SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 HIGHLIGHT Digitizing cash transfers to remote There is currently a major focus on digitization within African countries, rural populations: with the interest of, on the one hand, increasing efficiency and lowering challenges and the cost-of-service delivery, and on the other hand, increasing financial solutions from the inclusion for excluded parts of the population. Zambia provides an experience of Zambia important case study of digitization of social protection transfers. Whilst Zambia is sparsely populated with Emma Wadie Hobson, remote rural populations often living up to 100 km from the nearest town, Craig Kilfoil and Andrea making beneficiaries hard to reach with digital services, the country has Martin1 successfully demonstrated that cash transfers can be digitized for remote rural populations to varying extents, tailored to their particular context. This Discussion Note presents chal- Background to cash transfers in Zambia lenges faced and solutions found in digitizing cash transfer payments in The number and percentage of poor people in Zambia Zambia, which may be of interest is high, estimated at 58% of the population in 20202. to other countries embarking on similar endeavors. 1 Emma Wadie Hobson is a Senior Social Protection Specialist and Task Team Leader, Africa Region, World Bank. Craig Kilfoil is a Digital Payments Expert Consultant and Andrea Martin is an MIS Expert Consultant for the World Bank. For more information, contact ehobson@worldbank.org 2 Zambia - Social Protection and Jobs Public Expenditure Review 2021 (English). Washington, D.C.: World Bank Group 1 SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 The Social Cash Transfer (SCT) is the Government of Key achievements in digitizing cash Zambia’s flagship social protection program, aiming to transfers in Zambia stabilize the consumption of the poor and vulnerable. The program started in 2003 with small pilots in a few districts and has since scaled up over time, currently SWL was the first social protection program in Zambia to reaching 974,000 households (representing 30 percent of introduce digital payments through PSPs in 2017. To viably the population or 50 percent of the poor). Beneficiaries reach remote rural beneficiaries, SWL introduced an inno- currently receive bi-monthly cash transfers of ZMW 400 vative, beneficiary choice-based, multi-service provider (US$24  equivalent or US$12 monthly) for an average system, which at that time was unique in Africa. The system household and double this amount for households with has since been scaled up successfully to over 95,000 bene- a disabled person. Beneficiaries are selected through ficiaries, who have been able to choose where to receive categorical as well as poverty targeting mechanisms to their payment among initially four PSPs, which has now identify people that are poor and also unable to work. grown to seven. The PSPs are integrated into a web-based Eligible categories are extreme poor households with Payment Gateway, allowing real-time payment tracking. members that are either disabled, elderly, chronically ill, child-headed, and female headed households. The World The government also decided to start digitizing SCT Bank has provided financing to the SCT together with the payments to reduce financial risks and improve real time governments of UK, Sweden, and Ireland through the World tracking and authentication of payments. Since then, some Bank administered multi-donor trust fund since 2020, in key results achieved include: addition to a major proportion of financing coming from the Zambian Treasury. Prior to 2022, all SCT cash transfer • Successful partnership between the World Bank, payments were made manually, in physical cash, by civil Smart Zambia (the digitization agency of government), servant Pay Point Managers (PPMs), most often teachers. the Ministry of Community Development and Social Services (MCDSS), the Ministry of Finance and National Another important social protection program providing Planning (MOFNP), and the United Nations towards transfers in Zambia is the Supporting Women’s Livelihoods system development and support. (SWL) component of the World Bank funded Girls Education and Women’s Empowerment and Livelihoods • End-to-end integrated Management Information (GEWEL) project. The first phase of SWL started in 2017, System (MIS) and digital payment system for SWL and providing a livelihoods package for women to start small SCT put in place and integrated to nine PSPs, including businesses. SWL targets women of working age, between three Mobile Network Operators (MNOs) (Airtel, MTN, 19-64 years old, from SCT households, supporting them Zamtel), one interoperable independent mobile cash for one year with a package that includes participation in voucher provider (Zoona), one pre-paid Visa card issuer savings groups; a 21-day life and business skills training; (UBA Bank), as well as four banks (Zanaco, Atlas Mara, and a productive grant equivalent to US$225. The grant is Natsave, Indo-Zambia). a one-off payment, made in two equal tranches, and has always been paid through digital Payment Service Providers • The web-based system automates the end-to-end (PSPs) given its large monetary value. business functions, improving accountability and trace- ability, and allows for real-time payment tracking and reconciliation with PSPs. 2 SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 The World Bank’s CORE-MIS modules, developed to even- Once the decision to deliver digital payments was made, it tually become an open-source solution for client govern- became clear that the only option was to engage multiple ments to use, were customized to meet the needs of SCT providers to reach a national scale. The obvious choice, and SWL. The Payment Gateway developed for SWL was albeit a paradigm shift in social welfare payment norms, also leveraged and customized for SCT, providing the inte- was to allow the beneficiary to independently select the gration to nine PSPs. The SCT system is currently deployed most convenient provider for them based on the premise and functional across all 116 districts of Zambia in terms that empowered beneficiaries will make sensible decisions of registration, enrollment, and grievance functions and in their favor. The innovation was introduced to allocate the generation of payment lists. The registration and PSPs to beneficiaries based on each beneficiaries’ own enrollment modules were used across all districts for the choice of PSP, to leverage their local knowledge on SCT beneficiary scale-up undertaken in 2021, and digital proximity of access points. The beneficiary choice approach payments through PSPs have been piloted in two districts, has been evaluated and has been found to benefit both with further rollout being undertaken in 2022 and 2023. recipients and the program3. The evaluations show that, when given the choice, recipients tend to select the provider with the closest, most convenient access point. Recipients report that this reduces travel expenses and frees up time to spend with family or on income-gener- Lessons learned from Zambia’s ating activities. Choice also gives government programs experience flexibility when one provider drops out or doesn’t comply with the service standards. For example, in Zambia, one PSP lost its banking license due to insolvency but because The challenges encountered and solutions found from the the program worked with several providers, it simply asked experience of Zambia could provide valuable lessons to beneficiaries to select another provider, without disrupting other countries. payment cycles. Governments can also avoid monopolies and reduce leakage with this approach. Challenge #1: No single PSP with national Programs often choose the provider with the highest coverage and uncertainty on coverage levels number of access points and the best financial offer, but in individual communities that is typically the provider with the strongest market power, excluding other small providers that are providing Solution: Multi-service provider system with good services in some areas. It is also problematic for beneficiary choice program staff to assign communities or regions to partic- ular providers because there is seldom up-to-date informa- A digital payments feasibility assessment by the World Bank tion about every beneficiary’s preference or proximity to and MOFNP found that, while MNOs had the best reach, financial access points. Allowing recipients to choose is not with the average rural person having to travel no more than only a more customer-centric approach but can also avoid 3 km to reach an agent, no single provider was servicing all reinforcing monopolies and protect program officers from districts. There were also areas without any mobile money being lobbied by providers. provider, but that may have a bank. Moreover, there was limited information about the location of financial access 3 See Baur Yazbeck and Wadie Hobson (2021). The Future of points and their accessibility to beneficiaries. Government-to-Person (G2P) Payments: Three Years of Learning About G2P Choice in Zambia. CGAP Background Documents. April 2021. 3 SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 With regards to PSP contracting under the beneficiary over time due to vendor lock-in4 complexities and limited choice approach, SWL took the approach of signing IT capacity issues. After the end of the contracts with the Memorandum of Understanding (MOUs) with all interested private sector firms, the ministry did not have neither the PSPs and paying their market-based withdrawal fees. source code nor the IT capacity to maintain the systems. These fees are paid as a rebate top-up payment so that the Continuously re-engaging the developer firms would beneficiaries can pay the withdrawal fees themselves. The come at an unaffordable medium to long-term cost to the SCT took a direct selection approach, where all interested ministry. This absence of functional web-based systems PSPs were invited to bid against ToRs and specifications, limited fiduciary control and accountability. For example, and all those who met the selection criteria were directly it meant that beneficiary data was never up to date at the selected. Framework contracts were used to keep the national level and one needed to go to the district level to numbers of beneficiaries flexible until beneficiary choices ascertain the up to date list of beneficiaries; beneficiary lists were recorded. PSP fees negotiated are as also paid as a were updated and modified outside the system, with no withdrawal rebate to the beneficiary. log of who made the changes or who approved them; and there was no capability for real time tracking of payments. Thanks to the increased competition to provide payments in the market, between 2017 to 2020 the Government As a solution, the Zambian government requested to benefit managed to reduce the cost of SWL digital payment by from the CORE-MIS developed by the World Bank. This free 30% (from K50 to K35 per payment). As SWL uses MOUs, tool is specifically designed to support the implementation government did not have to renegotiate contracts to take of social protection programs and includes a wide range advantage of the cost savings. Government merely reduced of available modules covering the entire program cycle the withdrawal fee rebate top-up given to beneficiaries per (from enrolment to payment, and graduation). The benefits payment to match the reduced market costs of withdrawal. of doing this included: the possibility of relying on robust This top-up rebate approach of covering the withdrawal software that is modular and highly customizable to the fees was another innovative approach trialed in Zambia. needs of the ministry; benefitting from support and training from the World Bank’s in-house developers through the Bank’s technical assistance support; and a fast configura- Challenge #2: Unstable MIS system tion and deployment of the system. The fully enhanced MIS system was customized to the needs of the ministry and was Solution: Adoption of CORE-MIS as an end-to-end ready for piloting in just eight months. The system provides integrated web-based MIS an end-to-end integrated web-based MIS automating all business functions of the program. For SCT, the MIS func- Like many social protection implementing ministries in tionalities available include Registration (Listing, Validation, other countries, MCDSS had numerous non-functional and and Enumeration), Targeting (Pre-eligibility, Eligibility and under-performing MIS systems. The MIS systems, including Proxy Means Test, PMT, assessments), Beneficiary and a beneficiary enrollment application (App) and targeting Household management, Payment management and recon- modules for SCT, and a Single Registry of Beneficiaries for ciliation, Grievance Redress Mechanism (GRM), Geo restric- all programs, had been developed for the ministry by private tion of user access, Multi-factor authentication framework sector firms but had become antiquated and non-functional 4 Vendor lock-in describes a scenario where Government is unable or unwilling to continue to maintain IT systems because the only way to do so is to continue paying a vendor, becoming increasingly un- affordable over time thus increasing the risk to national security over time. 4 SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 for increased security and ETL (Extract, Transfer, Loading of payment modality developed strengthens the system to data) for the beneficiary and household data, with interac- provide robust auditability, automatic digital reconcilia- tive reporting modules (allowing for user customization). tion, reporting, and beneficiary authentication elements to better verify that the beneficiaries targeted for SCT benefits are successfully paid. To achieve this, an android Mobile Challenge #3: Lack of connectivity in remote App was developed to download payment lists to mobile rural areas devices owned by the PPMs. The PPMs take the mobile device with the cash withdrawn from the local district bank Solution: Vary design of digital payments for to make payments off-line. The App presents beneficiary areas with and without connectivity identification information to the PPM, and the PPM is required to verify the identity of the beneficiary that must The SWL was able to undertake digital payments across present their National Registration Card (NRC) to ensure a all areas of the country because the value of the liveli- match with the payment list data downloaded to the App5. hood grant was large enough to incentivize beneficiaries to travel long distances to areas that have connectivity and PSP presence. Moreover, given that the SWL grant was a one-off payment, it was affordable for the program to offer an additional travel rebate to beneficiaries to compensate them for their travel costs. However, SCT involves small frequent payments, making it difficult for beneficiaries to travel long distances every time, and the SCT guidelines specify that pay points should be no further than 7 km away from communities. This means that digital payments for SCT will not be possible everywhere until network connectivity and PSP presence improve in the most remote areas. The key was therefore to know which communities have connectivity and vary the system’s design for areas with and without connectivity and PSPs. The strategic approach agreed upon was to delineate between so-called Rural and Urban beneficiaries (defined as residing in areas with or without network connectivity and availability of PSPs). District staff are the ones that specify whether a community/village should be considered Rural or Urban in the MIS system. Rural payments, in remote areas with no network connectivity, will continue to be made through Pay Point PPM in Namwala district using the App. Photo credit: Lubasi Musambo Managers (PPM) civil servants, but with real-time payment tracking through an Android App with offline functionality. SCT transfers have traditionally been entirely manual with 5 Zambia has a national ID system that covers over 83 percent of the population. It is a paper based ID and not yet digitalized. “World associated weaknesses in respect to auditability, recon- Bank Group. 2016.  Identification for Development : Zambia. ciliation, and beneficiary authentication. The new Rural World Bank, Lusaka.” 5 SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 The App also requires the PPM to take a photograph of the Challenge #4: Limited capacity of district staff to beneficiary receiving payment. Additional security features operationalize digital payments on the ground include GPS location and the time of payment being auto- matically captured by the App. Once the PPMs complete Solution: Prioritize capacity building for the payment at the community level, they travel back to operational rollout and troubleshooting the District office or any area where Internet connectivity is available to upload the payment receipts to the system, The pilot of the system in two districts (Kitwe and Namwala) which can then report, usually on a daily basis, as to the has shown that the system is stable and successful from status of payments. the Information Technology (IT) perspective, with the main challenges encountered being due to district staff capacity The SCT Urban payments modality, in areas with network gaps in ensuring data quality and accuracy. The MIS and connectivity, undertakes digital payments through multiple Payment Gateway have successfully provided a consolidated PSPs (MNOs and Banks) based on the beneficiary’s choice platform for the automation of SCT business processes, as per the successful experience of SWL. Urban SCT bene- from targeting to poverty estimation and disbursements of ficiaries are sensitized about the approach in advance of rural and urban payments to eligible beneficiaries in the capturing their choice of PSP out of the available SCT PSPs. pilot districts. The system was found to be robust and stable at the transaction stages. Rural payments via the PPM app Urban payments are processed in real-time from the MIS were successful and were conducted with no major issues. system and passed to the Payment Gateway, which facil- Urban payments through PSPs were successful when itates a double entry payments approach. While on the correct data was entered for the beneficiary. However, data one hand, payments are debited to the ministry Trust quality issues were encountered at the time of data entry in Account held at the PSP and, on the other hand, payment the MIS as well as data clean-up, mainly due to duplicate is credited to each unique beneficiary account at that or incorrect records of NRCs. PSP. The ‘double entry’ approach to electronic payments means that funds only leave the ministry’s account if the A key lesson learned, therefore, was the need to pay equal balancing credit is successfully credited to each benefi- attention to operational and data quality issues as much ciary account at the PSP. This means that in case of failed as to system design and testing. In hindsight, in Zambia transactions there is no movement of funds and no need there was a lot of focus on system design and testing while for the Government to request refunds from the PSPs. In operational and data quality issues received less attention, the Payment Gateway double entry approach, electronic leading to the difficulties experienced on duplicate and instructions result in electronic responses for each payment incorrect IDs (NRCs) delaying digital payments through transaction. The Payment Gateway in-turn advises the MIS PSPs. Some of the solutions that Zambia is adopting to that can then report on payment status in near-real time remedy this challenge include: showing successful payments and failed payments with any associated ‘payment failure reason code’. Ministry staff • Undertaking further capacity building and training for then use the ‘payment failure reason’ information to help field staff to minimize data entry errors address the problems such as inaccurate mobile or account number provided or dormant account. Once the problem • Instituting a Monthly Payments Working Group for the is corrected, payment can be re-tried almost immediately. ministry and PSPs to troubleshoot issues • Use of the Payment Gateway to produce reconciliation reports with PSPs 6 SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 • Close follow-up of failed payments by the ministry and the system sustainably without support from the devel- district teams to solve the NRC duplication and other opers going forward. issues arising. Another major reflection is that, given limited IT capacities within government ministries, counterparts need a long-term support commitment, which is often unavailable or unaffordable if only relying on private sector firms. Conclusion and way forward There is also a need to advocate for social protection ministries to hire the right caliber of staff, in conjunction Key lessons learnt from Zambia’s experience with the digi- with the IT ministry or digitization agency, for the tization of cash transfers for remote rural populations, successful maintenance of such systems and to ensure their therefore, include: (i) promoting multiple providers with long-term sustainability. This includes staff with software beneficiary choice is beneficial to leverage beneficiaries’ configuration skills. local knowledge of the proximity of access points, in situa- tions where information on coverage in every community is not available; (ii) customizing the World Bank’s CORE-MIS open source software was a fast and reliable solution to the MIS needs of Zambia’s cash transfer programs; (iii) utilizing the Payment Gateway allowed the ministry to maximize on the integration effort to PSP’s and re-use these for multiple programs from SWL to SCT and others in future; (iv) varying the design of digital MIS and payment systems for areas with and without network connectivity is needed, while relying on district staff knowledge of which communities should be considered to have connectivity; (v) it is as important to pay attention to training of local staff at district level on data quality issues and trouble- shooting operational issues as it is to invest in system design and testing. The former is often the most significant bottleneck to a fast rollout. The way forward in Zambia’s digitization of cash transfers includes a rapid countrywide rollout of the Rural modality of physical cash delivery with real time payment tracking through the PPM App, which is expected to be completed SCT beneficiary receiving a Zoona payment from a Kazang agent in the first half of 2023. The Urban modality of digital in Kitwe district. Photo credit: Lubasi Musambo payments through MNOs and Banks will also be rolled out, but in a more phased manner at the rate of a few districts Finally, Zambia is still at an emerging stage in its story of at a time to allow for the troubleshooting that is needed digitization of cash transfers, but the achievements made on data quality and NRC issues. A capacity building plan so far in system design and deployment, reaching very is also under development outlining the handover protocol remote rural populations, make it an important case study and capacity building requirements for MCDSS to manage from which to learn. 7 SOCIAL PROTECTION & JOBS |  POLICY & TECHNICAL NOTE OCTOBER 2022 | No. 27 © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: +1 (202) 473 1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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