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Social Cash Transfer Payment Systems in sub-Saharan Africa

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Abstract

Social cash transfers to vulnerable households and individuals have been adopted at an unprecedented scale across sub-Saharan Africa. While most programmes initially relied on manual cash disbursements, digital payment technologies have been on the rise since the early 2000s. Through a survey of 130 programmes in 44 countries this paper offers a comprehensive overview of payment instruments and providers used in the region. Although cash continues to play a key role in the disbursement of social transfers, the adoption of electronic payments through private companies is increasing and further payment reforms and digitization efforts can be expected.
CENTRE FOR
SOCIAL SCIENCE RESEARCH
Social cash transfer payment systems
in sub-Saharan Africa
Lena Gronbach
CSSR Working Paper No. 452
May 2020
Published by the Centre for Social Science Research
University of Cape Town
2020
http://www.cssr.uct.ac.za
This Working Paper can be downloaded from:
http://cssr.uct.ac.za/pub/wp/452
ISBN: 978-1-77011-439-5
© Centre for Social Science Research, UCT, 2020
About the author:
Lena Sophia Gronbach is a PhD candidate in the Department of Sociology at the
University of Cape Town.
1
Social cash transfer payment systems
in sub-Saharan Africa
Abstract
Social protection programmes in the form of social cash transfers (SCTs) to
vulnerable households and individuals have been adopted at an unprecedented
scale across the Global South. While most programmes initially relied on manual
cash disbursements, digital ‘financially inclusive’ payment technologies have
been on the rise since the early 2000s. Yet the existing literature on SCTs has paid
little attention to the payment modalities, focusing instead on policy making
processes, impact evaluations and affordability. This paper addresses this gap
through an overview of current practices and trends with regard to SCT payment
systems in sub-Saharan Africa. The paper explores the use of different payment
instruments and providers, as well as the considerations, practicalities and
implications of different payment systems, based on an extensive review of the
scholarly literature, as well as a variety of non-academic sources.
The findings reveal an increase in the use of electronic payment instruments, such
as bank transfers, card-based payments and mobile money in the majority of SCT
programmes in the region. However, as cash continues to be the dominant means
of payment across the continent, transfers paid via electronic channels are often
‘cashed out’, rather than leading to greater financial inclusion or the use of
digital financial services among beneficiaries. Most programmes use a
combination of cash-based and electronic disbursements to account for low levels
of financial inclusion, limited financial infrastructure in certain regions, and the
needs of different beneficiary groups. Further, payments are increasingly
delivered through private financial institutions, although states continue to play
a key role in terms of oversight, administration and coordination. The prominent
role of international organizations in the funding, design and delivery of SCT
programmes in sub-Saharan Africa has been an important factor in this regard.
Yet limited financial infrastructure and administrative capacity continue to
hamper digitization efforts, particularly in low-income countries and rural areas.
Moreover, unregulated digitization and privatization of SCT payments has led to
adverse impacts on beneficiaries in some cases, highlighting the continued
importance of state-owned payment channels such as postal networks. Overall,
2
the SCT payment landscape in sub-Saharan Africa is changing rapidly, and
payment reforms, pilot projects and digitization efforts can be expected to
continue as more and more countries enter the digital age and expand their SCT
programmes to tackle poverty and inequality.
1. Introduction
Social protection programmes in the form of social cash transfers (SCTs) have
become a key instrument in global and local efforts to tackle poverty and
inequality in the global South. Mexico, Brazil, South Africa and Indonesia were
among the first countries to establish extensive SCT schemes in the late 1990s
(Hanlon, 2009), and by 2016 close to 130 low- and middle-income countries had
at least one SCT programme in place (Bastagli et al., 2016). Largely absent from
the African continent until the early 2000s, SCTs are now included in
development strategies in most countries in sub-Saharan Africa (Beegle,
Coudouel & Monsalve, 2018). The oldest SCT programmes were introduced in
South Africa in the 1920s, followed by Namibia, Botswana and eSwatini. In most
of Central, East and West Africa, SCTs were only introduced in the early 2000s.
Although social assistance (also referred to as social safety nets)
1
includes both
cash and in-kind transfers, Figure 1 illustrates that SCTs are the leading social
assistance instrument on the continent, except for Central Africa where public
works are slightly more prevalent. The 2019 ‘State of Social Assistance in Africa’
report published by the United Nations Development Programme (UNDP) further
found that all countries in Southern Africa, as well as close to 90% of West
African countries and 80% of East African countries had at least one type of SCT
programme in place. The proportion was slightly lower in Central Africa, where
five out of nine countries had a SCT programme
2
(United Nations Development
Programme [UNDP], 2019).
1
The World Bank defines social assistance or social safety net programmes as non-contributory
transfers in cash or in-kind which are usually targeted at the poor and vulnerable. They include
cash transfers (conditional and unconditional), in-kind transfers, such as school feeding and
targeted food assistance, and near cash benefits such as fee waivers and food vouchers (World
Bank, 2020b).
2
For further reading on the state and nature of SCT programmes in Africa, see UNDP (2019),
Beegle et al. (2018) and World Bank (2018e).
3
Figure 1: Type of transfers in programmes, per region (UNDP, 2019).
Impact evidence for SCTs has been overwhelmingly positive and numerous
studies have illustrated their beneficial effects with regard to health, education,
consumption, and the reduction of poverty and inequality (Garcia & Moore,
2012). Moreover, from the perspective of programme designers, cash transfers
can have numerous advantages over in-kind aid with respect to reliability,
delivery costs, and lower levels of fraud and corruption (Hirvonen & Hoddinott,
2020)
3
.
While most programmes initially relied on manual cash disbursements to
beneficiaries, the past ten years have seen a growing interest in digital, ‘financially
inclusive’ payment technologies. Yet existing studies on SCT programmes have
mostly focused on programme design, policy making processes, affordability and
impact evaluations, paying relatively little attention to the payment dimension.
This lack of data and comparative analysis is particularly pronounced in sub-
Saharan Africa, despite the considerable expansion of SCT schemes in the region,
as well as significant financial support for these programmes from international
organizations and donors.
Based on a review of the existing scholarly literature, as well as a broad range of
non-academic sources, this paper addresses this gap by surveying the current state
of SCT payment systems in sub-Saharan Africa and by identifying the
overarching trends and developments in this field. More specifically, it illustrates
the practicalities, benefits and drawbacks of the various payment instruments
3
Although this is does not always translate into practice, as demonstrated by the case of South
Africa (see Gronbach (2017) and Foley and Swilling (2018)).
4
identified across the region and provide examples of their implementation in
different countries. Further, the paper explores the increasingly prominent role of
private financial companies in the establishment and day-to-day operation of SCT
payment systems, as well as the use of agent networks and post offices to expand
payments into rural areas.
The programmes covered by this review are non-contributory, cash-based social
assistance programmes (both conditional and unconditional) in sub-Saharan
Africa that make payments directly to households or individuals. These include,
among others, social pensions, disability grants, child benefits and poverty-
targeted household or family support payments. The paper does not cover
contributory social insurance schemes, in-kind transfers such as school feeding
programmes or food baskets, workfare or cash-for-assets programmes,
agricultural subsidies, education grants, or free basic services, due to their
fundamental differences with regard to programme design and delivery. Further,
only programmes that are currently active, as well as programmes that were
terminated no more than five years ago and ran for at least one year, are included
(i.e. emergency transfers, once-off payments or short-term pilot programmes have
been excluded). The focus of this paper lies on national safety nets with a
minimum level of government ownership either in terms of funding,
implementation or branding and humanitarian transfers run entirely by aid
agencies or NGOs are therefore not covered by this review
4
. While the payment
mechanism is never isolated but is influenced by and has impacts on other
elements of SCT design, such as conditionality, targeting, beneficiary selection,
financing, etc., the limited scope of this paper does not permit a detailed analysis
of these issues, which have been discussed in great detail by other authors
5
.
The data and case studies presented in this paper are based on a detailed review
of over 500 documents, including peer-reviewed academic literature, government
documents, programme manuals, impact evaluations, funding proposals and
media articles from both print and online sources. The review identified a total of
130 programmes in 44 countries which are presented in tabular form in the
appendix. The largest category of programmes (57) consists of general support
transfers paid to vulnerable households or families based on a variety of different
targeting mechanisms or combinations of targeting instruments (see appendix).
Child support grants, including grants paid to caregivers and foster parents,
represent the second largest category with 27 programmes, followed by old age
pensions (16), disability grants (11) and cash transfers to war veterans (7). The
4
These are discussed extensively by, for example, Bailey (2017a), International Rescue
Committee (2016) and Smith, MacAuslan, Butters and Trommé (2011).
5
These aspects are covered by, for example, Samson, Van Niekerk and Mac Quene (2006),
Bastagli et al. (2016) and Garcia and Moore (2012).
5
review also includes four funeral grants which are either paid to the relatives of a
deceased grant recipient or directly to the funeral parlour. A further nine grant
programmes labelled as ‘other’ comprise grants for genocide survivors, refugees
and other specific vulnerable groups.
Of the 130 programmes analysed for this study, 122 were found to be active as of
April 2020, although it must be noted that the most recent available data on
programme status, beneficiary numbers and grant values for some programmes
dates back several years (see appendix) and that some programmes may have been
terminated or modified since then. In terms of their size, the programmes range
from small, regional or narrowly targeted schemes covering as few as 92
beneficiaries in the case of South Africa’s War Veterans Grant or 850
beneficiaries of the Needy Mothers Programme in São Tomé and Príncipe to
large-scale national safety nets serving several millions of recipients. These
include, for example, South Africa’s Child Support Grant with 12.5 million
beneficiaries or Ethiopia’s Productive Safety Net Programme with around
8 million beneficiaries in 2019. The countries that did not have a national SCT
programme in accordance with the criteria outlined above as of April 2020, and
that are thus not covered in this paper, are the Central African Republic, Comoros,
Equatorial Guinea, Eritrea and Gabon.
This paper is structured as follows: Section two outlines the basic considerations
that guide the design and implementation of cash transfer payment systems in
order to provide a basis for the subsequent discussion of existing payment
arrangements. The various payment instruments and payment providers used to
deliver SCT payments in sub-Saharan Africa are then introduced and discussed in
sections three and four respectively, including practical examples from across the
continent. Finally, section five summarizes the key findings of this study.
2. Designing cash transfer payment systems
In the words of Grosh, Del Ninno, Tesliuc and Ouerghi (2007: 156), the main goal
of an STC programme’s payment mechanism can be described as successfully
distribut[ing] the correct amount of benefits to the right people at the right time
and frequency while minimizing costs to both the program and the beneficiary.
Or, as expressed in the slogan of South Africa’s Social Security Agency: ‘Paying
the right social grant, to the right person, at the right time and place (South
African Social Security Agency [SASSA], 2017). The design of an SCT payment
system should thus be guided by the overall structure and goals of the programme,
the country-specific context, as well as the respective costs and benefits of
different payment mechanisms.
6
A useful framework for the analysis of existing payment mechanisms and the
development of new payment systems is provided by the Inter-Agency Social
Protection Assessment (ISPA) initiative’s assessment tool. It proposes three key
criteria that should guide the design and implementation of SCT payment systems,
namely robustness, accessibility and integration (Inter Agency Social Protection
Assessments [ISPA], 2016a). Robustness refers to the importance of reliable,
regular, safe and well-coordinated payments to the correct recipient. Accessibility
addresses the overall beneficiary experience, including cost and ease of access,
payment modalities, communication and dignity. Finally, integration considers
the use of existing structures and technologies, links with other social protection
programmes, as well as broader considerations of financial inclusion, economies
of scale, and shared systems and resources (ISPA, 2016a).
Using examples from sub-Saharan Africa, the remainder of this section outlines
the practical implications of these key considerations, thus providing a framework
for the subsequent discussion and analysis of existing payment arrangements.
Following this introductory section, the selection of a suitable payment provider
and the corresponding payment instrument(s) is discussed in more detail in the
two subsequent sections.
2.1 Robustness
A robust payment system ensures that payments reach the right person at the
right time, in the right place and in the correct amount. The first fundamental
aspect guiding the design of the payment system is thus the nature and identity of
the beneficiary, as well as of the person collecting the payment which may or
may not be the beneficiary him- or herself (Transform, 2017). Programmes that
have extensive geographic coverage and are targeted at large categories of
beneficiaries (e.g. all citizens above the age of 60 regardless of their income in
the case of a social pension) require different payment solutions than small,
narrowly targeted pilot schemes. Large programmes generally require a
comprehensive payment solution that can operate in urban areas, as well as rural
areas which may not have electricity or mobile network coverage. A 2019
Afrobarometer study found that only about four in 10 African households enjoy a
reliable supply of electricity (Afrobarometer, 2019), and a report by the GSM
Association (the main industry organisation for mobile network operators
worldwide) indicates that sub-Saharan Africa accounted for 40% of the global
population not covered by a mobile broadband network in the same year (GSM
Association [GSMA], 2019).
Further, while small programmes sometimes operate with Excel-generated
beneficiary lists based on paper-based enrolment forms, larger programmes
require sophisticated beneficiary and payment management systems that can
handle extensive amounts of data and transactions. Examples of such programmes
7
include Ethiopia’s Productive Safety Net Programme (8 million beneficiaries),
South Africa’s Child Support Grant (12.5 million individual beneficiaries), and
Kenya’s Old Age Pension which supported 833,000 elderly citizens in 2019
(Kenya Institute for Public Policy Research & Analysis, 2019; SASSA, 2019;
World Bank, 2019c). As a rule, the larger the programme in terms of beneficiary
numbers, the more it can benefit from economies of scale, as the fixed costs of
implementing expensive data management and payment technologies are spread
over larger numbers of beneficiaries, thus resulting in lower costs per payment
(ISPA, 2016a).
Narrowly targeted or conditional programmes often require complex verification
processes, e.g. the application of a means test, the regular verification of a
beneficiary’s disability status, or compliance with certain requirements such as
school attendance or medical check-ups (Samson et al., 2006). Implications for
the payment system include the need to pause or reduce individual transfers in
case of non-compliance with conditionalities, as well as the timely removal of
beneficiaries who no longer meet the targeting criteria. This requires a large
degree of flexibility and data processing capacity, as well as a quick and reliable
way of verifying compliance with conditionalities, e.g. through local volunteers,
healthcare centres or schools (ISPA, 2016a). While conditional programmes have
been popular in Latin America, few programmes in sub-Saharan Africa have
implemented conditionalities. Out of the 130 programmes surveyed, only 22
attached some form of conditionality to the transfer. In most cases, these were
‘soft’ conditions such as participation in community education programmes
without repercussions with regard to the transfer value in case of non-
compliance
6
.
Another important consideration relates to the identity of the person collecting the
payment who may or may not be the beneficiary i.e. the person entitled to the
payment him- or herself. Despite the increasing introduction of electronic
disbursement mechanisms, the vast majority of beneficiaries across the
programmes and countries covered in this paper withdraw their payments in cash,
rather than using the new payment technologies to move towards cashless
transactions. Identity verification thus typically takes place at the pay point and is
done either by programme staff of the payment provider.
Being able to nominate an alternative recipient is particularly relevant in the case
of transfers paid to minors, the elderly, or the disabled, who may not be able to
collect their transfer due to legal requirements (e.g. being underage) or their
6
Examples of programmes with ‘soft’ conditions include Burkina Faso’s Burkin-Naong-Sa
Ya programme (Beegle et al., 2018), Madagascar’s ‘Vatsin’Ankohonana’ scheme (World
Bank, 2019e) and Mauritania’s ‘Tekavoul’ programme (World Bank, 2019f).
8
physical condition. Most of the programmes surveyed for this study make
provision for the nomination of a secondary recipient, e.g. a relative, the
designated caregiver, or a trustworthy community member. A review of Uganda’s
Social Assistance Grant for Empowerment (SAGE) programme, for instance,
revealed that 64% of beneficiary households had nominated an alternative
recipient who could collect the payment on their behalf (Merttens, Sindou, Attah
& Hearle, 2016).
Regardless of whether the beneficiary or a nominated recipient collects the
payment, a robust payment system requires the accurate and reliable
authentication or identity verification of the recipient. This process is a vital
element of the payment process as it occurs at the payment point and is usually
done by the payment provider. Authentication uses three main approaches,
typically involving the provision of one or several of the following:
Something the recipient knows, e.g. a Personal Identification Number
(PIN) or password;
Something the recipient is, e.g. biometric fingerprints or iris scans;
Something the recipient has, e.g. a payment card or a national ID.
Strong systems should use two-factor authentication, e.g. a presentation of a
payment card in combination with a PIN or a fingerprint scan, although this tends
to increase the cost and complexity of the payment and verification process (ISPA,
2016a).
Unlike in developed economies where 98% of births are registered, less than 50%
of births are registered in sub-Saharan Africa, according to the latest available
World Bank data (World Bank, 2015a). Requiring recipients to present a national
ID in order to collect a payment may thus not be appropriate and may exclude the
poorest and most vulnerable members of society. In response, some programmes,
such as Ghana’s Livelihood Empowerment against Poverty (LEAP) programme,
have reverted to issuing programme-specific identity cards to beneficiaries. Other
countries, such as Kenya and Swaziland, have successfully used the cash transfer
programme as part of a broader drive to improve civil registration (Barca, 2017;
Smith et al., 2011). As Gelb and Decker (2012: 98) note: The promise of a
transfer is usually incentive enough to enroll in the identification program
[whereas] many would not voluntarily enroll in a nationwide system without some
tangible benefit such as eligibility for a cash transfer.
The last and increasingly popular approach to identity verification is the use of
biometrics, such as fingerprint scans, facial recognition, iris scans or voice pattern
analysis. Fingerprint authentication has been implemented in several large-scale
cash transfer programmes in countries like South Africa, Kenya, Botswana,
Nigeria and Ghana. In addition to offering a solution to recipients’ lack of formal
9
identification, biometrics solve the problem of beneficiaries forgetting their PINs
or passwords, address concerns over fraud and corruption, and help eliminate
‘ghost’ or duplicate beneficiaries from the system
7
. Moreover, biometric
identification systems can be used to support other development initiatives
including banking, voting, health care, and the establishment of a civil registry
(Gelb & Decker, 2012: 91). However, the high cost of biometric technology can
be a significant barrier to adoption for many smaller programmes which are
unable to realize economies of scale (Smith et al., 2011). In addition, fingerprint
scans may not be appropriate for elderly beneficiaries or manual laborers whose
fingerprints may be worn (ISPA, 2016a).
Biometric identification was used by 37 of the 130 programmes surveyed (usually
in combination with a smart card as the payment instrument), with fingerprint
scans being the predominant form of identity verification. In South Africa, the use
of voice recognition technology was planned as an alternative to fingerprint scans
in its 2012 grant payment reform, but the system was never rolled out despite the
extensive collection of voice samples during the re-registration of beneficiaries
(Theobald, 2017).
The value of the transfer, i.e. the actual amount paid to the beneficiary, is another
important factor to consider in terms of robustness. Transfer values typically
depend on the intended impact of the transfer, the available budget, and the
number of beneficiaries the programme intends to reach. While a detailed
discussion of the approaches taken by different programmes would go beyond the
scope of this paper
8
, the question of whether the amount paid is fixed or variable
has important implications for the design of the payment system. Paying a fixed
amount to the same recipient on a regular basis requires a less complex payment
administration and management system than variable transfers under which the
amount payable may vary from one payment date to the next (del Ninno,
Subbarao, Kjellgren & Quintana, 2013)
9
.
7
In Nigeria, biometric audits reportedly helped to eliminate 37,000 ‘ghost’ pensioners from the
government payroll, and Botswana’s biometric enrolment campaign for its social grant and
pension programme reportedly led to annual savings of 10m Pula ($1.7m) by reducing the
number of beneficiaries by 25% (Gelb & Decker, 2012).
8
For further reading see Bastagli et al. (2016).
9
Moreover, even SCT programmes with fixed transfer amounts tend to change the transfer
value over time, either to offset the impact of inflation or to reflect a policy change. In Kenya
and South Africa, for instance, transfer values are revised regularly to account for inflation,
while other countries, such as Namibia and Lesotho, have increased their SCT values at
irregular intervals (Freeland & Khondker, 2015; World Bank, 2016a).
10
A fixed monthly amount is paid by 79 out of the 130 programmes covered in this
review. This amount is in some cases inflation-indexed or adjusted to account for
inflation on a more or less regular basis. An example of a particularly flexible
approach to the actual grant value is Ethiopia’s Productive Safety Net Programme,
which pays beneficiaries the equivalent of 15kg of cereal per person per month
for its public works programme, as well as its unconditional cash transfer
programme (World Bank, 2019c). The amount has been regularly adjusted to keep
up with inflation, and the programme also provides in-kind transfers as an
alternative to cash payments. The share of cash vs in-kind payments has varied
over the years, and partly depends on the (predicted) availability of food, as well
as donor preferences. However, cash has reportedly become the preferred means
of disbursement, not only by the implementing agencies and the Ethiopian
government, but also by beneficiaries (Hirvonen & Hoddinott, 2020).
Variable amounts, which depend on household size, the number and age of
school-going children or pensioners in the household, or are conditional on
attending information sessions, are paid by 33 programmes. For the remaining 18
programmes, information on transfer values was not publicly available and could
thus not be determined. Examples of variable transfers for different household
sizes include the Lisungi Safety Nets programme in Congo (Socialprotection.org,
2019), the cash transfer programme in Malawi (United Nations Children's Fund
[UNICEF], 2018a), Nigeria’s Care of the Poor scheme (Cirillo & Tebaldi, 2016),
Rwanda’s Vision Umurenge programme (Gatzinsi et al., 2017), Ghana’s LEAP
transfer (Beegle et al., 2018), and Tanzania’s Productive Safety Nets project
(Beegle et al., 2018). Examples of additional school enrolment benefits include
the cash transfer for vulnerable children in Togo (Beegle et al., 2018), Tanzania’s
Social Action Fund (TASAF) (UNICEF, 2018b), Malawi’s social cash transfer
programme (UNICEF, 2018a), and the Vulnerable Families Programme in São
Tomé and Príncipe (World Bank, 2018c).
Finally, the payment system should take into account the timing, frequency and
duration of the SCT programme. Once-off payments or programmes with limited
duration (typically a few months), such as humanitarian transfers in response to a
natural disaster in a particular area, require different payment structures than
regular monthly payments under an established, permanent and nation-wide SCT
programme. While once-off or pilot programmes often rely on manual cash
payments and a simple beneficiary management system (e.g. paper files or Excel
spreadsheets), more comprehensive and long-term programmes offer the potential
to realize economies of scale and to invest in more sophisticated electronic
payment technologies. While many programmes have opted for a monthly (or bi-
monthly) payment model, a universal payment date or period for the entire
programme can result in long queues at payment points, cash shortages and
security risks. Staggered payment dates for different beneficiary groups
11
throughout the month could address this issue but would require a high degree of
coordination and efficient communication of payment dates. Although
information on the exact payment date or payment period was not publicly
available for many of the programmes discussed in this paper, none of them
appears to be using staggered payment dates.
Among the programmes analysed here, 58 made payments on a monthly basis, 22
paid beneficiaries every second month, and 27 disbursed funds once every quarter.
The remaining programmes either used different payment cycles (e.g. bi-annual
or occasional) or did not publish information on their payment cycle (this was the
case for 13 programmes). In most cases, the decision to make payments on a bi-
monthly or quarterly basis was made as a result of the high cost or complexity of
delivering payments every month, particularly in the case of manual cash
disbursements via pay points or community structures, and in politically or
economically unstable environments
10
.
2.2 Accessibility
The question of accessibility, in other words how, when and where beneficiaries
receive their payments, should be at the heart of the payment system design
process. Considerations of accessibility include the choice of the payment
instrument and provider, the location or venue where payments will be disbursed,
as well as the overall payment experience for the beneficiary, including
communication and information, travelling to the pay point, the actual
disbursement procedure, and the existence of a grievance and redress mechanism
(ISPA, 2016a).
Payment instruments can be defined as physical tools that recipients hold to
receive and collect payments. Traditional instruments, such as vouchers, can be
as simple as a piece of paper that displays the amount to be paid and the name of
the recipient collecting the payment. Traditionally, most SCT programmes
employed these manual ‘pull’ systems, requiring beneficiaries to collect their
transfers in cash at a specified location and on a particular date. These systems
were usually run by SCT programme staff or, in some cases, through the national
Post Office or other government or community structures (ISPA, 2016a).
Electronic ‘pull’ mechanisms, on the other hand, are based on electronic payments
into an account, allowing recipients to withdraw their benefit at a date and time
of their choice, either at a designated pay point or at an Automated Teller Machine
(ATM), bank branch, contracted retailer or shopkeeper, or a mobile money agent.
10
Examples of this include Congo’s Lisungi Cash Transfer Programme (World Bank, 2020a),
disability and old age pensions in eSwatini (Social Security Administration [SSA], 2019) and
Liberia’s Social Safety Net programme (World Bank, 2016e).
12
Electronic payment instruments, such as debit cards, smart cards or cellphones are
capable of storing the beneficiary’s details and transaction history, and allow
recipients to either cash out or make cashless payments with their payment card
or via mobile money (del Ninno et al., 2013). In recent years, a global movement
towards account-linked payments has been gaining strength, with increasing
interest from the fields of financial inclusion, social policy and behavioral
economics (New America Foundation, 2011). The use of account-linked
payments for SCTs will be discussed in more detail in the next section.
The choice of one or more payment instrument(s), in turn, informs the decision of
whether payments are made through government structures, a private payment
provider, or a combination of both. One of the key considerations when selecting
a payment provider is the reach of their distribution network, which might include
third-party agents that deliver payments on behalf of the actual payment provider.
Without an extensive geographic coverage, beneficiaries might face high travel
and opportunity costs to access their transfer, thus eroding the value of the
payment (ISPA, 2016a). Achieving full geographic coverage and ensuring easy
access to pay points for beneficiaries might require the use of several payment
providers serving different areas or types of beneficiaries.
While government-led payment systems offer the advantage of stricter control and
oversight, digital payment solutions are typically based on partnerships with
private service providers. This is particularly the case for donor-led programmes
in countries with relatively weak state capacity, but even state-funded SCT
schemes in countries like Ghana, Kenya or Nigeria have outsourced the payment
function to private companies such as banks, microfinance institutions, non-bank
payment providers and mobile network operators. The potential advantages and
risks of using different types of payment providers will be discussed in more detail
in section four.
Finally, considerations of accessibility should take into account the overall
beneficiary experience, including travel and waiting time, transport costs,
paypoint amenities, communication received, as well as issues related to dignity.
Beneficiaries of Zimbabwe’s Harmonized Social Cash Transfer, for instance,
reportedly spent an average of 6 hours collecting the transfer (Angeles,
Chakrabarti, Handa, Otchere & Spektor, 2018). This time represents a significant
opportunity cost for them. Similar observations were made in Uganda’s SAGE
programme, despite the relatively low financial cost of collecting the transfer,
which was approximately 3% of the bi-monthly transfer value (Merttens, Sindou,
Lipcan, et al., 2016). Moreover, pay points in rural areas often lack protection
from rain or heat, and do not offer benches or waiting areas, or even basic ablution
facilities (International Labour Organization [ILO], 2014).
13
Finally, informing beneficiaries about the basic payment process, teaching them
to use the payment technology, communicating payment dates and locations, as
well as explaining how to lodge complaints and grievances, are crucial in ensuring
accessibility and the smooth running of any SCT programme (ISPA, 2016a). In
Namibia, this tends to be done via radio announcements and word of mouth (ILO,
2014), while Tanzania’s TASAF programme has used community management
committees to communicate with beneficiaries (ISPA, 2016b) and Ethiopia’s
Urban Productive Safety Net Programme has established an SMS alert service for
beneficiaries who receive their payments into bank accounts (Admassu, 2019).
2.3 Integration
Integration considers the use of existing structures and technologies, links to other
social programmes, as well as broader considerations of financial inclusion,
economies of scale, and shared systems and resources. While cash-based payment
systems usually operate on a stand-alone basis with little scope for integration into
existing structures (other than the use of post offices or community venues, for
example, for the physical disbursement of cash), electronic payment systems are
often adopted as part of a broader payment digitization drive and can create
valuable synergies. In Malawi and Kenya, for instance, digital cash transfer
payments were implemented as part of a country-wide transition to electronic
government-to-person (G2P) payments (ISPA, 2016a;United Nations Capital
Development Fund [UNCDF], 2017a). Similarly, Nigeria’s Central Bank
embarked on the ‘Cashless Nigeria’ initiative in 2012, thus creating favourable
conditions for the adoption of electronic SCT delivery mechanisms (Iazzolino,
2018). As more and more governments are digitizing their payment systems and
joining initiatives such as the Better than Cash Alliance
11
, integrating electronic
SCT payments into the broader national payment environment can be expected to
become easier and increasingly cost-effective in the near future.
In areas such as beneficiary identification, enrolment and targeting, SCT
programmes can take advantage of existing national ID systems, including
national registries, voter rolls, beneficiary databases used for other social
programmes, or comprehensive social registries
12
. A social registry or beneficiary
11
Based at the United Nations, the Better Than Cash Alliance (BtCA) is a partnership of
governments, companies and international organizations that accelerates the transition from
cash to digital payments to advance the Sustainable Development Goals. The organization
currently has 75 members, including national governments from Africa, Asia-Pacific and Latin
America; global brands across the agriculture, garment and fast-moving consumer good sectors;
United Nations (UN) agencies; and humanitarian Non-Governmental Organizations (NGOs)
(BtCA, 2020).
12
The term social registry is commonly used to describe an information system used to
support the implementation of non-contributory social assistance programmes targeted at poor
14
database is a key prerequisite for the adoption of electronic payment mechanisms,
ideally in combination with an electronic management information system (ISPA,
2016a). Based on the beneficiary data contained in the database, the system can
create a regular and accurate payroll for each payment cycle, verify eligibility for
certain types of benefits, and track if and when payments were disbursed (del
Ninno et al., 2013). While few countries in sub-Saharan Africa had such systems
in place when they launched their first SCT programmes, their implementation
often supported by donor funding is certainly on the rise. Almost all large-scale
SCT programmes in the region have established such systems or are in the process
of doing so, and countries are increasingly managing multiple programmes
through a single system. The establishment of a National Social Registry is also a
key element of most SCT funding packages provided by the World Bank and is
thus often part and parcel of financial support for the establishment or expansion
of national SCT schemes (Leite, George, Sun, Jones & Lindert, 2017).
An increasingly important aspect of integration and a key point of discussion in
this paper is the potential of SCT payment systems to promote financial inclusion
among low-income households and individuals. According to the World Bank,
almost two billion people worldwide do not use formal financial services,
particularly within lowest income quintile (Demirgüç-Kunt, Klapper, Singer &
van Oudheusden, 2015). This inability of individuals, households or groups to
access financial services in an appropriate form (European Microfinance
Network, 2018), referred to as financial exclusion, is considered to be both a cause
and a consequence of social exclusion and a major obstacle to development
(European Commission, 2008). Inclusive financial systems, on the other hand,
provide individuals [...] with greater access to resources to meet their financial
needs, such as saving for retirement, investing in education, capitalizing on
business opportunities, and confronting shocks (World Bank, 2014a: xi).
Consequently, access to financial services has come to be considered essential
for citizens to be economically and socially integrated and is seen as a
requirement for employment, economic growth, poverty reduction and social
inclusion (European Microfinance Network, 2018). It has been adopted as a core
principle for development by the World Bank, the G20 and numerous national
governments and is positioned prominently as an enabler of [...] the 2030
Sustainable Development Goals, where it is featured as a target in eight of the
seventeen goals (UNCDF, 2018).
In the early 2000s, the rapidly expanding SCT programmes were identified as a
new and innovative way to tackle the high levels of financial inclusion in the
and vulnerable groups. Modern social registries consist of a beneficiary database, as well as a
management information system (MIS) through which information can be retrieved, organized
and analysed (ISPA, 2016a).
15
global South. Together with other forms of G2P payments, transfers were
reaching at least 170 million people worldwide in 2009 and the majority of G2P
payments were targeted at the poorest and most vulnerable parts of the population
(Pickens, Porteous & Rotman, 2009). The shift towards electronic payments
opened up opportunities for linking SCT programmes with broader financial
inclusion initiatives, starting with the provision of bank accounts as a prerequisite
for other financial products and services. Social cash transfers and financial
inclusion, which are two separate but potentially complementary policy agendas
(Bold, Porteous & Rotman, 2012: 1), are thus increasingly converging into a
single headline objective: replacing cash-based SCT payments to the poor with
digital transfers into ‘financially inclusive’ accounts and establishing links with
the formal financial sector, i.e. by making payments through private financial
service providers (Department for International Development [DfID], 2009;
Klapper & Singer, 2017; Torkelson, 2017).
The extent to which integration of the SCT payment mechanism(s) into the
broader financial system can be achieved depends to a large extent on a country’s
regulatory framework for the financial sector. Legal requirements for the opening
of bank accounts, the establishment of agent networks by non-bank financial
service providers, as well as regulations for mobile money providers, can
determine which payment solutions can be used for government cash transfers,
and whether the payment mechanism can be financially inclusive. If, for instance,
strict Know-Your-Customer (KYC) regulations require SCT recipients to provide
a formal ID, proof of residence, income statements or other official documents,
which the poor frequently do not possess, in order to open an account, it might
not be possible to implement an account-based payment solution (ISPA, 2016a).
Countries in sub-Saharan Africa have developed different approaches to address
this issue. In Kenya’s Cash for Assets programme, close to 20% of recipients
lacked the identification necessary to open a bank account. In response, the World
Food Programme allowed recipients to designate an alternative recipient with the
required documentation to withdraw the payment on their behalf (Zimmerman &
Bohling, 2013). Several other countries, including South Africa, have introduced
a tiered approach to KYC regulations, exempting certain marginalized groups up
to a certain transaction limit from tedious documentation requirements. According
to the World Bank’s Global Financial Inclusion and Consumer Protection Survey,
60 countries worldwide had adopted tiered KYC regulations by 2017, including
41% of participating sub-Saharan African countries (World Bank, 2017).
Another increasingly relevant field of financial legislation relates to the rise of
mobile money and includes regulations on the issuing of ‘e-money’ by mobile
network operators (MNOs), requirements relating to MNOs having to partner
with banks, and their ability to offer interest-bearing accounts to their customers.
Uganda’s SAGE programme, for example, decided to pay social transfers via the
16
Post Bank rather than using mobile money (which would have been cheaper and
more convenient) due to insufficient regulations with regard to MNOs offering
financial services (Parliament of Uganda, 2018). However, many African
governments most notably in East and West Africa have adopted a relatively
flexible and progressive regulatory approach
13
, which is expected to result in the
increasing uptake of mobile money as a payment mechanism for SCTs in the
future.
3. Payment instruments for cash transfers
According to the Global Findex database, the overwhelming majority (80%) of
people who received Government-to-Person transfers
14
in high-income countries
in 2017 received their transfers into an account. In low-income economies, this
figure was considerably lower, with only 39% of recipients receiving their
payments into an account (Demirgüç-Kunt et al., 2017). This is partly due to the
levels of formal financial inclusion in sub-Saharan Africa where only a third of
adults had an account with a formal financial institution in 2017. About the same
share of the adult population reported making or receiving digital payments in the
same year. While these figures have increased compared to previous studies, they
remain much lower than in most other parts of the world. In Europe and Central
Asia, for instance, account ownership with a formal financial institution and
digital payment activity was almost twice as high, with 65% and 60% respectively
(World Bank, 2018b). SCT programmes in sub-Saharan Africa therefore face the
dual challenge of low levels of financial inclusion and limited physical and
financial infrastructure, particularly in rural areas. This has led to the emergence
of a large variety of different payment instruments and providers (or combinations
thereof) across the continent, and frequent changes in the ways in which SCT
payments are delivered.
After having outlined the basic considerations underpinning the design of a SCT
payment system in section 2, this section will introduce the main payment
instruments used in sub-Saharan Africa, including cash, vouchers, magnetic stripe
13
For further reading on mobile money regulation see Madise (2019).
14
These include SCTs and other social benefits (e.g. subsidies, unemployment benefits, or
payments for educational or medical expenses), as well as public sector wages and pensions
(Demirgüç-Kunt, Klapper, Singer, Ansar & Hess, 2017). Given the lower levels of financial
inclusion among the poor compared to better-off government employees the share of SCT
beneficiaries in low-income countries receiving their payments into an account is likely to be
even lower than the aggregated share for all G2P transfers. Isolated data on account-based SCT
payments was not available at the time of writing as most large-scale studies focus on
aggregated G2P payments, i.e. including public sector wages and pensions.
17
cards, smart cards and mobile money. Moreover, it will discuss the role of store-
of-value accounts which can be used in combination with different digital
payment methods and play a crucial role in facilitating financial inclusion.
The choice of one or more payment instruments for a specific SCT programme
should address the general design considerations outlined in the previous section,
particularly with regard to the overall beneficiary experience and financial
inclusion. From the point of view of implementing agencies and governments,
however, two other issues tend to be of crucial importance, namely the cost of
implementing a particular payment mechanism, and its potential to address
concerns of fraud, corruption and leakage. The direct cost of implementing and
maintaining a payment system represents a significant share of the total
programme costs and can in extreme cases take up half of the administrative
budget which was the case for Lesotho’s manual disbursement system (World
Bank, 2016b). In addition to transport and security-related costs, programme staff
in cash-based payment systems often spend several days or even weeks (e.g. in
Malawi or Mozambique) distributing cash via pay points, thus causing high
opportunity costs and lower levels of productivity (Arruda, 2018b; Hemsteede,
2018). Additional costs incurred in Zambia’s cash-based SCT programme
included allowances paid to pay point managers, as well as charges paid to its
Community Welfare Assistance Committees for assisting the payment process
(UNCDF, 2017b).
The recent trend towards payment digitization is thus partly driven by the desire
to realize cost savings, given the lower cost per transaction for e-payments
compared to cash, despite higher upfront implementation costs (Oberländer &
Brossmann, 2014). In South Africa, the delivery cost of SCTs reportedly dropped
by 62% after moving to a bank account-based system (Pickens et al., 2009), and
Brazil’s Bolsa Familia programme reduced its transaction costs from 14.7% to
2.6% of total payments when it bundled several benefits onto a single electronic
payment card (Cull, Ehrbeck & Holle, 2014).
Another key factor driving the adoption of e-payments for SCTs is their potential
to increase transparency and traceability, and to reduce fraud, corruption and
leakage associated with cash-based transactions. Leakage, i.e. the fraudulent
diversion of funds, was estimated to range from around 4% of transfers in South
Africa to 15% in India in 2009 when most programmes were still using manual,
cash-based disbursement methods, as well as a paper-based enrolment and record-
keeping system (DfID, 2009). In addition, cash-based payments offer greater
scope for corruption or demands for bribes by the payment agent (Barca, Hurrell,
MacAuslan, Visram & Willis, 2010). Finally, the combination of paper-based
application systems and record-keeping with manual cash payments has been
associated with high rates of ‘ghost beneficiaries’ or (potentially) fraudulent
18
applicants in the system
15
. A World Bank review of social pensions in sub-
Saharan Africa, for instance, found that the number of pensioners in both the
contributory and non-contributory pension schemes in Botswana, Lesotho, and
Namibia was higher than the total number of elderly in the country. According to
the report, this ‘indicates either many ‘young’ retirees or systemic error and fraud’
(Guven & Leite, 2016).
In practice, many SCT programmes in sub-Saharan Africa have adopted a ‘mix
and match’ approach, combining several payment instruments within or across
their SCT programmes. Although the use of multiple payment instruments and
providers adds complexity in terms of programme administration and
management, the ‘patchy’ nature of the financial infrastructure, network coverage
and payment provider activity in most African economies often requires this
approach in order to reach the largest possible number of beneficiaries. The
programmes covered by this survey were classified according to the following
categories of payment instruments: Cash, basic payment cards (including
electronic vouchers and prepaid cards), smart cards, bank accounts (usually in
combination with fully-functional debit cards or smart cards) and mobile phone-
based payments. The last category includes payments into mobile wallets which
can be used to make electronic payments, as well as more rudimentary systems
which merely use the mobile phone for cash-outs from mobile money agents or
programme staff). Out of the 130 programmes surveyed, only 47 used a single
payment mechanism for all beneficiaries, while the majority of programmes (71)
used at least two different payment instruments. No information was available for
24 programmes, which includes programmes that are still in their early stages and
have not (or only recently) started to make payments, as well as several small
programmes for which little or no up-to-date information was available.
The Alternative Responses for Communities in Crisis (ARCC) programme in the
Democratic Republic of Congo (DRC), for instance, used five different payment
mechanisms for its SCT component, including mobile money, local savings and
loan cooperatives, microfinance institutions, private-sector money transfer
organizations, or via implementing NGOs and local traders (Bonilla, Carson,
Kiggundu, Morey & Ring, 2017). Similarly, SCT beneficiaries in Namibia can
choose between withdrawing their payments from ATMs, receiving them via
bank transfers or collecting them from designated post offices (Mutonga, 2018).
Pensioners in Botswana have the choice of collecting cash from pension officers
15
A government verification exercise in Tanzania’s TASAF programme identified more than
55,000 beneficiary households that should not have been in receipt of the TASAF benefits. Of
these, almost 13,500 were found to be ‘not poor’, 4,352 beneficiaries were local government
leaders, and almost 14,000 beneficiaries were reported as being dead (Wright, Leyaro, Kisanga,
& Byaruhanga, 2019).
19
at the local community council or from post offices, or having the money
deposited into a personal bank account (Cirillo & Tebaldi, 2016).
While this approach was initially a necessity rather than a choice for many
implementing agencies, the adoption of a multi-provider and multi-channel
‘choice system’ for SCT payments has become one of the key SCT payment
reforms promoted by the World Bank. This is expressed in a 2019 Focus Note
released by the Consultative Group to Assist the Poor (CGAP), the World Bank’s
financial inclusion think tank, stating that
the next stage [of payment digitization] is to enable delivery systems
that give recipients greater control and voice through choice in where
and how they receive and withdraw payments. […] Customers
empowered with greater choice can be less dependent on a single bank
or local service point, and therefore, they are able to command better
customer service (Baur-Yazbeck, Chen & Roest, 2019).
While offering multiple payment instruments and contracting several providers
may be beyond the financial and administrative capabilities of small programmes
with limited funding, several larger programmes (as outlined above) have
implemented this approach or are in the process of doing so.
3.1 Cash-based payments
Since many sub-Saharan African countries are still in the early stages of
developing large-scale national SCT programmes, the use of cash-based
disbursement methods generally a feature of pilot or ad-hoc SCT schemes
remains widespread across the continent. As the Department for International
Development (DfID) (2009) puts it: Direct cash payment is almost always
possible in some form and can therefore be regarded as the default against which
the costs and benefits of financially inclusive payments can be compared. As
outlined above, manual cash disbursement usually requires the beneficiary (or
his/her nominee) to report to a designated pay point at a designated date and time
to collect the payment. This approach is typical for in-house payment systems,
with programme staff or, in some cases, community leaders or volunteers
delivering physical cash to beneficiaries after collecting the money from a bank
or government office and transporting it to the pay point. Cash is then disbursed
based on payrolls generated from programme enrolment data, using either a
digital data management system or a simple spreadsheet (ISPA, 2016a).
The main advantage of cash-based payments lies in their low start-up costs and
relative ease of implementation through the use of existing programme staff or
community members. Hence, direct cash transfers are often preferred in the early
or pilot stages of a programme, or in emergency situations where transfers need
20
to be disbursed quickly and there is little time to set up electronic payment
channels (World Bank, 2010). Moreover, cash-based disbursement may be the
only appropriate and feasible payment mechanism in particularly remote contexts
with limited economic activity and little or no mobile network coverage (ISPA,
2016a). Finally, gathering beneficiaries at local pay points on a regular basis
provides an opportunity for programme staff to provide information about the
programme, collect feedback from beneficiaries, or offer complementary services
such as health check-ups or trainings (Oberländer & Brossmann, 2014).
Among the programmes surveyed for this paper, only 15 relied exclusively on
manual cash payments via government pay points, community networks or other
‘traditional’ channels. This includes programmes implemented via the national
Zakat board
16
(e.g. in Nigeria and Sudan), two programmes using cheques that
must be redeemed at government offices, as well as a number of smaller
programmes (e.g. in São Tomé and Príncipe). The majority of programmes using
cash payments (79 programmes) had either fully or partly outsourced them to
the national Postal Network or had contracted private service providers such as
commercial banks, payment agencies or mobile network providers. The use of
national post offices or Postbank branches appears to be a popular payment
channel in sub-Saharan Africa and was used for cash disbursements by 39
programmes in 12 countries (this will be discussed in more detail in the next
section).
However, while manual cash payments through government or community
structures may be in decline, cash continues to be the predominant means of
payment across the African continent (Calleo, 2018; Centre for Financial
Regulation and Inclusion, 2016). This is reflected in the way in which
beneficiaries collect and use their payments, even where electronic payment
instruments, such as debit cards, bank accounts or mobile money are used. Even
in South Africa the country with the most sophisticated financial system in sub-
Saharan Africa and a SCT payment system that relies entirely on the use of smart
cards and bank accounts many beneficiaries continue to withdraw their benefits
in cash. This is despite the fact that the payment card issued to most beneficiaries
(other than those who choose to receive their payment into a personal bank
account with a commercial bank) is a fully-functional debit card which can be
used to transact electronically everywhere where a VISA or MasterCard logo is
displayed (Postbank, 2020). While there is no data indicating how many
beneficiaries use their card to make electronic purchases, the long queues at Post
Offices, ATMs, pay points and retailers on grant payout days, as well as the fact
that most social grant beneficiates are reportedly unaware of the full functionality
16
For further reading on the role of Zakat in the provision of social protection, see Machado,
Bilo and Helmy (2018).
21
of their cards (Davis, 2019), supports similar observations by civil society
organization Black Sash.
17
3.2 Vouchers and pre-paid cards
Vouchers or pre-paid payment cards provide access to pre-defined commodities
or services and can usually be exchanged in designated shops or in fairs and
markets. They may be redeemed in the form of cash or used to purchase certain
goods or services. This type of payment instrument is most commonly used in
humanitarian interventions or emergency responses, often as an alternative to
direct food or in-kind aid (European Commission, 2013). The main benefit of
vouchers and pre-paid cards lies in the relatively limited need for hardware and
technology, as only participating shopkeepers need to be equipped with the
necessary devices. Moreover, the implementing agency has full control over how
the money is spent and can thus implement dedicated programmes delivering e.g.
agricultural inputs or basic foodstuffs. Drawbacks, however, include the need for
mobile network connectivity (at least in the case of e-vouchers), the need to
constantly re-issue new vouchers, and the lack of links with the national payment
system or other social interventions, thus making this instrument more suitable
for short-term emergency aid and small-scale cash transfer pilots (Oberländer &
Brossmann, 2014).
Vouchers exist in both paper-based and electronic form, with electronic or mobile
vouchers having become the predominant technology. Mobile vouchers are
redeemed through the use of a mobile phone as the transaction device, using an
SMS command and/or a PIN as an additional identifier (Smith et al., 2011). Their
use is thus similar to a mobile money transaction, except for the fact that vouchers
are restricted to cash withdrawals or purchases at designated shops, and offer no
additional benefits such as access to financial services or use for payment outside
of a pre-defined merchant network (ISPA, 2016a). Mobile vouchers have been
used for food transfer programmes in Djibouti (Machado, Bilo, Veras Soares &
Guerreiro Osorio, 2018) and South Sudan (Ahmed, 2018), as well as in the DRC’s
ARCC Cash Transfer Programme (Bailey, 2017b).
A common alternative to mobile vouchers is the use of pre-paid payment cards,
which come in the form of either single-use or reloadable plastic cards with a
magnetic stripe. The World Food Programme’s SCOPE card is a popular example
of this type of payment instrument and is widely used for humanitarian transfers
across Africa. The value stored on this re-loadable digital card is redeemed
17
A report on South Africa’s grant payment and collection mechanism illustrating these issues,
published jointly by the Black Sash and the Department of Political Studies at the University
of the Western Cape (UWC), is expected to be released in 2020.
22
through a Point of Sale (POS) device installed at select retail locations where it
can be used to purchase food. Top-ups are made in regular distribution cycles and
the cards are linked to a comprehensive electronic beneficiary database which
includes a biometric identity verification feature (United Nations Office for the
Coordination of Humanitarian Affairs, 2017). In Somalia, the SCOPE system has
even been used as a first payment channel for the country’s newly-established
national cash transfer programme (World Bank, 2019g). Another example of a
card-based e-voucher programme is Angola’s Cartão Kikuia programme (World
Bank, 2018d) which allows beneficiaries to redeem their vouchers at special
government-owned stores. However, except for the programmes mentioned
above, the use of vouchers and pre-paid cards has been largely restricted to
emergency transfers or humanitarian programmes led by international donors or
NGOs and is therefore of little practical relevance for the purpose of this study.
3.3 Debit cards and smart cards
Compared to simple pre-paid cards, magnetic stripe debit cards are a more
versatile and more commonly-used payment instrument and have enjoyed
growing popularity in the field of SCT payments. These PIN-protected cards can
be swiped at ATMs or POS devices, and contain a magnetic stripe on which the
cardholder’s personal information is stored. Since they are usually linked to an
account, debit cards hold considerable potential for financial inclusion and the
provision of additional financial services. However, traditional debit cards do not
support biometric verification, and generally require network connectivity in
order to process transactions (DfID, 2009; Smith et al., 2011).
Smart cards are the most sophisticated type of payment card and are generally
used in combination with a biometric identity verification feature, such as
fingerprinting or iris scans. The card contains a chip on which several layers of
information can be stored, and which is able to record the card owner’s full
transaction history. This feature makes it possible to conduct off-line transactions
in areas with low or no network connectivity and to reconcile the account with the
central database at a later stage (Smith et al., 2011). Moreover, smart cards can
store additional beneficiary information such as health records or household
information and can be linked with other systems such as voter rolls or population
registries (Pickens et al., 2009). They can also be used as a single payment
instrument for multiple SCT programmes, given their ability to store several
different ‘wallets’ on a single card (Devereux & Vincent, 2010). Finally, if the
smart card is linked to a formal account, the technology offers considerable
potential for financial inclusion and represents a stepping stone towards the
provision of savings, payment services, insurance, credit and other financial
services.
23
Despite their numerous advantages, smart cards also have several shortcomings.
Firstly, smart cards can be up to five times more expensive than magnetic strip
cards, and chip-reading POS terminals tend to cost twice as much as traditional
POS devices (Pickens et al., 2009). These considerable set-up costs make them
unsuitable for short-term and small-scale SCT programmes where the possibility
of a scale-up is uncertain. Secondly, the use of fingerprints as a verification feature
is not always reliable, particularly among older recipients or manual labourers
whose fingerprints may be worn. Finally, the use of smart cards does not resolve
the need for large amounts of cash to be transported to pay points or merchants in
preparation for the monthly pay-out. This is particularly the case in contexts with
a limited or non-existent electronic payment infrastructure where beneficiaries
cannot use their cards as a form of payment and instead have to rely on cash
withdrawals (Barca et al., 2010).
Smart cards were used by 29 of the 130 programmes covered in this paper,
including in South Africa, Botswana, Kenya, Malawi, Namibia, Ghana, Tanzania
and the DRC. In most cases, these programmes also made use of the biometric
verification feature, thus making it possible to authenticate beneficiaries via
fingerprint scans. Although smart cards can be used on a stand-alone basis, i.e.
without the need for a bank account, most programmes that used smart cards did
so in combination with a bank account for beneficiaries. This gives SCT recipients
the option of saving some of their money in their account or receiving additional
payments (e.g. from relatives or other government programmes) into this account.
A prominent example of the use of smart cards in combination with bank accounts
is Ghana’s LEAP programme which uses the national ‘e-zwich’ platform to make
SCT payments. E-zwich, launched in Ghana in 2008, is an interoperable biometric
smart card payment system that offers a suite of electronic payment and banking
services accessible from a POS terminal or ATM
18
. The platform was developed
by payment provider Net1, the company in charge of South Africa’s highly
controversial biometric grant payment system until 2018. Today, the system is
used for the majority of G2P payments in Ghana, with student loans being
disbursed via e-zwich since 2013, national service salaries since 2015, and LEAP
payments since 2016. However, a 2017 report by the Better than Cash Alliance
noted that most e-zwich transfers are immediately cashed out because the
biometric card is not accepted at retail stores or for household bills (BtCA, 2017).
3.4 Mobile money
Mobile money can be defined as a financial service which relies on the mobile
phone to transfer money, access funds or make payments (GSMA, 2010). The
18
For further reading on the e-zwich platform see Breckenridge (2010).
24
power of this new financial technology to expand access to and use of formal
financial services is demonstrated most persuasively in Sub-Saharan Africa. The
region not only has the highest number of mobile money platforms (144 out of a
total of 290 worldwide) but also leads in terms of both registered and active
mobile money accounts (469 million and 181 million respectively). Moreover,
sub-Saharan Africa represents close to two thirds of the global transaction volume
and value, with 23.8 billion transactions worth 456.3 billion USD in 2019. The
GSMA forecasts that account adoption across Sub-Saharan Africa will remain
strong and that the region will surpass the half billion accounts mark by the end
of 2020 (GSMA, 2020).
Initially an instrument for person-to-person payments, such as remittances or
small informal commercial transactions, mobile money providers are increasingly
adding other financial services to their portfolio. This trend has been particularly
pronounced in East Africa, where the success of M-Pesa and other mobile money
platforms has radically transformed the financial landscape in the past ten years.
The platform has evolved into a comprehensive suite of financial services,
including money transfers, bill payments, salary payments, microloans, micro-
insurance and even healthcare services (Vodafone, 2020). In some countries e.g.
in Kenya and the Philippines MNOs are allowed to store mobile money on
behalf of their customers, thus essentially acting as non-bank financial service
providers, while regulators in other countries require mobile money providers to
partner with a commercial bank (Smith et al., 2011). The most successful mobile
money platform in Africa is undoubtedly Safaricom’s M-Pesa service which
originated in Kenya in 2007. Today, the services has over 37 million active
customers and almost 400,000 active agents operating across seven African
countries, averaging over 500 transactions every second in December 2018
(Vodafone, 2020).
Given the rapid growth of the technology on the continent, it is unsurprising that
several SCT programmes across sub-Saharan Africa have started to experiment
with mobile money as a new payment instrument. Mobile money has been
particularly successful in countries with a weak or underdeveloped traditional
financial sector, as well as among low-income and ‘financially excluded’
population groups, which tend to be the primary recipients of SCTs. And while
the share of adults in sub-Saharan Africa with an account at a financial institution
rose by a mere 4 percentage points from 2014-2017, the share with a mobile
money account nearly doubled in the same period and reached 21 percent in 2017
(Klapper, Ansar, Hess & Singer, 2019). Hence, in addition to its potential role as
a payment mechanism for SCTs, mobile money also offers considerable potential
as a driver of financial inclusion on the continent.
Using mobile money as a payment instrument for SCTs requires beneficiaries to
open a mobile money account (which can be done by the implementing agency)
25
and to own a basic feature phone. Once the funds have been transferred into their
account, beneficiaries are informed via an SMS message and can cash out at their
nearest mobile money agent who is often a local shopkeeper or an individual
contracted by the MNO. To withdraw their payment, recipients are required to
confirm their identity, which is generally done through presentation of their
personal Subscriber Identity Module (SIM) card and by entering a PIN. Having
received a confirming text message, the mobile money agent then cashes out the
desired amount (Oberländer & Brossmann, 2014). If mobile money is accepted as
a means of payment by local shops or service providers, beneficiaries can even
use their monthly transfer to pay for goods and services electronically without
having to withdraw the transfer in cash.
The fact that two thirds of the estimated 60 million unbanked adults worldwide
who receive government transfers in cash own a mobile phone makes the
technology particularly suitable for reaching unbanked SCT recipients, providing
vast opportunities for advancing financial inclusion (Demirgüç-Kunt et al., 2017).
Moreover, Tirivayi et al. (2016) note that mobile cash transfers are about 20-25%
cheaper than in-kind modalities like food transfers, and also tend to be faster and
less complex to administer than manual cash transfers. Using mobile phones to
deliver payments also opens up opportunities for the delivery of other cellphone-
based services, including SMS-based communication with beneficiaries or the
sending of ‘nudging’ messages aimed at encouraging beneficiaries to access
healthcare, education services or information sessions (Oberländer & Brossmann,
2014). Barca et al. (2010) further mention how communities have been
empowered through increased cellphone usage, e.g. as early warning systems to
prevent cattle rustling, or to create business opportunities within the community.
Finally, the establishment of a mobile money agent network can create local
employment and income-generating opportunities as agents typically receive a fee
for every transaction (Llewellyn-Jones, 2016).
On the downside, however, mobile money payments require network coverage
and electricity, users are usually required to present an ID card in order to open
an account, and illiterate beneficiaries may struggle to conduct the withdrawal or
to verify whether the transaction has been effected correctly (Barca et al., 2010).
Moreover, if the MNO fails to establish a dense coverage of mobile money agents,
beneficiaries may face considerable travel and opportunity costs to collect their
payment, thus failing to realize the promised cost and convenience benefits of the
technology. Even in Kenya, issues with the mobile network infrastructure in rural
areas forced the implementing agency to revert to a card-based payment solution
offered by Equity Bank, rather than using the widely popular M-Pesa platform for
its Cash for Assets programme in 2010 (Klapper & Singer, 2017). Finally, the
cost of providing cellphones to beneficiaries which may be necessary in areas
26
with low cellphone penetration as well as the need for financial literacy training,
can lead to significant upfront costs (Smith et al., 2011).
Out of the programmes surveyed for this paper, 22 have introduced some kind of
mobile money payment mechanism, often in combination with other forms of
payment or in the form of pilot projects. These include the Productive Safety Net
Programme in Cote d’Ivoire (International Finance Corporation [IFC], 2018) and
Madagascar’s FIAVOTA programme (Morey & Seidenfeld, 2018), both of which
used the Orange Money platform. Ghana’s LEAP programme
(MobileMoneyAfrica, 2015) and Uganda’s SAGE transfer (ISPA, 2016a) have
made use of the MTN Mobile Money service for their transfers, and Tanzania’s
TASAF programme, Rwanda’s Vision Umurenge Programme, Senegal’s
Programme National de Bourses de Sécurité Familiale, Zimbabwe’s Harmonized
Social Cash Transfer Programme, as well as various state-led SCT schemes in
Nigeria, have launched mobile money pilots with various providers in recent years
(World Bank, 2016d, 2019b, 2019d)
19
. However, it must be noted that many of
these programmes do not operate in the context of a functioning mobile money
ecosystem which would allow beneficiaries to use their mobile transfers to make
electronic payments. Instead, the technology is often reduced to the very basic
function of verifying beneficiaries’ identity (which is linked to the phone’s
registered SIM card) and beneficiaries simply ‘cash out’ at their nearest mobile
money agent.
An interesting exception to this phenomenon is the case of Zimbabwe where the
Harmonised Social Cash Transfer Programme switched from community-based
cash payments to payment delivery via mobile money (EcoCash) rather abruptly
in 2019. The reason for this change was reportedly not the greater convenience or
potential cost savings offered by mobile money, but the fact that local banks had
simply run out of cash as a result of the country’s financial crisis (The Herald,
2020). However, the Reserve Bank of Zimbabwe started shutting down more and
more mobile money agents in early 2020, accusing them of having fuelled
exchange rate volatility (Sibanda & Kadzere, 2020). It is therefore unclear if and
how SCT payments in Zimbabwe will be made going forward.
As cellphone ownership and mobile money usage among low-income populations
increase, the feasibility and cost-effectiveness of mobile money as a ‘true’
19
In addition, numerous humanitarian or donor-led programmes have used mobile money,
including the Multipurpose Cash Transfer for refugees in Cameroon (United Nations High
Commissioner for Refugees [UNHCR] Cameroon, 2018), a range of humanitarian transfers by
different agencies in Chad (Watson, Devereux, & Abdoulaye, 2016), emergency food
assistance for Ebola-affected communities in Liberia (McNutt, 2016), Save the Children’s cash
transfer programme in Malawi (Nyirongo, 2015), and a cash transfer pilot in Niger implemented
by Concern International (Aker, Boumnijel, McClelland, & Tierney, 2014).
27
electronic payment instrument for SCTs is expected to improve. In combination
with increasing regulatory certainty around the technology, as well as its
widespread adoption as a regular means of payment, mobile money is likely to
play an increasingly central role in the field of digital SCT payments in the future.
3.5 Store-of-value accounts
The provision of a ‘store of value’ account into which the cash transfer is paid is
an increasingly common feature of modern payment systems. As various studies
point to the importance of account ownership as a first step towards accessing
other financial services, this feature is of particular importance in terms of added
financial inclusion objectives
20
. Numerous SCT programmes across sub-Saharan
Africa have adopted an account-based payment model, including South Africa,
Botswana, eSwatini, Ethiopia, Ghana, Kenya and Namibia. A total of 58 out of
the 130 programmes covered here either offered free accounts for beneficiaries
(often via the national post bank) or gave beneficiaries the option of having their
grants paid into their personal bank account with a commercial bank or
microfinance institution. According to the 2017 Global Findex Database, about
140 million account owners worldwide opened their first account to receive a
government transfer, including 80 million women and nearly 75 million
beneficiaries in the poorest 40% of households (Demirgüç-Kunt et al., 2017).
In terms of its functionality, a store of value account is usually similar to a basic
‘no frills’ bank account, and many countries have opted for a bank account-based
SCT payment model. However, a store-of-value account need not necessarily be
hosted by a bank, but can also be offered by a non-bank financial entity or even a
mobile money platform run by an MNO (DfID, 2009). Accounts used for cash
transfers tend to have dormancy rules, i.e. the implementing agency or the
payment provider withdraws funds and closes the account due to lack of usage
after a certain period (usually 30-90 days). This serves as a mechanism to identify
‘ghost beneficiaries’ and to eliminate inactive beneficiaries from the programme’s
payroll. In most programmes, accounts are held by individual beneficiaries,
although group accounts for a village or a family are, in theory, also possible
(del Ninno et al., 2013). Many programmes have opted to provide accounts for
beneficiaries free of charge, and some even open the accounts on behalf of
beneficiaries in order to reduce the administrative and financial burden on
recipients and to ensure smooth implementation of the payment mechanism
(DfID, 2009).
20
Demirgüç-Kunt (2014: 352), for instance, argues that “having access to basic payment and
savings accounts increases savings, leads to more productive investments, greater
empowerment, particularly for women, and even greater health benefits.”
28
Another important aspect in terms of financial inclusion relates to the
functionality of the account. While the most basic type of account merely allows
beneficiaries to withdraw their funds in a once-off transaction, thus offering
limited potential for financial inclusion, more sophisticated solutions offer fully-
fledged bank accounts to beneficiaries, allowing them to benefit from the same
functionality as regular private account owners (Bold et al., 2012). Yet, even
where fully functional accounts are used, experience across programmes has
shown that simply having access to an account does not necessarily lead to
increased use of formal financial services, or ‘true’ financial inclusion (European
Commission, 2008). In fact, a common issue reported by SCT programmes across
the world is that beneficiaries engage in ‘dump-and-pull’ behaviour in other
words, electronic payments are cashed out immediately upon receipt and the
account serves as little more than a mailbox’ used to receive what essentially
remains a cash-based payment (Klapper & Singer, 2017).
This behaviour which has also been observed with mobile money payments
has long been a source of bewilderment among SCT programme administrators,
governments, and financial inclusion advocates, particularly given the large body
of evidence suggesting that there is considerable demand for formal financial
services among the poor. Yet, the reality in most sub-Saharan African countries
is that the reach of the formal financial infrastructure and thus the use of
electronic payment methods remains limited. This lack of a digital payment
ecosystem makes electronic payments tedious, insecure and expensive compared
to the use of cash, thus offering few incentives or benefits for SCT recipients to
make use of digital financial services. Moreover, Bohling (2014) notes that
unbanked recipients were frequently not familiar with electronic payment
methods and considered the informal savings and borrowing methods they had
been using all their lives more familiar and better suited to their needs. Finally, a
study among cash transfer recipients in Kenya indicated that only 10% of them
were aware that they could use their smart cards as a savings device (Oberländer
& Brossmann, 2014). On the one hand, this points to the need for financial literacy
training, clear communication about the payment system and added financial
inclusion features, as well as on-going support and assistance for beneficiaries.
On the other hand, however, the persistence of this phenomenon raises
fundamental questions about the usefulness and appropriateness of digital
payment mechanisms in economies where cash continues to be the predominant
means of payment and economic exchange.
A less frequently examined obstacle to financial inclusion through SCT payments
is the actual value of the transfer. While payments tend to be relatively generous
in developed economies particularly when they are funded through contributory
social security schemes transfer values in sub-Saharan Africa usually cover only
a fraction of beneficiaries’ financial needs. The World Bank’s 2015 ‘State of
29
Social Safety Nets’ study revealed that, on average, SCT programmes in lower-
income countries only covered 10% of consumption of the average poor person,
compared to almost four times as much (37%) in upper-middle income countries
(World Bank, 2015b)
21
. How and why households would choose to save part or
all of these small monthly transfers, rather than using them to cover their most
immediate basic needs, appears to be an uncomfortable question for policy makers
and financial inclusion advocates alike.
This is, of course, not to dismiss the fact that even the poorest households engage
in different forms of saving and financial planning, as illustrated by e.g. the
Financial Diaries project (Collins, 2005) or the literature on community-based
rotating savings schemes (see, for example, Anderson and Baland (2002), Bähre
(2007) and Bouman (1995)). In fact, several SCT programmes have incorporated
these findings into their programme design and have introduced a voluntary
savings feature for account-based SCT payments. In Ethiopia’s Urban Productive
Safety Net Programme, for example, 20% of the transfer value is deducted in the
form of a voluntary savings contribution, on which beneficiaries receive 7%
interest (Admassu, 2019). Other examples include the Child Development
Accounts piloted in Nigeria and Uganda, in which matching grants were given to
beneficiaries for accumulating savings and encouraging healthy behaviours
among children and youth (Zimmerman & Holmes, 2012). Yet the available
evidence points to the need to establish a broader digital payment ecosystem,
increase the levels of financial and technological literacy among beneficiaries,
ensure adequate transfer values, and offer appropriate and suitable tailor-made
financial products in order to make digital financial services a viable, useful and
attractive service for SCT beneficiaries.
4. Cash transfer payment providers
As outlined in the previous sections, the choice of one or several payment
instruments is closely tied to the selection of their respective payment provider(s).
This section provides an overview of the different types of payment providers
used for the delivery of SCTs across the continent, with a focus on the differences
between in-house solutions i.e. payments made via public entities or government
structures and outsourcing arrangements implemented through private service
21
In Burundi, CTs correspond to about 18% of the household food poverty line (World Bank,
2016f), Malawi’s Zomba cash transfer was equal to approx. 15% of total monthly household
consumption (Garcia & Moore, 2012), and Mauritania’s Tekavoul transfer amounts to a third
of the national poverty line (Harsch, 2016). South Africa’s Old Age Pension and Disability
Grant are a notable exception to this rule, equalling 1.75 times the country’s median income
(Garcia & Moore, 2012).
30
providers. Further, the section briefly looks at the role of non-governmental
organizations and local communities in the provision of SCT payments, as these
continue to play a role in certain programmes.
4.1 In-house payment providers
Cash transfer programmes in sub-Saharan Africa that rely on in-house payment
solutions generally do so via one of three payment channels: manual, cash-based
payments via SCT programme staff; cash or electronic payments via the national
post office; or account-based transfers through a state-owned bank.
The first approach is often used in the early stages of programme implementation,
or in countries with a limited financial infrastructure. It requires a high level of
state capacity and coordination as it relies on programme staff delivering physical
cash to beneficiaries through a network of pay points which are usually set up in
village squares, community halls, schools, or local government offices. While
payment delivery through programme staff is often seen as a low cost solution,
this view does not take into account the fact that it diverts a considerable number
of public sector workers from their primary functions, exposes them to potential
security risks when transporting large amounts of cash, and creates opportunities
for corruption, leakage and bribery. Moreover, as outlined above, cash-based
payments through government structures are not considered to be financially
inclusive and carry the risk of high levels of fraud, corruption and leakage, which
have become key concerns in the design of SCT payment systems in recent years
(ISPA, 2016a). As a result, even countries that have relied on in-house payment
systems in the past, such as Lesotho, Zambia and Tanzania, are now entering into
partnerships with commercial providers and shifting towards electronic payment
instruments.
22
Out of the 130 programmes surveyed, only 15 relied exclusively on
manual cash payments through government or community structures.
Another option for in-house payment delivery is the use of the national post office
network. Post offices have been a popular choice of payment provider in several
large-scale SCT programmes across Africa, mostly due to their physical presence
in remote and rural areas and their ability to cater for low-income customers. In
addition to their traditional function of sending and receiving mail, many
countries have established postal banks on the back of their post office network.
These banks have been a key instrument for developing country governments to
raise small deposits from both rural and urban areas, and to provide basic financial
22
See Baur-Yazbeck, Kilfoil, and Botea (2019) for Zambia, World Bank (2016b) for Lesotho
and Tanzania Social Action Fund (2019) for Tanzania.
31
services to low-income customers
23
(Kachingwe & Berthaud, 2013). In fact, the
delivery of government payments (including salaries, pensions and social cash
transfers) was the second most important financial service provided by post
offices across the developing world in 2016 (ISPA, 2016a). While postal networks
have been used mainly for manual cash-based payments in the past, a general
trend towards modernizing national postal networks has opened up opportunities
for account-based electronic SCT payments, as well as the provision of additional
financial services (ISPA, 2016a). As mentioned above, postal networks were used
for SCT payments by 39 programmes in 12 sub-Saharan African countries,
increasingly through electronic channels and with the added provision of personal
bank accounts.
There are numerous examples of post offices acting as SCT payment providers
across sub-Saharan Africa, including social pension payments in Lesotho (World
Bank, 2016b) and Cape Verde (ILO, 2015), or the Cash Transfer Programme for
Vulnerable Children in Togo (World Bank, 2018a). Kenya’s government-led cash
transfer programmes transitioned from manual delivery by government staff to
payments through the Postal Corporation of Kenya (although only for an interim
period) (ISPA, 2016a), and in Ghana the collaboration between the national social
welfare department and Ghana Post was a key payment provider for the LEAP
SCT programme until 2015 (Oduro, 2015). In Uganda, the national Post Bank was
contracted to deliver social pensions under the state-led SAGE programme, and
has also been delivering cash payments for several humanitarian programmes
through it’s ‘Bank on Wheels’ mobile payment units (Post Bank, 2018). In
Namibia, the national postal service NamPost has been a long-standing payment
provider for various government SCT schemes, paying around N$70 million to
beneficiaries through NamPost every month (Tjihenuna, 2017)
24
. Another recent
example is South Africa’s social grant programme, which appointed the Post
Office in 2017/18 after having worked with various private payment providers
since the early 1990s (Gronbach, 2017).
State-owned or national banks represent the third type of public payment provider
for SCT programmes. State-owned banks have been used to deliver payments in
several large Latin American SCT programmes, including the continent’s flagship
programmes Bolsa Familia (Brazil) and Prospera (Mexico) (Lindert, Linder,
Hobbs & de la Brière, 2007; Masino & Niño-Zarazúa, 2020). The use of state-
23
For further reading on the role of postal banks in advancing financial inclusion, see Anson,
Berthaud, Klapper, and Singer (2013).
24
In addition, NamPost provides bank accounts and additional financial services including
microloans through the NamPost Savings Bank (NPSB), its financial subsidiary NamPost
Financial Brokers (Pty) Ltd (‘Post Fin’), and in cooperation with the Development Bank of
Namibia (Kachingwe & Berthaud, 2013).
32
owned banks offers advantages with regard to oversight and control, as well as a
limited need for a business case as state banks may be required to take on
government business regardless of traditional considerations for financial return.
Moreover, state-owned banks can offer bank accounts, as well as additional
financial services and financial inclusion initiatives for beneficiaries, and often
have extensive experience in dealing with large-scale government payments
(ISPA, 2016a). However, few countries in sub-Saharan Africa have well-
functioning state-owned retail banks with a sufficiently large branch network,
making this type of payment provider an exception on the continent. The only
three examples of state-owned retail banks used for SCT payments identified in
this study were Rwanda’s Banque Populaire (used in the early stages of its Vision
2020 Umurenge Programme), Banco Internacional de São Tomé e Príncipe
(Vulnerable Families Programme), and the People's Own Savings Bank in
Zimbabwe (Public Assistance Programme).
4.2 The business case for social cash transfers
While most governments in sub-Saharan Africa seem eager to adopt electronic,
financially inclusive SCT payment systems, many of them lack the necessary
technology, expertise and experience to implement and manage these systems.
Moreover, financial inclusion through payment digitization is seen as a key
domain for private sector engagement, as expressed by the World Bank’s former
Managing Director Bertrand Badré, who stated that there is no way you can
achieve financial inclusion without having the private sector playing the key role
(Tumwebaze, 2014). Consequently, private financial companies and technology
providers have entered the sphere of social protection, forming new alliances and
partnerships with governments, aid agencies and NGOs. Broadly speaking, the
use of private contractors tends to increase in line with the technological
sophistication and complexity of a country’s SCT payment system. The
introduction of payment cards, the provision of bank accounts, and especially the
implementation of mobile-based payment channels usually necessitates the
establishment of partnerships with private entities, such as banks, financial service
providers, mobile network operators, or technology companies.
Traditionally, financial companies in developing countries had focused their
business activities on the corporate sector, as well as the small middle- and upper-
income customer segments, located predominantly in urban areas. Expanding the
financial infrastructure into rural areas and providing financial services for low-
income individuals was seen as a risky and unprofitable exercise, due to the cost
of establishing physical branches in sparsely populated areas, the limited
purchasing power of the poor, legal barriers such as extensive KYC requirements
for opening an account, as well as an insufficient understanding of the needs and
characteristics of the ‘Bottom of the Pyramid’ market (Baradaran, 2014;
33
European Commission, 2008; Llewellyn-Jones, 2016). However, this attitude
changed with the publication of Prahalad’s theory on The Fortune at the Bottom
of the Pyramid in which he argues that the real source of market promise is not
the wealthy few in the developing world [...] it is the billions of aspiring poor who
are joining the market economy for the first time (Prahalad & Hart, 2002: 2). The
emergence of this view coincided with the development of new financial
technologies and banking models, such as mobile money and agent banking
25
, as
well as a general relaxation of financial regulations in order to accommodate
financial inclusion initiatives. This has created a conducive environment for the
creation of a profitable business case around SCT payments and formal financial
institutions have shown growing interest in the SCT payment sphere.
The business case behind SCT payments comprises two core components. The
first component consists of the fees paid by the government or implementing
agency, which should cover the cost of setting up the payment infrastructure, as
well as the cost of disbursing payments. However, given the budget constraints
faced by most developing country governments, the scope for generating profits,
beyond simply covering the cost of establishing and operating the payment
system, is often limited. The second component of the business case, which
consists of cross-selling additional financial products and services to SCT
beneficiaries, has thus been crucial in sparking the interest of private financial
service providers (FSPs). As the demand for these additional financial products is
expected to increase once beneficiaries have been ‘financially included’, it is
precisely this cross-selling opportunity that has come to represent the ‘true’
business case for SCT payments by financial companies (Porteous, 2012).
In addition to familiarizing beneficiaries with formal financial services, electronic
payments into accounts offer additional benefits for FSPs, such as the possibility
to deduct fees (e.g. for insurance policies, payment services or bill payments) and
interest payments for microloans directly from beneficiary accounts. Given that
beneficiaries receive regular, guaranteed monthly payments under the SCT
scheme, the risk of non-payment is reduced considerably, making the provision
of financial services to beneficiaries an almost risk-free endeavour for FSPs.
Moreover, electronic and account-based transactions can easily be recorded and
analysed, thus offering valuable insights into the transaction patterns and overall
economic behaviour of the poor (Bold et al., 2012). Finally, gaining a foothold in
the sphere of social protection can offer strategic advantages for FSPs, even in
cases where the financial returns might be low. Smith et al. (2011) note that cash
25
Agent banking essentially replaces the establishment of physical bank branches with a
network of banking agents. Agents are third parties (either businesses or individuals) contracted
by a financial institution to provide financial services on their behalf and deal directly with
customers (Rodriguez, Conrad, Davico, Lonie, & Denyes, 2019).
34
transfer programmes have provided valuable learning opportunities for FSPs, both
in terms of testing new payment technologies in small-scale pilot programmes,
and with regard to penetrating new markets. In addition, partnering with
governments to deliver SCT payments represents an opportunity for private
financial institutions to advocate for more favourable regulations based on an
implicit social contract and the growing political importance of cash transfer
programmes (Oberländer & Brossmann, 2014).
4.3 Payments through private service providers
The nature and profitability of the business case outlined above, as well as the
design and implementation of the corresponding payment system, varies among
different types of payment providers. This section will provide an overview of the
most commonly used private service providers for SCT payments in sub-Saharan
Africa and discuss the key considerations relating to each entity.
As mentioned above, the use of multiple payment providers either to
compensate for gaps in geographic coverage or to offer a choice of different
payment instruments to beneficiaries is increasingly common in sub-Saharan
Africa. This is particularly the case for large-scale programmes operating in the
context of a relatively well-developed financial sector. Kenya’s new Consolidated
Cash Transfer Programme ‘Inua Jamii’ which makes payments through Co-
operative Bank, Equity Bank Ltd, Kenya Commercial Bank and Post Bank, is a
prominent example of this approach. The launch of the country’s new choice
model went hand in hand with the consolidation of its three main SCT
programmes under a common payment platform through which it makes
payments to around 710,000 beneficiaries (Saya, 2019). This new system, which
relies entirely on commercial banks with large agent networks, replaces the
previous arrangements under which payments were made through post offices and
Equity Bank (del Ninno et al., 2013).
A similar approach has been adopted for Zambia’s Support to Women’s
Livelihoods initiative which has been making payments through a multi-provider
model since 2017. When signing up for the programme, beneficiaries can choose
the provider and account through which they wish to receive their payment,
including two mobile money options (MTN and Zoona), two banks (UBA Zambia
and the National Savings Bank) and the Zambia Postal Services Corporation
(Baur-Yazbeck, Kilfoil, et al., 2019). The World Bank, one of the main funders
of SCT programmes in sub-Saharan Africa, is one of the key advocates of this
‘choice model’ which reflects its broader goals of promoting financial inclusion
and private sector involvement in the delivery of social protection (Baur-Yazbeck,
Kilfoil, et al., 2019). Given the Bank’s active involvement in the establishment of
social safety nets with SCT elements in 40 sub-Saharan African countries
including some of the region’s flagship programmes in Ethiopia, Ghana,
35
Tanzania, Kenya as well as similar agendas of other donors, the ‘choice model
is likely to be adopted by an increasing number of programmes in the future.
Regardless of the precise nature of the payment provider, it should be pointed out
that using private contractors for the provision of a social service to the poor
carries certain inherent risks which need to be weighed carefully against the
benefits of such arrangements. In addition to the typical risks related to
outsourcing public services
26
, the need to create a business case for private
financial companies can expose beneficiaries to the risk of financial exploitation,
as illustrated by the case of South Africa. Adequate oversight, clear and
enforceable service standards, and active management of the contractual
relationship are thus of vital importance for the success of outsourced payment
mechanisms in order to protect beneficiaries and to ensure the smooth and cost-
effective running of the programme (ISPA, 2016a).
4.3.1 Commercial banks and microfinance institutions
While banks traditionally lacked the physical infrastructure to expand into rural,
sparsely populated areas, the emergence of agent banking, the adoption of
enabling regulations in several countries, and a broader financial inclusion
mandate have created favourable conditions for private banks to engage in the
delivery of SCT payments. Commercial banks can leverage their experience in
cash-handling and payments, as well as their tested systems for risk management
and compliance, and can use social transfers either as a form of corporate social
responsibility, or as an opportunity to obtain additional government business and
tap into the low-income customer segment (DfID, 2009). In addition, banks are
well placed to offer basic accounts and additional financial services to
beneficiaries, and often have prior experience with handling large-scale G2P
transfers such as public sector salaries or pensions.
However, most commercial banks in sub-Saharan African continue to have a
limited presence outside urban areas and therefore need to invest in the
establishment of a reliable agent network and/or ATM infrastructure in order to
ensure national geographic coverage. And although using a branchless banking
network of contracted agents is estimated to be 50% cheaper than using bank
branches or ATMs, the cost of establishing this agent network, as well as
registering beneficiaries for the new payment system and the corresponding bank
26
These risks include the failure to realize the promised cost savings and efficiency gains, the
existence of hidden transaction costs, the difficulty of running fair and transparent tender
processes, the inability of states to properly monitor the activities of their contractors, the
growing bargaining power of these service providers and the resulting “hollowing out” of state
capacity (Jensen & Stonecash, 2005; Milward, 1994; Schönteich, 2004).
36
accounts, represents a significant upfront cost. If this is not covered or at least
subsidized by the implementing agency, banks might be reluctant or unwilling
to operate in poor, isolated communities. This, in turn, can place additional travel
and opportunity costs on beneficiaries collecting their grants, or require the
implementing agency to contract an additional payment provider for certain areas
(Smith et al., 2011). Moreover, many large banks have limited experience with
low-income customers and might need to adapt their products and services in
order to cater for their specific needs and requirements (Oberländer & Brossmann,
2014).
Despite these limitations, 50 of the 130 programmes surveyed make payments
through commercial banks, either directly into beneficiaries’ personal bank
accounts, or through withdrawals from ATMs. Perhaps the most well-known
example is Equity Bank in Kenya, which delivers social transfers on behalf of
several SCT programmes, including the government’s Hunger Safety Net
Programme and the Cash Transfer for Orphans and Vulnerable Children, as well
as payments to World Food Programme beneficiaries (ISPA, 2016a). The bank
invested heavily in expanding its presence in rural areas and its role is considered
to have been critical in the success of the programmes (Smith et al., 2011).
However, while Equity Bank was initially the government’s sole banking partner,
it is now facing competition from KCB Bank Kenya Limited, the Co-operative
Bank of Kenya, and the Kenya Post Office Savings Bank, which have been
contracted as additional payment partners. Other prominent examples include
Grindrod Bank and Postbank in South Africa (Gronbach, 2017), Standard Bank
in Lesotho and Swaziland (Kardan, Sindou & Pellerano, 2014), Banque Al Amana
in Mauritania (Mauriactu, 2019) and the Commercial Bank of Ethiopia (Admassu,
2019).
Unlike most large commercial banks, microfinance institutions have a proven
track record in serving low-income clients in developing economies and tend to
have a larger presence in traditionally underserved areas. While they may not have
the same number of distribution points across the country as traditional banks,
they tend to operate more locally and have a better understanding of the needs of
low-income customers (ISPA, 2016a). Microfinance institutions are, however, not
always permitted to take deposits or offer store-of-value accounts, thus restricting
them to the role of an additional financial service provider in some countries
(DfID, 2009). Examples of microfinance institutions delivering SCT payments in
sub-Saharan Africa include Opportunity International Bank in Malawi (del Ninno
et al., 2013), Amhara Credit and Saving Institution in Ethiopia (ISPA, 2016a), as
well as several microfinance providers processing payments for the Social Safety
Nets Project in Niger (World Bank, 2016c).
The use of Savings and Credit Cooperatives (SACCOs) for SCT payments
represents a special case as these organizations are owned and operated by their
37
members and thus, strictly speaking, not commercial financial institutions (Lagat,
Mugo & Otuya, 2013). While SACCOs are frequently the financial institutions
closest to the rural poor, they often operate as individual entities with few formal
links between them. This lack of an overarching structural framework, as well as
weak internal controls, and the lack of capacity to make investments in
sophisticated payment technologies, tend to make them unsuitable as payment
providers in larger programmes (ISPA, 2016a). Hence, while SACCOs can
undoubtedly play a role in broader financial inclusion efforts, their use as a
payment provider for SCTs has been limited to a few exceptional cases such as
Rwanda’s Vision 2020 Umurenge cash transfer programme (Alliance for
Financial Inclusion, 2019).
4.3.2 Non-bank payment providers
In response to the global expansion of SCT programmes, an increasing number of
non-bank payment providers has specialized in the distribution of these payments
and entered into partnerships with governments or implementing agencies. Some
of these entities are related to banks, such as ABSA subsidiary AllPay (a previous
payment provider for South Africa’s social grant programme), while others
operate as independent companies, offering their services either with or without a
formal banking partner, depending on the local regulatory framework (DfID,
2009). In general, these service providers tend to offer closed-loop payment
solutions based on proprietary technology and rely on the use of smart cards and
biometric authentication. While this offers highly secure beneficiary
identification and can compensate for a weak national payment system,
proprietary systems are not compatible with mainstream financial infrastructure,
thus carrying the risk of dependence on a single contractor and the high cost of
integrating the SCT payment system into the broader financial system at a later
stage (Oberländer & Brossmann, 2014).
The most prominent and insightful example of the practicalities, as well as the
potential benefits and costs of working with a non-bank payment provider, is the
case of South Africa. The country has a long history of using private companies
to deliver SCT payments, dating back to the early 1990s. In 2012, the government
appointed Cash Paymaster Services (CPS), a private financial company, as the
sole paymaster for the country’s extensive SCT programme. CPS introduced a
biometrically-enabled smart card-based payment system and provided bank
accounts for beneficiaries through its banking partner Grindrod Bank. This made
a significant contribution to South Africa’s financial inclusion agenda, with SCT
recipients making up almost a quarter of South Africa’s banked population
(Centre of Excellence in Financial Services, 2017). However, it soon emerged that
CPS’ parent company Net1 had established an elaborate network of subsidiaries
with whom it shared beneficiaries’ personal information, enabling them to
38
aggressively sell financial products and services to SCT recipients. Payments for
insurance, airtime, loans and other financial services were collected via direct
deductions from beneficiaries’ bank accounts before they could access their
monthly payments (Adesina, 2020). It is estimated that approximately 2.3 million
of the 10 million grant accounts held by Grindrod Bank were affected by the
deductions, i.e. almost one quarter of all grant recipients (Vally, 2016). According
to South Africa’s Social Security Agency SASSA, the total monetary loss [to
grant beneficiaries] due to the unlawful deductions was close to R800 million, of
which only R1.5 million has been recovered (Standing Committee on
Community Development, 2016).
The case caused a massive public backlash, a series of (still on-going) legal
battles, as well as considerable financial, political and social costs for both the
government and beneficiaries (Gronbach, 2017). As a result, South Africa’s
Social Security Agency terminated its relationship with CPS in 2018 and
appointed the South African Post Office as its new national paymaster. While this
move has come with its own set of problems including the closure of most of
the country’s cash pay points, cash shortages at Post Offices, payment glitches
delaying electronic payments, and the threat of escalating costs (Davis, 2019;
Mashego, 2020) it was perceived to be the only viable and politically acceptable
option at the time.
4.3.3 Mobile network operators and mobile money agents
The emergence of mobile money as a potential payment channel for SCTs has
opened up new business opportunities for MNOs and mobile money agents. While
the MNO provides the technological infrastructure for the mobile money
platform, using mobile money as a payment instrument for SCTs depends on the
establishment of a network of local agents who process payments to individual
beneficiaries (Klapper & Singer, 2017). Similar to the concept of agent banking,
mobile money agents are individuals or small businesses who are contracted by
the MNO to interact with customers, register them for the service, assist them with
cash-in or cash-out transactions and, where available, provide additional financial
services via the mobile money platform (ISPA, 2016a). Agents receive a
commission for their services usually a small fee per transaction which is paid
by the contracting MNO (Oberländer & Brossmann, 2014). In addition,
shopkeepers acting as mobile money agents can use SCT payments as an
opportunity to generate additional trade in their shops as beneficiaries often spend
their transfers on immediate purchases (Smith et al., 2011).
Despite the fact that Safaricom’s M-Pesa has become one of the most successful
mobile money platforms on the continent, it has rarely been used for cash transfer
payments. Instead, MTN’s mobile money service has been the most popular
39
platform used for SCT payments in the region, including in Ghana’s LEAP
programme (BtCA, 2017), Uganda’s SAGE scheme (Okello, 2015), Zambia’s
Support to Women’s Livelihoods programme (Baur-Yazbeck, Kilfoil, et al.,
2019), as well as for different humanitarian transfers in, for example, Cameroon
and Liberia (Cash Working Group, 2018; McNutt, 2016). Orange Money is
another increasingly popular provider of mobile money SCT payment services
and has been used in Mali, Senegal, Burkina Faso, Cote d’Ivoire and Madagascar
(IFC, 2018; Morey & Seidenfeld, 2018; World Bank, 2019a).
Where mobile money is accepted as a regular means of payment, beneficiaries
could, in theory, pay for goods and services via their mobile phones rather than
simply cashing out. This, however, is not the case in most of sub-Saharan Africa,
which can put considerable pressure on agents to maintain sufficient liquidity
during pay-out periods. In fact, a CGAP review identified liquidity shortages as
one of the key problems encountered by recipients, and mobile money agents
often face challenges similar to those experienced under manual, cash-based
systems, i.e. the need to collect and disburse large amounts of cash, creating
security risks and an additional administrative burden (ISPA, 2016a). In fact, one
could argue that disbursing SCTs via mobile money in an environment where
mobile payments are not a commonly accepted means of payment simply shifts
the responsibility for disbursing cash from SCT staff to mobile money agents. In
this case it does not represent a truly digital form of payment, offers little potential
for financial inclusion, and increases the financial risk and administrative burden
for agents.
Further, it must be ensured that recipients are not subjected to coercion or undue
pressure by agents or shopkeepers to spend their transfers in their store a practice
which has been reported in anecdotal evidence. Other potential risks include
agents making unauthorized deductions from beneficiaries e-wallets, charging
unauthorized ‘disbursement fees’, or charging higher prices for purchases of
goods during pay-out periods (ISPA, 2016a). Beneficiaries of Uganda’s SAGE
grant, for instance, reported being asked to pay a fee of UGX 1,000 in order to
receive their bi-monthly payment at the start of the programme and only later
discovered that it was a lie (Merttens, Sindou, Attah, et al., 2016).
Despite the global excitement surrounding the use of mobile money for SCT
payments, the practical implementation of the technology has proved challenging,
and its transformative effect in terms of financial inclusion has thus far been
limited. Due to the absence of a mobile money payment ecosystem, most
beneficiaries continue to simply cash out, and gaps in mobile network coverage
in rural areas continue to pose significant challenges for MNOs and agents, as
reported in Niger and Uganda, for example. Thus far, few comprehensive studies
on the use of mobile money and the role of MNOs in the delivery of SCTs have
been conducted, and there is a clear need for further research into this issue. The
40
recent adoption of mobile money as a payment mechanism for several World
Bank-funded SCT programmes, particularly in West and East Africa, should
generate further insights in this regard.
4.3.4 Other private service providers
In addition to the payment providers outlined above, both manual and electronic
payment systems offer a variety of business opportunities for other private
entities, including technology companies, security providers and consultants.
Since these actors are often sub-contracted by the main payment agency, and thus
play a less visible role in the actual payment process, they have received limited
attention by scholars and SCT practitioners. However, their role in providing
essential elements of the payment infrastructure warrants a brief look at their
nature and activities in the SCT payment space, and should be the subject of
further research.
While banks, MNOs and other payment providers tend to be in charge of the
overall SCT payment infrastructure, the technology, devices and systems used in
the disbursement process are usually not developed in-house. Biometric
identification technologies, for instance, have been procured from specialized
providers such as BioID Technologies in the DRC (World Bank, 2012), Kifiya
Financial Technology Services in Ethiopia (World Bank, 2014b), or Aya
Technologies in Ghana (Economic Policy Research Institute [EPRI], 2015). And
even in manual, cash-based payment mechanisms, the use of private security firms
or cash-in-transit companies has been relatively common, including in Lesotho,
Malawi and Namibia (Arruda, 2018a; ILO, 2014; Kardan & O’Brien, 2017).
However, data on the extent of their services or the contractual agreements with
individual companies is limited, and further research would be needed to provide
a clearer picture on the role of these providers.
Finally, it should be noted that consultants and payment specialists play an
increasingly important role in the design and implementation of payment systems
in both government-led and humanitarian programmes. Examples include
companies such as Exact Consult (Zambia, Lesotho and Mozambique), Ayala
Consulting (Ghana, Lesotho and Malawi) and Samuel Hall Consulting
(Somalia)
27
. However, a detailed discussion of their role in the development and
implementation of SCT payment systems would exceed the scope of this paper
and should be explored in further research.
27
For further reading see Ayala Consulting Corporation (2014), Baur-Yazbeck, Kilfoil, et al.
(2019) and Goodman and Majid (2017).
41
4.4 NGOs, donors and community-based payments
In countries with limited formal financial channels, SCT programmes have, in
some cases, reverted to local NGOs or community structures to deliver payments.
However, these organizations or individuals are not defined as actual payment
providers but rather as delivery channels for cash disbursements, usually in in-
house payment arrangements. Payments through NGOs are more common in
cash-for-work programmes as these are often implemented by local NGOs who
are then also used to disburse payments to programme participants. Out of the
programmes covered in this report, only the DRC’s ARCC programme and the
Social Safety Nets project in Chad made payments via local NGOs although
even in these cases this mainly appears to be the case for the programmes’ public
works components.
In addition, as Garcia and Moore (2012: 5) note, programs in Sub-Saharan Africa
often rely on communities in ways beyond those found in other regions […]
Communities are involved in identifying and selecting potential beneficiaries,
collecting data, verifying information about beneficiaries, distributing cash,
monitoring beneficiaries’ use of cash (even in unconditional transfers), and
addressing grievances. Examples where village committees, local volunteers and
traditional leaders have played a key role in the delivery and oversight of
payments include the Nahouri Cash Transfer pilot in Burkina Faso (Cirillo &
Tebaldi, 2016), Tanzania’s TASAF programme (World Bank, 2019h) and
Zambia’s national cash transfer programme (Ministry of Community
Development and Social Services, 2018). However, both the TASAF programme
and Zambia’s SCT scheme are planning to launch electronic payments in 2020,
thus reducing the role of communities to beneficiary selection and general
programme support.
Finally, it should be emphasized that the role of donors, international
organizations and NGOs in the implementation of SCT programmes and their
respective payment systems in sub-Saharan Africa is more pronounced than in
other parts of the world (Garcia & Moore, 2012). Organizations such as UNICEF,
the WFP, or Concern International have been instrumental in implementing
digital payment technologies in the context of their own programmes, as well as
for national SCT schemes in several countries. Examples include the DRC’s
Alternative Responses for Communities in Crisis cash transfer programme
(Bonilla et al., 2017), Ethiopia’s Productive Safety Net Programme (Ministry of
Agriculture, 2014), Ghana’s Livelihood Empowerment Against Poverty scheme
(EPRI, 2015), as well as Kenya’s National Safety Net Programme (Gardner,
Riungu, O’Brien & Merttens, 2017). Further, the majority of SCT programmes in
the region have been partly or fully funded by organizations such as the World
Bank, UNICEF, the Swedish International Development Cooperation Agency,
DfID, the International Labour Organization, the World Health Organization,
42
WFP, the Food and Agriculture Organization of the United Nations, the Red
Cross, Mercy Corps, Oxfam, CARE International and Concern International
(EPRI, 2015; World Bank, 2016e)
28
. This extensive involvement of international
players in the overall design of SCT programmes in sub-Saharan Africa and,
consequently, the choice of payment instruments and providers, represents
another important field for further research, particularly in light of the central role
of cash transfers and financial inclusion on the international development agenda.
5. Conclusion
This study set out to explore the use and prevalence of different payment
instruments and providers for SCT programmes in sub-Saharan Africa and to
provide an overview of the current state of SCT payment digitization in the region.
The research revealed an increasing uptake of electronic payment methods, most
notably in the form of payment cards, biometric identity verification, special bank
accounts for beneficiaries, and mobile phone-based payment methods. This
development has been promoted by international institutions and donors, as well
as the emergence of financial inclusion as a key pillar of the global development
agenda and the resulting adoption of financial inclusion strategies by numerous
national governments. Additional factors driving the adoption of electronic
payment instruments include concerns over fraud and leakage in cash-based
payment systems, as well as the cost and logistical complexity of delivering cash
to ever larger numbers of beneficiaries.
Out of a total of 130 SCT programmes in 44 sub-Saharan African countries that
were analysed in this paper, the majority (71) use multiple payment instruments
and 47 rely on a single payment mechanism. Manual cash disbursements by
programme staff or community members are practiced in 15 programmes,
whereas 79 programmes disburse cash via other channels, such as post offices,
commercial banks or mobile money platforms. Smart cards are used in 29
programmes, usually in combination with biometric verification via fingerprint
scans, as well as a bank account for beneficiaries. Payments directly into bank
accounts either provided by the programme or into beneficiaires’ personal
accounts are made by 58 programmes, and 22 programmes have used mobile
money as a payment instrument.
The increasing digitization of SCT payments has opened up new business
opportunities for private financial companies and other service providers who can
28
South Africa, Botswana, Namibia and Mauritius represent the few exceptions to this rule,
having established their national SCT schemes almost exclusively through domestic tax-
financing and without significant assistance from donors or international organizations.
43
supply the necessary technology and expertise to design and implement
‘financially inclusive’ payment systems and who are keen to tap into the
previously neglected ‘bottom of the pyramid’ market. While the use of private
contractors offers opportunities for greater payment efficiency and financial
inclusion through cutting-edge technology, outsourcing SCT payments to profit-
seeking companies can create dependency on a certain provider or technology and
raises concerns over the possible financial exploitation of beneficiaries.
Nevertheless, a considerable and growing number of SCT programmes has
partnered with private financial institutions, ranging from traditional banks to
microfinance providers and mobile network operators. A total of 50 programmes
have entered into various forms of partnership with commercial banks, either for
electronic transfers into bank accounts, or cash withdrawals through the bank’s
ATM network or branches. Some programmes even open bank accounts for all
beneficiaries and subsidize the cost of these accounts, while others require
beneficiaries to have (and pay for) their own accounts in order to receive their
payments electronically.
In addition, large retailers as well as local traders and mobile money agents are
increasingly used as payment agents for the disbursement of SCT payments as
they represent a flexible and cost-effective alternative to traditional ‘brick and
mortar’ bank branches. State-owned or state-subsidized postal networks and post
banks are another popular payment partner and are used in 39 programmes across
12 countries. State-owned retail banks, microfinance institutions, non-bank
payment providers, NGOs and local savings and credit cooperatives are not
widely used as SCT payment providers in sub-Saharan Africa.
Despite the growing adoption of electronic payment instruments, cash-based
payments remain a key element of most SCT programmes in sub-Saharan Africa.
At least 94 programmes offer cash payments in some form, and the cash-based
nature of the local economy in most African countries makes it unlikely that
electronic transfers will fully replace cash-based payments in the near future.
Even in programmes where account-based or mobile payments are offered,
beneficiaries have often been found to merely use them as a cash-out mechanism,
rather than using them as a stepping stone towards greater financial inclusion and
payment digitization. This raises the question as to what extent payment
digitization truly benefits the recipients of SCTs who continue to queue for cash
except that they now do so at an ATM, bank or mobile money agent, rather than
at a state-owned pay point or community centre.
The available evidence suggests that the adoption of electronic payment methods
and digital financial services among beneficiaries would require the establishment
of a broader digital payment ecosystem in which the SCT payment instrument is
accepted as a means of payment even in small local shops and by informal traders.
Moreover, financial and technological education of beneficiaries, adequate
44
transfer values, as well as the development of appropriate and suitable tailor-made
financial products, would be required to make digital financial services a viable,
useful and attractive service for SCT beneficiaries. Until then, truly cashless SCT
payment systems will most likely remain a distant dream.
Overall, the SCT payment landscape in sub-Saharan Africa is changing rapidly,
and payment reforms, pilot projects and digitization efforts can be expected to
continue as more and more countries enter the digital age and expand their SCT
programmes to tackle poverty and inequality. Mobile money is likely to become
a more widespread payment instrument as more and more countries adopt
appropriate financial legislation for its use, and the number of mobile money users
on the continent continues to grow. Finally, the impact of the COVID-19
pandemic, resulting in national lockdowns, physical distancing requirements, and
a general boost of the digital economy could transform the SCT payment
landscape at an unprecedented pace. Many African governments have rolled out
new cash-based social protection initiatives, most of which are delivered through
digital channels such as mobile money, e-wallets, bank accounts and electronic
vouchers. It will be interesting to see if and how this will affect existing SCT
payment systems, and further research should be conducted in this regard.
45
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