By Sarina Kidd, Development Pathways
The purpose of financial inclusion is to incorporate individuals into the formal financial sector, by providing them with affordable financial products and services to meet their needs. Social protection programmes are often considered to be excellent entry points for financial inclusion, especially when recipients are provided with a payment instrument, linked, for example to a bank or mobile money account. Electronic payments can empower recipients by giving them greater choice over when and where they can collect their payments, as well as more opportunities to save and connect to other services. However, with the wrong design and insufficient financial education, recipients can face the dangers of financial insecurity and disempowerment instead.
There are both practical and human rights considerations that need to be taken into account when dealing with social protection recipients who may have limited education, be illiterate or innumerate, or may not have been included in the formal financial ecosystem in the past. This blog, in which I draw from my own experiences, demonstrates that these recipients are often vulnerable if they do not receive adequate financial education, leaving them at risk of fraud or theft.
What can go wrong?
In social protection programmes, while recipients may open an account and be provided with a payment instrument such as a debit card, those who are not familiar with the financial ecosystem may not understand that they are financially included nor understand the risks involved. For example, some recipients are unaware that they can save some of the transfer in their account and that their debit card – if part of an open-loop system – can be used with agents or ATMs all around the country, not just at their local channel. Such recipients are likely to have a limited understanding that they are now plugged into the wider national financial ecosystem.
Some recipients are also not aware that their benefit may lose value if they decide to use their account in a financially inclusive way. In one social protection programme, recipients – many of whom were illiterate – were informed via a leaflet of the charges they would incur if they withdrew cash from the Payment Service Provider’s (PSP) infrastructure. However, they were not told about the possibility of being charged more if they used the infrastructure of other PSPs, which was nearby.
In addition, recipients are often not taught how to safely engage with the formal financial sector. They may not know, for example, how to use a Point of Sale device or how to remember a PIN number. As a result, the withdrawal process can be confusing, and recipients may require a bank teller, community representative, or even a guard to help them withdraw their funds. This opens recipients up to fraud – especially if they hand over their debit card, mobile phone or PIN mailer – and recipients often do not know how to conduct the necessary checks to confirm that theft has not taken place. For example, I have seen recipients signing receipts acknowledging that they have received the correct amount of funds before they have even received them. And, in an example of how the necessary linkages are not being made during training, recipients have told us that they were instructed not to share their PIN numbers with anybody, and yet, with further probing, it became apparent that they did not think it was a problem to hand their PIN mailers over to guards at an ATM (who promptly pocketed some of the benefit for themselves).
In small communities, these negative impacts are minimised, for recipients tend to withdraw funds from the same channel, and there is greater accountability when all the actors know each other. However, as the financial ecosystem grows and develops, and as more withdrawal channels become available, the likelihood of fraud and theft increases. For example, a social protection programme may start out with a payment service provider making payments via a temporary paypoint, in which recipients all gather in one place at the same time. However, if, in two years time, more merchants have the means of making payments (through mobile money or a Point of Sale machine), and more agents move into a community, it is possible that recipients will start to withdraw their benefit from these other channels. Without the proper financial education, however, recipients will continue to hand their PIN mailers and payment instruments over to third parties, yet these third parties may be strangers who see an opportunity to obtain some easy cash.
South Africa provides one such example of how a social protection system functioning within a developed financial ecosystem can open recipients up to fraud. Torkelson, in her damning article, details how Net1 – which delivered social payments on behalf of SASSA – used its biometric system to trick recipients into signing up to other financial products. Net1 “consultants” took recipients’ thumbs and pressed them onto Net1’s proprietary biometric device. However, this process not only enabled recipients to withdraw funds and purchase airtime, it also enabled consultants to sign recipients up to other financial products, which “drove the recipients into debt.” It should be emphasised that one of the main reasons why Net1 was able to swindle recipients was because they had limited financial education, and often could not read or write.
As is clear, the common adage of financial inclusion – to “bank the unbanked” – can be irresponsible if the correct safeguards are not put in place, and recipients are not provided with the training to be able to enforce their rights. However, this is not always recognised by everybody in the sector. In fact, somebody recently asked me: “Why is there a need to provide such detailed financial literacy training? You wouldn’t expect a bank to provide it to its regular customers, so why bother here?”
I have three answers to this:
The first is that, unlike regular customers, social protection recipients have not chosen to open an account. In order to receive their benefit – which is their entitlement as citizens of their country – they are required to incorporate themselves into the formal financial ecosystem. Their receipt of their entitlement is conditional on them opening up a bank or mobile money account. Recipients may, therefore, be obliged to move from a situation in which they were comfortable in the way that they were using their money to a situation in which they are confused and open to fraud and debt. It is therefore important to ensure that they do not end up more disempowered than they were before they started receiving the benefit.
Second, it should be emphasised that, in many countries, consumer protection legislation is either absent, inadequate, or not properly enforced. As such, the rights of “regular” customers – when compared to international standards – are likely being violated as well. There should not be an expectation, therefore, that “regular” customers are fully informed and are being treated fairly by PSPs, as this is very often not the case.
Third, all operational processes of social protection schemes, including payments, must meet human rights standards. These human rights standards are informed by international law. Social protection programmes must be accountable and transparent: consequently, all relevant information should be provided to recipients in a way that is easy to understand. This is not the case at the moment. For example, in one social protection programme, although recipients were provided with a Terms and Conditions document, this was applicable to all of the PSP’s products and therefore contained unnecessary information. Furthermore, it was written in complex legal language that only a lawyer would understand. For recipients who were illiterate or who did not read the language that the Terms and Conditions document was written in, they were provided with a quick verbal summary that did not follow a script and almost certainly did not cover all the essential information. In many cases, therefore, recipients are not being provided with enough information to know what their rights are, which limits their ability to call on their rights to be upheld. This is especially the case if the grievance and mechanism processes available are not accessible or explained well.
In addition, in order to meet human rights standards, social protection programmes must be accessible, adaptable and acceptable, whilst also putting human dignity at the centre of the process. This means that programmes must be barrier-free, which may require special measures for those who face additional barriers, such as those who are illiterate or innumerate, who have a disability, or who have never yet been formally financially included. Furthermore, the programme must adapt to the needs of these individuals and must be sufficiently acceptable so that they are all treated with dignity. If not, vulnerable populations will inevitably be left behind.
The State has an obligation both to ensure that recipients receive adequate financial education and that PSPs comply with human rights standards. As the primary duty bearer to its citizens, the State is required to implement policies, standards and legislation that facilitate the realisation of human rights. For example, the State should ensure that there is adequate consumer protection enforced within a country. Furthermore, as is addressed in the UN Guiding Principles on Business and Human Rights, the State is required to protect its citizens from third parties – in other words, the PSP. This is especially the case if the PSP is contracted to deliver state services, such as the delivery of a social protection programme. Consequently, it is essential for the State to ensure that contracts with PSPs are watertight and that the PSP is required to make sure that recipients are fully informed of their rights.
Finally, PSPs have a separate corporate responsibility to respect both human rights law and payment services regulation and legislation. This includes a duty of care towards its customers, and several practices detailed above violate this.
What sort of training should be provided?
While financial education is often provided – either by the State, a donor or the PSP – it is generally minimal and not of adequate quality. For example, training may consist of a group talk without any practical one-to-one demonstrations or the provision of a leaflet in the form of a cartoon, which is seldom understood or read.
The financial education materials that are available online largely seem to revolve around financial capability – that is, teaching individuals to make good financial decisions and to meet their financial goals. Whilst the above is all extremely important, a more basic level of financial education seems to be missing that not only makes recipients aware of their rights in general, but covers aspects such as:
- What does owning a bank/mobile money account mean?
- How do I call a toll free number?
- How can I remember my PIN number?
- How do I use a point of sale device?
- How do I recognise if somebody is trying to steal my money from my account?
Central Banks often have financial literacy programmes in place, which can attract significant funding. Too often, though, these programmes are not linked to social protection schemes because the different sectors of government are failing to collaborate effectively. If a rights–based approach to programme delivery is adopted from the very beginning, with the expectation that recipients will be given adequate financial literacy training, then linkages to other financial literacy programmes – such as those that belong to the Central Bank – could ensure that there is greater coordination within different governmental institutions and that recipients receive high-quality training.
So, let’s not implement “progress” for the sake of progress alone. While manual payments can mean that a social protection programme lacks transparency and that recipients have little choice over when and where they collect their payment, this does not necessarily mean that electronic payments are better. Technological solutions that are not safe can result in greater financial insecurity for recipients. In order to ensure that recipients are properly incorporated into the financial ecosystem and that financial inclusion objectives are realised, it is essential that human rights standards are met. Recipients must be provided with the appropriate training both to ensure that they are aware of their rights and to enable them to be financially included in a safe and sustainable manner.
 Of course, if there is limited interoperability, the recipient may be limited to using the infrastructure of the payment service provider that holds their account.
 The World Bank’s Good Practices for Financial Consumer Protection recommends that: “A PSP should be required to produce key facts statements (KFSs) for major retail payment services on offer that summarize the main characteristics of the retail payment service.”
 See, for example, United Nations. (2011). Guiding principles on business and human rights: Implementing the United Nations “Protect, Respect and Remedy” framework. Principles 11-24
 See, for example: http://documents.worldbank.org/curated/en/866461531462775238/pdf/128334-WP-PUBLIC-Integrating-FinCap-into-G2P.pdf; https://www.cgap.org/sites/default/files/publications/slidedeck/module5-updated.pdf; https://www.cgap.org/blog/how-use-games-financial-education