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

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October Some examples DeliveryCountryFrequencyCost/ payment Cash – bankColombia Equador Bi-monthly Monthly $0.6 - $1.0 $0.45 Cash – POPalestine Kenya Monthly Bi-monthly$1.0 - $2.0 Cash – private Cash – direct Mexico Zambia Various Monthly Cheque – PO Vouchers Jamaica Malawi Bi-monthly Monthly $0.3 - $0.6 Card – ATM Card – retail South Africa Monthly Mobile phone[Lesotho]Monthly Source: World Bank

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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)

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October Access to major retail chain stores: Malawi <30km

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October Access to major retail chain stores: Malawi <20km

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October Decision tree on developing enhanced payment strategies Source: DFID Scoping Report on the Payment of Social Transfers through the Financial System

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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

Innovative Approaches to Delivery Mechanisms for Cash Transfers By: Nicholas Freeland, 10 October 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