International Aid and Mobile Cash Transfers

We’ve blogged before about the many applications of mobile phone technology in developing countries, especially when it comes to mobile banking. In much of the developing world, particularly in Africa, mobile phones are thriving in remote villages, while access to electricity, clean water, schools and government services is weak at best; yet cellular service is strong.

A new research paper by Jenny C. Aker, Rachid Boumnijel, Amanda McClelland and Niall Tierney analyzes the effectiveness of yet another mobile application gaining strength in the developing world: cash transfer programs. After a drought in Niger in 2009 and 2010, Concern Worldwide, an international NGO, provided “unconditional cash transfers to approximately 10,000 households during the ‘hungry season,’ the five-month period before the harvest and typically the time of increased malnutrition.”

Instead of distributing cash in the usual way, the NGO conducted a randomized experiment: one-third of targeted villages received a monthly cash transfer through a mobile system called zap; another third received manual cash transfers, and the remaining third received manual cash transfers plus a mobile phone.

The old-fashioned manual method proved particularly burdensome. “[C]ash was counted into envelopes and transported via armored vehicles to individual recipients,” explain the authors. “Rather than distributing the cash in each village, a central village location was chosen for groups of 4-5 villages. Program recipients had to travel to their designated location on a given day to receive the cash transfer.”

By contrast, zap recipients simply received their payments by phone, although they did have to “take the mobile phone to an m-transfer agent located in their village, a nearby village or a nearby market to obtain their physical cash.”

The results were promising. From the abstract:

We show that the zap delivery mechanism strongly reduced the variable distribution costs for the implementing agency, as well as program recipients’ costs of obtaining the cash transfer. The zap approach also resulted in additional benefits: households in zap villages used their cash transfer to purchase a more diverse set of goods, had higher diet diversity, depleted fewer assets and grew more types of crops, especially marginal cash crops grown by women. We posit that the potential mechanisms underlying these results are the lower costs and greater privacy of the receiving the cash transfer via the zap mechanism, as well as changes in intra-household decision-making. This suggests that m-transfers could be a cost-effective means of providing cash transfers for remote rural populations, especially those with limited road and financial infrastructure.

While the zap method of transfer did require an upfront investment (in mobile phones, zap accounts and transfer fees), it’s easy to imagine those costs decreasing as mobile phones become more widespread in even the poorest countries. The study’s authors caution that more research is needed on the “broader welfare effects” of the zap transfer method, but it seems inevitable that NGOs will someday dispense much of their cash (if not all) by mobile phone, particularly to recipients in difficult-to-reach locations.

So readers, what do you think? Are there any drawbacks to this method of dispensing aid?

(HT: Chris Blattman)

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  1. Christie says:

    I’ve been in some extremely remote villages in Ghana, and the cell service was unreal. Two years ago, I had full-bar 4G service in a place that did not have running water or other modern services. But, it seems to work for them…each village has vendor huts (selling soap, palm oil, candy, etc.), and there were always several for cell services, including the “zap” programs. There were even charging stations, because — duh — their grass huts with dirt floors didn’t have electricity! It’s an ingrained part of their culture that works well. This sort of program just makes sense, having seen it firsthand.

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  2. Enter your name... says:

    Well, you’re delivering the money to the phone, not to a person. If the phone is lost, stolen, or sold shortly before the transfer, or after the transfer but before the person can spend the money, then the money ends up in the wrong hands.

    It’s a bit like secretly leaving the money under the person’s door mat: the right person will normally get the money, but you have no way of knowing who actually picked it up. If someone figures out that today’s the day for the transfers (say, because he got his), then there might be a spike in phone thefts.

    Also, you have the hassle of keeping track of phone numbers, but that’s less hassle than cash deliveries.

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    • Eli says:

      I don’t know about this program, but there are PIN systems connected to some mobile banking systems that would prevent someone without the PIN from receiving the cash.
      More to the point, cash is at least as easy to steal or lose the day after the transfer as phones are the day before, and phone theft can be accommodated ex-ante better than money theft can ex-post.

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      • Enter your name... says:

        True, but they asked for a list of drawbacks, and this is one: The aid agency has an obligation to get the money to the right person, and mobile phones introduce a greater level of uncertainty on that point.

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    • Amanda says:

      Thanks for your comments, however the phone is as secure as, say , your credit card or ATM. The system that allows you to transfer cash has a PIN number, so if the phone is lost or stolen the cash in the ZAP account is protected. Each beneficiary has a ID card supplied by the NGO that needed to be shown to collect the cash, and there was also a complaint mechanism established that beneficiaries could call, or see a local staff member to report issues, including lost phones. The account can then be stopped, the issue resolved, a new pin number issued and reopened. Over the course of 6 months, there was not one report of a stolen phone.
      There is also monitoring put in place, where local NGO staff visit communities and randomly check to see that the right person received the right amount. 5 % of the beneficiaries where also randomly selected each month, and called by phone to check that they hadn’t experienced any issues and had received their money on time.
      The phone number issue was easily dealt with by the creation of a web based application to manage the numbers and the transfers.
      The team went to great length to ensure that the system was secure, and was far from leaving money under the door mat with a reported loss of only 0.03% of the total amount transferred. Which given the amount location and insecurity in the area was a great result.

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    • David says:

      I wonder if anyone has considered a system like Bitcoin for this? It still doesn’t do away with the “keeping a list of numbers” thing but depending on implementation you could save private keys offline and simply put them on a new phone if you lose the old one. It would probably require higher-end hardware than the “zap” program currently does but there’s plenty that could be done about that.

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  3. Thanthos says:

    Dispensing aid in an area where the infrastructure is available. What about the scenerio where the region just went through a wide spread act of god? Eg :typhoon took out most of the mobile tower, the finance insitution is not available after the earthquake?

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  4. Statspotting says:

    Did you know, for example, that one fourth of Kenya’s GDP flows through a mobile payment system?

    http://statspotting.com/2011/04/kenyas-m-pesa-the-unbelievable-success-story-in-numbers/

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