Ideas & Updates

First There Was Cash-for-Assets – Could WFP’s New E-Payments Model be Scaled Up Too?

Kenya has been hailed as one of the developing world’s leaders in electronic payments. So it should come as no surprise that a sparsely populated, dusty village 500 kilometres from Nairobi is home to a pilot project testing whether an electronic delivery model for aid can be viable on a larger, commercial scale. Drought prone Merti is a small town in the arid and semi-arid lands (ASALs), of northern Kenya where The World Food Programme, MasterCard and local partner Equity Bank have been running a pilot point-of-sale electronic payments programme. .

First There Was Cash-for-Assets – Could WFP’s New E-Payments Model be Scaled Up Too?
Electronic payments for food assistance in northern Kenya

The local Borana tribe who live in the ASALs are predominantly pastoralists and have been hard hit by the recent 2011 drought which has seen an estimated 3.75 million Kenyans and 500,000 refugees requiring food aid. Up until relatively recently, many families in Merti have been receiving in-kind food aid from the World Food Programme.

In line with the organisation’s global move away from direct food aid, however, WFP has been exploring other methods of food assistance. In North Merti, WFP is working with MasterCard and Equity Bank to implement one such “digital food” delivery system. The pilot is a spinoff of WFP’s successful “cash-for-assets” initiative, a conditional cash transfer programme that provided payment to food insecure households in exchange for work on community projects that increase drought resilience. In the new pilot project, WFP Kenya provided each recipient with a debit card linked to a bank account to cash out their allowance. Based on the success of the experience, WFP wanted to try to go one step further and test an “end to end” electronic payment system.

Testing a locked card system to spur economic activity on local market

Designated recipients from 327 families in Merti South have been issued with a MasterCard branded card linked to an Equity Bank account. Each month, WFP deposits on average KES 3,000 per household (KES 528 or US$ 6.10 per household member) into the beneficiary’s account. The recipients use the card at approved retailers in Merti to buy food. The card is pin activated. It is also locked to prevent cash withdrawals. Unspent funds remain as savings in the account, and can be spent by the beneficiary at any point in the future.

Forty merchants in the local area applied to participate in the project but only five passed the selection criteria, which included meeting standard bank requirements for point of sale (POS) merchants. These five received POS machines. Equity Bank conducted the trader assessments rather than the aid agency (WFP) – unlike most aid-delivery programmes – and this was an important factor from both aid sustainability and a commercial scalability perspective. Equity also undertook the financial training for the recipients and traders. In fact, the only cost borne by WFP was the targeting and registration process.

In Merti North, WFP’s beneficiaries have continued to receive the agency’s food rations rather than the new “digital food” allowance.

Recipients approve use of electronic payments but scale has yet to happen

For some time in humanitarian circles, electronic delivery of aid has been considered the better option over in-kind donations on the condition that sufficient market infrastructure exists. In ASAL towns such as Merti, infrastructure is patchy. However, the region’s vulnerability to severe drought means support from government or aid agencies is likely to be required in some form or other for years to come. Therefore, developing cost-efficient, sustainable assistance delivery – and market development – is essential. Determining which form of assistance best promotes these goals was one of the motivations behind the Merti pilot. Financial Sector Deepening Kenya (FSD) commissioned researchers to determine whether the Merti project could be sustainable in the longer term and whether, despite limited infrastructure and other restrictions, it might feasibly be scaled up on a commercial basis to encompass greater numbers of the country’s food-insecure population

FSD’s findings show that beneficiaries prefer the card over food distributions because of the grocery choices it gives them. No one likes having the same diet, day in day out: being given the autonomy and dignity to break away not only from the monotony but also potential stigma of “poor man’s rations” is a blessing any person can relate to.

Participants in the programme also said that they preferred cards being locked to merchant transactions. Unlike cash payments or cash withdrawal options, locked cards helped people to budget and avoid misuse of the cash.

FSD also found that trust, awareness and interest in e-payments had clearly increased across the community. After 6 months FSD did not find that the pilot had yet impacted beneficiaries’ or non-beneficiaries’ use of electronic cash outside of the programme – but this will continue to be monitored. .

On the other side of the counter, participating merchants’ sales have increased without the traders incurring greater security risks associated with carrying cash to and from banks on dangerous roads. Despite this and other apparent benefits, non-participating shopkeepers were disinclined to adopt point-of-sale options to capture any market share. Cost of terminals was one likely barrier. FSD concludes that smaller merchants would need “a push” to participate in the programme and transact with suppliers electronically. They also note that the cost would need to be very low and probably accompanied by inducements and promotions.

In its final summation FSD concludes that the WFP pilot programme in Merti is “worthy of expanding to more beneficiaries and to broader geographies.” However, it notes that, while network unreliability was able to be accommodated in a small, focused project such as Merti, infrastructure remains the main challenge to upscaling and would need to be addressed for larger projects.

Cathy Williams, Communications Specialist, Better Than Cash Alliance