by Annie Hurlstone and Paul Harvey
This research examines the extent to which humanitarian e-transfer beneficiaries increase their access and use of formal financial services and products such as payments, savings, credit or insurance. Building on the ELAN case studies published in September 2017, International Committee of the Red Cross (ICRC) and the British Red Cross (BRC) commissioned this research to further the evidence base on whether and how humanitarian cash transfers can foster the financial inclusion of crisis affected people. The case study consisted of a survey of 343 people (representative of 1,600 cash beneficiaries) complemented by focus groups discussions and key informant interviews.
This case study focusses on two Kenya Red Cross projects in Kilifi and the Tana Delta where cash was delivered using the M-Pesa mobile money mechanism. The Kilifi project provided 4 monthly payments of 6,000 KSH to 1,000 households in 2016/2017 as an emergency response to drought. The Tana Delta project provided cash to 600 households affected by ethnic violence in 2012/13, with the cash distributed in 2016. Three hundred of the households just received 8,000 KSH per month for three months. Those identified as the most vulnerable and worst affected also received 70,000 KSH in two instalments. The larger grant was conditional on developing business plans and undergoing training and was complemented by the establishment of village savings and loans institutions.
Financial inclusion in Kenya has been rapid and widespread. Kenyans excluded from any form of financial service dropped from over 40% of adults to 17% between 2006 and 2016. Access to any form of formal financial service has dramatically increased from about 27% to over 75%. Inclusion was driven by largely by mobile money services, used by over 71% of adults. Most of the recipients had heard of M-Pesa and about half had used it before the project. Network and agent coverage in both areas was sufficient for M-Pesa to be an effective way of delivering assistance and one which was seen as appropriate by beneficiaries who were highly satisfied with the process.
Financial inclusion was not a stated objective of the projects, although in Tana Delta there were complementary activities to encourage the establishment of savings and loans institutions. There’s a need for caution in assuming that financial inclusion should be a priority objective in future responses. The primary focus of the KRCS should continue to be on getting cash to people as quickly and effectively as possible as part of alleviating suffering during humanitarian responses. Financial inclusion should only ever be a sub-objective but could be considered when assessments and analysis suggest potential. Conditions that could suggest scope to support financial inclusion could include where assessments show demand for financial services from recipients, where there is capacity to support financial inclusion from the Red Cross or financial service provider and where the project timeframe allows engagement or there is scope to work with other actors with long-term perspectives.
People’s main problem remains poverty and not financial exclusion. As one old man in Kilifi said – ‘I don’t have any money to send to anyone and I don’t know anyone who wants to send me money’. So whilst access to a wider range of financial services that enable people to make and receive payments, send money, access loans and save more effectively might help to increase people resilience to and ability to cope in the face of disasters, it is unlikely to be transformative, in the absence of regular income. In Kenya a recent study found access to M-Pesa has lifted an estimated 2% of households out of poverty by increasing consumption levels at critical times.
The survey findings do provide some grounds for optimism that, even without financial inclusions as a specific objective, some positive impacts on peoples’ ability to access and use financial services can be achieved. The cash projects do appear to have contributed to an increased use of M-Pesa and survey respondents felt that it had contributed to stronger savings and better household cash management. This is partly, of course because of the dynamism of the financial services sector in Kenya and the successful penetration of mobile money services even into remote areas with high levels of poverty. What’s possible in terms of financial inclusion in Kenya won’t necessarily translate to other contexts.
Our case study does suggest options for encouraging some aspects of financial inclusion that could be explored further. They are:
More training for beneficiaries in how to use delivery systems and the additional services for savings and loans offered by M-Pesa and others.
More active engagement with Safaricom – using agents for training and in expanding network or agent coverage.
Encouraging the use of other services and more general training in financial literacy.
Links with other actors and avoiding problem of exclusion from other forms of assistance.
Having financial inclusion as a specific objective and monitoring it.
Scope for piloting and experimentation – such as opening M-Shwari2 accounts or providing phones and sims.
Given limited capacities and budgets were these feasible options? More formal training on how to use M-Pesa could have been part of the registration, verification and post-distribution monitoring activities. A significant minority of beneficiaries remained unsure how to use M-Pesa and relied on agents or others to receive payments.
There was also scope to link more with the Government and other organisations such as World Vision and WFP to tackle exclusion issues and to try and link beneficiaries better into other development and social protection programming. A particular issue in Kilifi was that the Red Cross had successfully targeted extremely vulnerable households but these people were now being excluded from other assistance because they had taken part in the short-term Red Cross project.
There also appears to be potential to more actively engage the financial service provider in the project areas. KRCS has a strong partnership with Safaricom at the Nairobi level and has recently agreed that Safaricom will waive all charges for Red Cross payments in future cash projects.
However, engagement at the field site level was more limited and there might be scope to explore whether Safaricom staff or agents could play a more active role in training, in monitoring network and agent coverage, in sharing data around account usage to monitor financial inclusion and in promoting use of a wider range of services including loans and savings.
Given that financial inclusion is a relatively new potential objective for KRCS and it’s not yet clear what works and what doesn’t there is an argument for experimentation and adaptation. Future cash projects could pilot different approaches with sub-sets of target populations. For instance testing whether providing phones and/or sims makes a difference to usage and experimenting with soft conditions to encourage people to save and to start using services like M-Shwari.
We suggested a framework for how financial inclusion could take place that could be developed into a checklist for consideration during project design.
There is evidence from the two case studies and the previous ELAN studies that short term humanitarian projects providing one or a small series of payments are unlikely to radically shift people’s longer term financial behaviours. There is therefore a need for modesty in setting financial inclusion objectives. It’s important to realise the limits to demand for new financial services amongst the very poor and the most vulnerable. But at least some of what we suggest (additional training, providing sims, linking more with other organisations) would have been worth doing anyway in order to improve efficiency, reduce risks and generate possible links between relief and development. Whilst financial inclusion probably will not and should not be a main objective, modest contributions, in terms of awareness raising and experience building, might be possible by tweaking existing programming.