarian and financial inclusion fields. Second, we hope the principles provide a platform for humanitarians to engage on these concepts within their organizations and with other key stakeholders, including the private sector and local governments.
To be clear, these principles are not meant to advocate the use of cash over other forms of aid distribution (such as in-kind transfers of food or non-food items, which may be appropriate in certain situations), nor to promote one particular payment mechanism (digital may not be available in every disaster or conflict situation). It is up to humanitarian agencies to choose whether digital payments are the most appropriate transfer mechanism for their objectives and in their contexts.
The principles are, however, meant to guide institutions that are using digital payments systems in a given context toward a more effective and sustainable use of these systems.
Over the next several months, we’ll start the process of finding an organizational owner for the principles and gaining endorsements. We’ll also work to increase awareness of the principles among all stakeholders. Finally, we’ll start testing many of the principles in practice through preparedness pilots, which will be announced in October. We look forward to your thoughts and encourage you to get in touch; check out the Cash Learning Partnership Discussion Groups and read up on the International Rescue Committee and UN Capital Development Fund’s ongoing work on digital cash preparedness.
Photo courtesy of the U.S. Global Development Lab.
- Financial Inclusion