Factors affecting the cost-efficiency of e-transfers in humanitarian programmes Draft results 11 December 2013 Clare O Brien, Oxford Policy Management
Contents Background and method 1. The research question 2. Scope and limitations of the study 3. How to measure administration costs 4. E-payment mechanisms Case studies 5. Kenya case study 6. Somalia case study Conclusions 7. Conclusions 8. Recommendations
The research question Are e-transfers more cost-effective than traditional manual cash delivery methods [in a humanitarian context], and under what conditions? Question arises because: Cash increasingly offered to households instead of in-kind aid Interest in delivering it electronically rather than in physical notes But not used at scale as widely as one might expect; and some attempts to use it have not been successful CaLP research in 2011 identified seven factors that might impede takeup, of which one is cost This study investigates to what extent this is an issue
Scope and limitations of the study We have had to study cost-efficiency rather than cost-effectiveness - Cost-efficiency analysis means calculating the administration costs of delivering a transfer: $X spent on admin for every $Y reaching the beneficiary - Cost-effectiveness analysis would have compared these costs against the extent to which the programme reached its intended objectives (improvement in dietary diversity / consumption etc.): $X spent on the programme for every Y% improvement in households dietary diversity score - Couldn t do this because impossible to isolate the contribution of the programmes studied using monitoring data Case studies analysed using common methodology; but be wary of simple comparisons very different contexts
How to measure administration costs (1) We have included all expenditure not given to the beneficiary ( support costs, direct costs, indirect costs, overhead costs ) Both actual purchases (mobile phones, transport, communications etc.) and estimated value of staff time Includes expenditure by primary donor(s) and value of NGOs resources used on project Did not include expenditure by beneficiaries (would need large surveys; and may be difficult to remember because a long time ago) All broken down into three dimensions: (Time) One-off or recurrent (Level of expenditure) Central / local / beneficiary level (Activity) Seven themes Design / institutional arrangements / communication / training / targeting & registration / disbursement / M&E
How to measure administration costs (2) LEVEL OF EXPENDITURE ACTIVITY GROUP DESCRIPTION Programme design Analytical studies, determination of target population and benefit value, writing operational manuals, designing forms and databases Recurrent activities (every transfer) One-off activities One-off per programme (central level) One-off per location (local level) One-off per beneficiary (beneficiary level) Central level Local level Institutional arrangements Communication / advocacy Training M&E Targeting / registration Targeting / registration Training Disbursement M&E Disbursement M&E Negotiating with partners, setting up contracts Communication strategy, awareness campaigns Training programme staff, implementing partners Setting up database. Independent monitoring and impact evaluation. Community mobilisation. Targeting exercise (identification of beneficiaries) Registration of beneficiaries with ID card. Supply of phone, bank card etc. Training of beneficiary in programme procedures, how to use phone / card etc. Transfer of funds, incl. commission. Payment of beneficiaries Monthly reporting Setting up temporary paypoints. Security measures. Checking beneficiaries have received right amount, and dealing with complaints Monthly monitoring of market prices. Postdistribution monitoring. Monitoring compliance with conditions Beneficiary level Disbursement Travel to collect cash. Charge and repair phone
How to measure administration costs (3) Line item By financing source (who pays?) By financing agent (who spends?) By activity DFID Oxfam UNICEF... Oxfam local NGO Payment provider Design Trainin g M&E... Personnel Manager Field officer... Transport Communication Printing Office costs Commission Management fee [...] TOTAL Each set of columns adds up to same total
E-payment mechanisms Card-based - Magnetic stripe / chip-and-pin / contactless - Magnetic stripe card needs account and live network connection; others don t - More widespread in Asia / Latin America / Middle East than Africa Mobile money - Beneficiary has account for withdrawing cash / transferring funds / buying phone credit - Popular in Africa where high mobile phone ownership, esp. East Africa Mobile vouchers and tokens - Vouchers substitute for paper vouchers - Tokens mainly use phone for communication Electronic vouchers like mobile vouchers except internet-based
Case study of Kenya (1): Context Food security context: - Regularly affected by climate shocks eg. floods / droughts - Risks loss of livelihoods for rural population - Food price hikes in urban areas - Response to droughts in 2009/10 and 2011/12 are reviewed here Infrastructure context: - Banking infrastructure expanded hugely during 2000s incl. in rural areas - But usage of bank accounts still relatively low (26% in Eastern province) - Mobile network signal covers 95% of population - Global leader in mobile money, launched by Safaricom in 2007 - M-Pesa has 16 million users, more than any other financial service
Case study of Kenya (2): The programmes under review Date Agency Programme Payment mechanism Value No. of bens. Objective 1 Oct 2009 - Mar 2011 Oxfam Nairobi Urban Livelihoods and Social Protection Programme Mobile money (Safaricom) $19 x 18 months c. 2,800 Food security and livelihoods promotion in urban areas 2 Sep 2011 Jun 2012 SOS Children's Villages Marsabit Emergency Programme Smart card voucher + cash (squid) $87 x 8 months 2,000 Food security in Marsabit postdrought 3 Sep 2012 Mar 2013 Concern Worldwide Marsabit County Emergency Response Programme (MRP) Manual cash $39 (or $26) x 6 months Amount depends on location 1,000 Food security and livelihoods promotion in Marsabit postdrought
Case study of Kenya (3): Drivers of cost NB. Don t judge on ratios! Differing contexts Programme Cost Costtransfer ratio Factors reducing cost Factors increasing cost 1 Nairobi Urban Livelihoods and Social Protection Programme (Oxfam) Mobile money Transfer: $565,000 Admin: $361,000 0.64 (whole prog); 0.30 (last 6 months) M-Pesa widely used by beneficiaries already Became cheaper over time once beneficiaries were registered Low cost of disbursement under M-Pesa Oxfam lead partner in a consortium work on securing funding commitments / contracts Advocacy raising awareness of crisis High start-up incl. design Phone / SIM purchases not major factor Small value per transfer ($19) 2 Marsabit Emergency Programme (SOS Children s Villages) Smart card Transfer: $1.39 million Admin: $204,000 0.15 Heavy discounts from squid / Paystream (transaction fees at 1%; halfprice for other services) they were interested in trial POS terminals fairly low cost High transfer amount ($87) Setting up office (new programme) Targeting new beneficiaries Liaising with traders for food voucher component High advocacy costs Travel to Nairobi to upload value to cards because poor network connectivity 3 Marsabit County Emergency Response Programme (Concern Worldwide) Manual Transfer: $204,000 Admin: $59,000 0.29 Very low design costs (follow-on from an earlier programme) No office set-up costs No new targeting High transaction fees charged by traders who had to find the liquidity to pay beneficiaries Small value per transfer ($39 / $26)
Case study of Somalia (1): Context Food security context: - Large-scale displacement of population to IDP camps because of conflict - Famine in south-central Somalia July 2011 February 2012 following drought Infrastructure context: - Very few financial services options - No central bank till 2012. No private banks, no ATMs, no POS devices - Reluctance to use Somali shillings in cash (old notes, risk of devaluation) - Environment conducive for use of mobiles: good network coverage; many people have phones; no regulation. But can t phone from one network to another - Mobile money introduced in 2011 by Nationlink and Hormuud - Very popular because more secure; holds value in US$ - Mobile money services currently free for all users phone companies keen to attract custom
Case study of Somalia (2): The programmes under review Date Agency Programme Payment mechanism Value No. of bens. Objective 1 Aug 2011 Jul 2012 Oxfam Emergency Cash Transfer Programme Manual cash $75 x 6 months 12,548 Food security in Mogadishu 2 May 2012 Aug 2012 Oxfam E-cash Pilot Mobile money $150 x 1 2,090 Livelihoods promotion; and trial of mobile money payment 3 Nov 2012 Aug 2013 Concern Worldwide ECHO Conditional Cash Mobile money $100 x 10 months 500 Food security in Mogadishu 4 Mar 2013 May 2013 Concern Worldwide IOM Unconditional Cash Transfers Mobile money $80 x 3 months 905 Food security in Mogadishu
Case study of Somalia (3): Drivers of cost NB. Don t judge on ratios! Differing contexts Programme Cost Costtransfer ratio Factors reducing cost Factors increasing cost 1 Emergency Cash Transfer Programme (Oxfam) Hawala agents Transfer: $5.57 million Admin: $1.12 million 0.20 Low design costs (Oxfam and partner had used method before) Economies of scale from reaching 12,500 households Staff time to oversee disbursement of manual cash Large investment in joint monitoring activities with other agencies 2 E-cash Pilot (Oxfam) Mobile money Transfer: $313,000 Admin: $140,000 0.45 No need to oversee cash disbursement in field Purchase of phone and SIM card for every beneficiary Only one transfer per household 3 4 ECHO Conditional Cash (Concern Worldwide) Mobile money IOM Unconditional Cash Transfers (Concern Worldwide) Mobile money Transfer: $500,000 Admin: $92,000 Transfer: $217,000 Admin: $23,000 0.18 0.11 Prior experience in using mobile money Made use of monitoring tools previously developed Economies of scale because 10 transfers As above; plus no retargeting of beneficiaries (therefore no phone purchase either) No need for training Small extra cost of imposing conditionalities Monthly contracting of network operator
Conclusions 1. Costs have little to do with the payment mechanism 2. For costs that do depend on payment mechanism, there is no clear winner between e-payment and manual payment 3. Many costs are negotiated 4. Cost savings can be made if aid agencies make their programme attractive to the payment provider 5. State of infrastructure development has huge impact on cost 6. Aid agencies can try and drive innovation in infrastructure development but risks being costly and difficult 7. A key determinant of cost is the amount of new activity required in a programme, not just for payment mechanism (new partners / new beneficiaries / new location / new equipment) 8. If cost is driving force in selection of payment mechanism there is a risk that innovation will be lost 9. Therefore probably more appropriate to make decisions about payment mechanism on factors other than cost Internal filing codes, date, presenter
Recommendations 1. Understand the state of infrastructure development 2. If you wish to use e-transfers, perhaps for reasons unrelated to cost, donors should consider how to get infrastructure established in areas prone to crisis 3. Consider when higher set-up costs of e-transfers will be offset by savings during disbursement may be long after emergency is over. May wish to coordinate with long-term programmes 4. Think how to improve attractiveness of programme to the payment provider (eg. more beneficiaries or fewer?) 5. Don t assume that cheaper means better value for money. Investment may be necessary to make programmes more cost-efficient in the long run 6. May be more appropriate to make decisions about payment mechanism on factors other than cost