Innovative Approaches to Delivery Mechanisms for Cash [Credit] Transfers Introduction

Innovative Approaches to Delivery Mechanisms for Cash [Credit] Transfers

Introduction

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Innovative Approaches to Delivery Mechanisms for Cash TransfersBy: Nicholas Freeland, 10 October 2006

Why cash [credit] transfers?

• Are cheaper to administer (>50% of value of food aid)• Reduce risk of dependency and disincentives• Allow individual choice• Can be invested or consumed• Have multiplier effects on income and employment• Stimulate markets by increasing purchasing power

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What is the problem?

• Getting cash to beneficiaries• What:

• Cash, cheques, vouchers, direct transfers, debit cards, smart cards, mobile phones

• Where:• Banks, post offices, pay offices, government

offices, private firms, retailers• How:

• Geographic coverage• Security• Identification

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Why is it important?

• Delivery may cost 2%-4% of total grants (>50% of admin budget)

• Financial cost of badly-designed system may be even higher (fraud, losses)

• Reputational costs to the grant-paying agency• Indirect benefits through access to financial services by

non-beneficiaries• Not a sunk cost, but a potential source of growth

• Beneficiaries• Surrounding communities• Financial system and overall growth

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Objectives

• To reduce costs to the beneficiary: physical, financial, opportunity

• To reduce overall transaction costs (high α-value): <5% To minimise the risks: corruption, robbery

• To maximise the dignity of the recipient: shelter, etc• To have universal coverage: transport, access• To ensure regularity and timeliness• To enhance the ability to scale up• To provide extra financial services: savings, credit• To provide opportunities for non-beneficiaries• BUT … trade-offs

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Some examples

Delivery Country Frequency Cost/payment

Cash – bank ColombiaEquador

Bi-monthlyMonthly

$0.6 - $1.0$0.45

Cash – PO PalestineKenya

MonthlyBi-monthly $1.0 - $2.0

Cash – privateCash – direct

MexicoZambia

VariousMonthly

Cheque – POVouchers

JamaicaMalawi

Bi-monthlyMonthly

$0.3 - $0.6

Card – ATMCard – retail

South AfricaSouth Africa

MonthlyMonthly

Mobile phone [Lesotho] Monthly

Source: World Bank

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Examples from southern Africa

• Net1 UEPS – Serge Belamant, CEO• South Africa - social welfare payments (Limpopo, Kwa-

Zulu Natal)• Namibia – NamPost• Malawi - MalSwitch

• Visa CEMEA – Nick Essame, Head of Business Development, SA• South Africa – Sekulula card for social welfare

payments (Eastern Cape, Free State, Gauteng, and Western Cape)

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Access to major retail chain stores: Malawi

<30km

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Access to major retail chain stores: Malawi

<20km

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What next?

• Share experience• Raise awareness of existing, available technologies• Assess readiness

• DFID methodology (Scoping Report, July 2006)• ToR for country case studies• Spreadsheet model for projecting payment costs• Decision tree

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Decision tree on developing enhanced payment strategies

Source: DFID Scoping Report on the Payment of Social Transfers through the Financial System

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Push and pull mechanisms

• Pull• Full cash grant• Defined point (fixed/mobile; multipurpose/dedicated)• Particular time

• Push• Sent to bank account• Range of locations (ATM/POS)• Time of choosing• Not necessarily full amount/multiple withdrawals

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Enhanced financial services

• Add-ons (grant provider/other institution• Micro-savings• Burial societies• Insurances• Micro-credit

• Add-ins (basic transaction account)• No minimum balance• No initial fee• No monthly charges• Ability to receive and make transfers• Therefore may require subsidy

Innovative Approaches to Delivery Mechanisms for Cash [Credit] Transfers Introduction

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