Digital Financial Services (DFS) have proven to offer unprecedented opportunities in enhancing the efficiency, transparency, and accessibility of financial assistance, particularly in humanitarian contexts. A recent feasibility study conducted by the Ministry of Gender, Labour and Social Development in Uganda, World Food Programme (WFP) and the United Nations Children's Fund (UNICEF) with the support of the Swedish International Development Cooperation Agency, Sida, reveals that using digital channels, the Government of Uganda (GoU) could save a significant portion of costs associated with delivering senior citizen grants and refugee support. Specifically, the GoU could save about US$800,000 (approximately 78% of the current costs) in delivery of grants to recipients of the Social Assistance Grant for Empowerment (SAGE) Programme and the World Bank-financed Development Response to Displacement Impact Project (DRDIP). While the evidence is darning, fully switching to DFS as a model of delivery of cash assistance is no mean feat.

Presenting this data at a digital fireside hosted recently by UNCDF, WFP, Airtel and GSMA, Titus Ouma, a Senior Programme Officer at the Ministry of Gender, Labour, and Social Development highlighted several factors that currently inhibit fully switching to DFS as a model of delivery of cash assistance. He cited inadequate infrastructure, a lack of required documentation (usually National IDs) necessary for acquisition of DFS by the recipients, high costs of devices like phones, limited digital literacy, and low agent networks among others.

DFS in the Refugee Context in Uganda
Uganda is home to about 1.5 million refugees, whereby 94% live in the 13 established refugee settlements. According to a study conducted by U-Learn in collaboration with the Uganda Inter-Agency Cash Working Group (CWG), the Livelihoods and Resilience Sector Working Group (LRSWG) and UNCDF in 2022, over 95% of refugees receive some form of cash and voucher assistance (CVA) as direct cash transfers, mobile money or through bank agents. Mobile Money is the most popular choice of receiving financial assistance as well as for commercial use for both refugees and host communities. The study further reveals that 64% of refugees use mobile money, 17% of refugees and 15% of host community members use banks while 52% of refugees have or are receiving over the counter (OTC) or direct financial assistance.

Aikins Mac-Bansah, the Head of Crisis Response at WFP says the agency has been able to extend digital financial inclusion and related services through cash-based transfers to over 14,000 Ugandans and over 1.3 million refugees that they support monthly through various interventions.

“WFP is working to scale up digital cash transfer programs so that more people can gain access and knowledge about financial services as well as empower them to leverage their own abilities to make informed decisions,” he says.

“WFP is expanding the use of digital delivery mechanisms.  Currently, we are using agency banking working with a contracted service provider and helping refugees to open their own bank accounts so as to drive access to more financial services beyond the aid they receive. For instance, digital services such as bank accounts help the refugees to build their credit history,” Margret Katuutu, Head of Cash Based Transfers, WFP. 

It is important to note, however, that refugees are not a homogenous group. Therefore, there is need to innovate DFS around their diverse needs, and be cognizant of how long they have been in the country, their age, gender, etc.

What is holding up scale of use of DFS in humanitarian cash transfers in Uganda?
The benefits of DFS are evident. However, low basic and digital literacy levels particularly for refugee women and elderly persons constrain faster adaptation of digital payments. Additionally, the long distances to mobile money agents, who sometimes have no liquidity to serve these customers, the complexity around SIM card registration, replacement, and reset, as well as prohibitive withdrawal fees make digital financial services unfavorable for the recipients.

While Uganda has made significant progress in terms of electronic and merchant payments infrastructure, the readiness and adoption of these payment systems in the country remains low. Additionally, fintechs in Uganda have introduced innovative payment solutions and platforms that cater to both individuals and businesses, bridging the infrastructure access gaps. Despite this progress, the infrastructure challenges and the costs incurred by merchants in accessing cash in some areas still affects their willingness to accept electronic payments, especially in remote or rural areas. The readiness of consumers to adopt these payment methods and actively use them largely depends on the trust they have in the digital economy, and their level of digital literacy.

A panel of experts at the digital fireside delved deep into the strategies, insights, and recommendations to navigate these challenges. Below are some of the most notable nuggets.

Reducing the need for cash-outs: One critical strategy highlighted during the digital fireside was the importance of reducing the reliance on cash. By increasing the availability of merchant pay points within refugee settlements, the inconvenience and cost associated with cash transfers can be mitigated. This shift not only enhances convenience for beneficiaries but also eliminates withdrawal charges, making financial services more accessible.

“We are mapping the services the people use the cash for, and providing merchant payment options in those centres so that there is no need for them to withdraw money. Reducing this appetite for cash will decrease the cost of cash transfers and save the recipients money in withdrawal charges,” Japeth Aritho, Managing Director, Airtel Mobile Commerce Limited

The need for reliable infrastructure: Ensuring robust network coverage, accessible agents, efficient float management, and subsidized tariff rates are essential to make DFS accessible and sustainable in refugee contexts.

“Airtel has built the infrastructure and has solutions that allow anybody to innovate. We recently opened our APIs to third party innovators to ease innovation and promote financial inclusion and other services to the last mile,” Japeth Aritho, Managing Director, Airtel Mobile Commerce Uganda Limited.

Promoting digital literacy: To harness the full potential of DFS, continuous digital literacy training becomes imperative. The content, however, should be tailored to the needs of recipients in the languages they understand, and delivered using simplified and illustrated methodologies such as visual aids.

Ensuring protection of consumer rights and responsibilities is also very critical. Initiatives such as the GSMA collaboration with Grameen Foundation to deliver digital literacy training to the mobile agents both in the refugee and host communities, and GSMA collaboration with UNCDF to develop a digital and financial literacy toolkit which is being used to train people on how to safely use digital financial services exemplify the commitment to empowering refugees with essential skills.

“Information is power. While some mobile network operators and humanitarian partners have developed digital literacy training content for refugees, only a few are concerned with issues of their consumer rights and how this information is being received. As we drive access to DFS, there is a need to ensure that we are protecting the beneficiaries from fraud, and scams, and training them to use these services effectively and responsibly,” says Carol Gitobu, Senior Market Engagement Manager, GSMA.

Advocacy for reduced fees: The significance of waiving withdrawal fees on social protection funds such as withdrawal charges on mobile money transactions for refugees was underscored. Eliminating such fees does not only enhance financial accessibility but also aligns with the principle of ensuring affordable financial services for vulnerable populations. The Uganda Cash Working Group has in the past successfully advocated for the relaxation of the stringent Know Your Customer (KYC) requirements for mobile money access by refugees as stipulated in the National Payments Systems Regulation 2021. Following this concerted effort, financial services providers now accept refugee attestation letters for account opening in addition to the earlier stipulated refugee ID as per the regulation. Furthermore, working with refugee advocacy groups, the cash working group has also successfully advocated for the refugee ID to be accepted as KYC to register as a mobile money agent.

“The cash working group is advocating for removal of mobile money tax on withdrawals for refugees, and other barriers that humanitarian actors face during delivery of cash support to refugees,” says Matilda Jerneck, Cash-Based Intervention Officer/ CWG Coordinator, UNHCR.

Data privacy and protection: Compliance with data privacy and protection standards is a paramount consideration when leveraging DFS. Stakeholders at the fireside unanimously emphasized the need to safeguard refugees' data throughout the digital financial service delivery process. This assurance is pivotal in building trust among recipients of cash assistance and consequently fostering faster adoption of digital solutions.

“DFS have improved efficiency and effectiveness in the refugee space because people are able to receive aid with dignity. They receive an SMS notification instead of having to queue under the sun for hours waiting to get their cash. However, there are concerns about safety of the money, especially if someone gains access to the beneficiary’s PIN, and the attendant risk of fraud. It is important to remember that there is still a risk of fraud even with physical cash transfers, so generally, ensuring that customers’ money is safe is most paramount,” says Matilda Jerneck, Cash-Based Intervention Officer/ CWG Coordinator, UNHCR.

Responsive customer support: During the fireside, swiftly addressing customer complaints emerged as another critical factor. Delays in addressing grievances and other queries can significantly impact the well-being of communities relying on financial assistance. Streamlining customer support services can enhance user experience and trust in DFS.

What else – beyond cash transfers?
Investing in innovative, commercially viable, and sustainable solutions to expand phone access and connectivity in refugee settings is vital. The innovations that emerge out of such initiatives have opened doors to more robust financial inclusion efforts and gone a long way to ensure that the benefits of DFS are not short-lived.

“At the beginning of a humanitarian crisis, basic needs must be provided and interventions at that time focus on saving lives. However, for longer humanitarian crises like the refugee response in Uganda, there is a need to think about the scale and the longevity of the issues. Nakivale Refugee Settlement was opened in the 1950s and Bidi Bidi about seven years ago. This demonstrates that we are dealing with long intractable problems and from the UNCDF perspective they deserve systematic sustainable solutions,” says Mike Mccaffrey, East and Southern African Regional Lead, Inclusive Digital Economies, UNCDF.

“Through partnerships between innovators and humanitarian agencies, companies like fintechs can develop sustainable digital solutions that ease access to financial services in the humanitarian settings. To do that successfully, fintechs need to understand the objectives of humanitarian agencies. ROI may look very different for humanitarian agencies and fintechs and indeed the objectives for a bank will be very different from those for a humanitarian agency. The SDGs provide a great blueprint for understanding the work that humanitarian agencies do. It is important to understand the context and align each stakeholder’s interests so as to be able to serve the intended beneficiaries better,” says Doreen Lukandwa, VP, Global Enterprise, MFS Africa.

L-R: Joyce Kwetonda, UNCDF, Titus Ouma, Ministry of Gender, Labour & Social Development, Margaret Katuutu, WFP, Fiona Luswata, UNCDF, Japeth Aritho, AMCL, Matilda Jerneck, UNHCR, Carol Gitobu, GSMA, Doreen Lukandwa, MFS Africa & Mike McCaffrey, UNCDF

The role of the private sector and the need for collaboration
The private sector has a key role to play in driving sustainable financial inclusion. By aligning private sector goals with humanitarian objectives, innovative financial tools can be harnessed to serve underserved populations, fostering economic growth and long-term solutions. The digital fireside conversation underscored the importance of tailored solutions, collaboration, and innovation in driving DFS adoption in humanitarian contexts. By addressing challenges through collaboration and innovation, the path toward a more inclusive, transparent, and efficient financial ecosystem becomes clearer.

“UNCDF believes in fostering collaboration between humanitarian agencies and the private sector to provide public goods that integrate their goals effectively. For enduring humanitarian crises like refugee responses, focusing on scalable and sustainable solutions is essential for lasting impact to be realised,” says Mike Mccaffrey, East and Southern African Regional Lead, Inclusive Digital Economies, UNCDF.

Conclusion
We know that DFS can significantly reduce the costs associated with humanitarian cash transfers. DFS possesses the unique capacity to bridge financial disparities, enhance operational efficiency, and empower those in need, including refugees and crisis-affected populations. The question that arises is how we can effectively expand the reach of DFS to maximize its impact. During the digital fireside discussion, valuable recommendations emerged, offering a path forward in scaling DFS within humanitarian contexts. These recommendations include reducing dependence on cash, strengthening the infrastructure supporting DFS, advocating for lower transaction fees, promoting digital literacy among beneficiaries, and ensuring responsive customer service support.

However, it is crucial to recognize that our efforts must extend beyond the mere expansion of DFS. It is important to prioritize the development and implementation of sustainable and innovative solutions aimed at empowering refugees and other recipients of humanitarian assistance to become active participants in the digital economy.