The previous post described the current method of payment of social security allowance (SSA) in Nepal and highlighted its perks and drawbacks. This new episode presents a pilot project to digitise SSA payments and discusses a few preliminary insights, ahead of drawing a full lesson in the next post.

By relying on an existing institutional infrastructure, the Nepalese SSA payment system currently in use benefits from longstanding and trusted relationships between government officials and local communities. Trust is a precious resource which lubricates the pipeline through which social protection payments are funnelled to the beneficiaries. However, how previously argued, this pipeline is worn out, leaking cash along the way because of duplicate and ghost beneficiaries. This makes the system likelier to buckle under piling inefficiencies, thus driving up costs and draining resources – human and financial – that could be better spent on strategic sectors such as public health and education. In the long run, these dysfunctions could erode the trust on which the delivery mechanisms of SSA, and the channels of communication between the state and the citizens, relie.

Against this background stands the initiative of Nepal Ministry of Federal Affairs and Local Development (MoFALD) through its Department of Civil Registration (DOCR), and supported by the UNCDF and the World Bank, to digitise the delivery of SSA to Nepalese citizens and reconcile efficiency and thoroughness. The challenge is ambitious, as the project aims at allowing greater control over state resources and thus improving governance. But the digital switch is not an overnight change: it requires fresh arrangements, both technical and organisational, and, therefore, new public-private partnerships in which responsibilities are redistributed among old and new stakeholders. While DOCR strengthened its safety net systems through the establishment of a Management Information System (MIS), essentially a digital Registration, Entitlement and Payment (REAP) platform, for capturing information relating to beneficiaries, the World Bank was instrumental in laying the ground for the digitization of all payments in three Nepalese districts, Baglung, Banke and Surkhet, and UNCDF supported an education grant program managed by a local bank in two different districts, Kanchanpur and Daldhuera. But let’s focus on the digitization project. Its premise was to shift the complete responsibility of payment from the village development committees (VDC) to a commercial bank acting as a Payment Service Provider (PSP) and managing a network of agents.

The procedure is as follows:

VDC officers are in charge of enrolment by collecting the application forms as in the traditional method; the data are submitted to DDC officials who enter the details of each beneficiary on to the MoFALD database and submit a report to MoFALD. On the basis of this report, MoFALD provides a list of the beneficiaries to the PSP Bank, which manages the process of account opening by instructing the branch managers in the areas where the benificiaries reside. Bank agents collect all the necessary information, including scanned copies of the documents to meet KYC requirements and pictures of the beneficiaries. The data are uploaded in the database of the bank, which deals with the issuing and distribution of the smartcards to the beneficiaries. Three times per year, the SSA funds are transferred by the MoFAD to the PSP, which sends the list with the amount to be disbursed to the respective bank branch managers. The branch manager then credits the individual beneficiaries’ accounts with the benefit amount they are entitled to receive. The branchless bank agents are provided with a list of the beneficiaries (in hard and soft copy) and are credited with the amount for their area of coverage. The agent communicates the date in which he will visit a specific village to local authorities, who alert the beneficiaries. Upon verifying the identity of the beneficiary and disboursing the amount, a receipt is issued in two copies, one for the recipient, the other for the agent, which subsequently hand all the records of the payments to the PSP branch for reconciliation. The agent would also resort to the PSP branch to replenish cash float.

The figure below highlights the process flow and the stakeholders involved in the integrated banking system for cash transfers.

The infographic shows that district development committees (DDC) and village development committees (VDC) continue to be in charge of most activities at the identification and enrolment stage, although the extent and the scope of their involvement are reduced. The main differences with the traditional method of payment lie rather in the disbursement of cash to beneficiaries. In the pilot, this task was performed no longer by VDC but by bank agents, who also played an important role in helping a large number of beneficiaries with their queries, clarifications, documentation, and other tasks. By relieving village officials from the arrangement and the transport of cash, and the reporting and reconciliation of cash and accounts, the bank agents make possible a substantial saving of time and risk to VDC and DDC staff, who would, therefore, be able to focus on their core activities.

The preliminary results of the pilot seem thus to vindicate the initial expectations, also in terms of savings: the operational cost of delivering the social protection payments would decrease by more than 60%, if we consider that there is a time saving factor, given the time spent by state officials in managing the process of cash delivery and record keeping, and that would be freed up for other tasks, such as revenue collection and so on. Based on the time spent by state officials the cost of delivery comes to 1327.54 million (UD 12.44 million) and the maximum cost for delivering payments through PSP channel should not exceed 475.09 million (USD 4.46 million) benchmarked against best practices for delivering payments in context of Nepal, this resulting in substantial saving.

But the benefits can be far-reaching. Digitising the national SSA payment systems can not only smooth the process but, more broadly, contribute to strengthening the trust in the institutions and in their capacity to meet their responsibilities. Indeed, this alternate system would allow greater control on the leakages through data digitisation and de-duplication checks; simplify the report generation process through a digital management information systems (MIS), and secure authentication mechanism for beneficiaries through either biometric, where available, or card and PIN readers.

There are, however, some major challenges that test the public-private partnership on which this method is based. The next post will clarify the strategy to scale up the pilot and ask which lesson can be drawn from this experience.

ABOUT UNCDF MM4P

MM4P is a programme launched by UNCDF in partnership with the Swedish International Development Agency (Sida), the Australian Department of Foreign Affairs and Trade (DFAT), the Bill & Melinda Gates Foundation and The MasterCard Foundation. MM4P provides support to digital financial services (DFS) in a selected group of least developed countries (LDCs) to demonstrate how the correct mix of financial, technical and policy support can build a robust DFS ecosystem that reaches low income people in LDCs.

For more information, visit mm4p.uncdf.org or follow @UNCDFMM4P and UNCDF MM4P on LInkedIn.