Jamie M. Zimmerman

Five Ways to Make Electronic Delivery of Social Transfers Work for the Poor: Insights from CGAP’s recent Focus Note

Cash transfers are an increasingly popular tool to provide assistance to the poor. Recipients of cash transfers are huge in number and growing. According to the Global Savings and Social Protection Initiative, there are nearly 174 million individuals across 84 programs in 43 countries receiving social cash transfers in Latin America, Africa and Asia. According to the Cash Learning Partnership, over a five-year period, there were 3.3 million recipients of humanitarian and emergency-related cash transfers across 41 programs in 17 countries. As a percentage of overseas development assistance, government spending on cash transfers between 2005 and 2010 grew from around 1 percent to over 25 percent.

Cash transfers may have a number of well-reported and widely discussed benefits, but they have at least one very serious operational downside: the inefficient, insecure physical use of cash. In response, there is abundant enthusiasm for the promise of shifting from “cash transfers” to “e-payments to the poor.”

E-payments are heralded as having great potential for advancing the effectiveness of social transfers via increased efficiency through more transparency, reduced leakage and faster payment to recipients than cash or in-kind counterparts. Some have posited that e-payments to the poor can be a gateway to financial inclusion, and that financially inclusive cash transfers can even be an arbiter of other longer-term economic, social and even psychological benefits for the poor.

However, the reality is that it’s very difficult to design and implement e-payments effectively – particularly in low-income, low-infrastructure, low-resource contexts.

This is indeed what we found in the recent research conducted by Bankable Frontier Associates on behalf of CGAP, DFID and the Better Than Cash Alliance. We studied the experience of four programs on the cutting edge of designing and implementing e-payments in low-income settings – Ti Manman Cheri in Haiti, CFA in Kenya, the Pantawid Pamilyang Pilipino Program (4Ps) in the Philippines and Social Assistance Grants for Empowerment (SAGE) in Uganda. Their stories are all different, shaped by their unique contexts and program objectives. Yet they do share one common element: they have all struggled on their journey to get e-payments up and running smoothly.

Electronic social transfer systems (whether government-to-person (G2P) or donor-to-person) are inherently complex and context-specific. Off the shelf products and services are often unavailable; target populations may not fully understand the payment system or how it fits within the broader program; success is dependent on external factors like financial sector breadth and payments infrastructure like access to cash-in and cash-out points; success is also dependent on internal factors like consistency of payments and reliability of the program to disburse the funds.

So what will it take to get it right? CGAP’s recently published Focus Note Electronic G2P Payments: Evidence from Four Lower-Income Countries offers five key lessons for any cash transfer program looking to shift to electronic payments.

  1. Ensure Reliable Payments First: Getting payments reliably to recipients is a necessary precondition to meet most other program priorities and objectives, including ultimately any financial inclusion objectives. Using an e-payment system will not be effective and could even have adverse effects if it does not work well. Payment delays or working with agent networks in which liquidity is a problem will undermine the entire program, as recipients fail to trust or understand the new system.

  2. Create Sufficient Communications Channels with Recipients: Programs and payment service providers would benefit from creating proper communication channels when introducing, implementing and scaling up the program. Communication with recipients can be important to not only improving recipients’ awareness and understanding of the program, but also to reducing the number of complaints and questions that program staff must manage once the program is under way.

  3. Ask “What If?”: Governments, donors and payment service providers should incorporate contingency planning and realistic risk assessments into the earliest stages of the design process, as well as revisit them as situations affecting the program inevitably change.

  4. Ensure a Value Proposition for ALL Stakeholders: By the very nature of government-to-person payment schemes, no single entity has complete control over all facets of its design and implementation. Therefore, it is critical that a clear value proposition exists for all stakeholders – the administering program, the payment service provider and the recipients themselves – from the outset.

  5. Be Willing to Invest: Programs setting up electronic government-to-person (G2P) payments in countries and regions with limited e-payment infrastructure might initially need to expend resources to ensure adequate infrastructure, such as a functioning agent network or well-built interoperable management information system for data management and reconciliation. For instance, while it’s cheaper in the long run than cash-in-transit services, it can be expensive to develop and maintain robust agent or point of sale networks to enable convenient payments with sufficient liquidity in environments where the infrastructure is not already in place.

While these steps will not necessarily guarantee a seamless transition from clunky, risky cash to efficient, effective e-payments, they will certainly help institutions approach the design and implementation of e-payments with eyes wide open. With this keen awareness of the challenges and opportunities they realistically face, they will hopefully have a more solid foundation for success, and a greater chance to maximize all the benefits of electronic cash transfers to the poor.

Editor’s note: Zimmerman and Focus Note co-authors Kristy Bohling of BFA and Sarah Rotman of CGAP will present and discuss the findings from their research on May 28 at a lunch event at CGAP.

Jamie M. Zimmerman is a senior associate at Bankable Frontier Associates and co-author of the focus note and four related case studies for the recent research on Electronic G2P Payments in Low-Income Setting. She can be reached on Twitter at @jamiemzimmerman.

cash transfers, digital payments, product design, research