Assessment of Potential WFP G2P Partner Programs in Indonesia

8/18/2019 Assessment of Potential WFP G2P Partner Programs in Indonesia

1/34

World Food Programme27 April 2015Page 1 of 34

Evaluating Partnerships with Existing National Safety Nets forEmergency Payments:

Assessing the Potential for WFP Engagement in Indonesia with an ExistingGovernment Safety Net

Date: April 27, 2015

BFA, LLC259 Elm Street, Suite 200, Somerville, MA 02144 ▪ USA

Phone: + 617 628 0711 ▪ Fax: + 617 336 7455 ▪ www.bankablefrontier.com


2/34


Study PurposeWorld Food Programme (WFP) is looking to innovate its emergency response model by incorporatingmore cash payments to complement in-kind payments in times of natural disasters and economicshocks. Specifically, WFP wants to understand the potential for and challenges of leveraging existingnational government-to-person (G2P) payment programs in the Philippines and Indonesia to implementand scale WFP’s cash transfers in both relief and recovery contexts. To achieve this, WFP RegionalBureau for Asia contracted Bankable Frontier Associates (BFA) to study potential partner programs – Pantawid Pamilyang Pilipino Program (4Ps) in the Philippines and Program Keluarga Harapan (PKH) inIndonesia – to provide a feasibility assessment of how WFP would effectively work with such programs.BFA undertook this feasibility assessment by gathering information from key stakeholders – theprograms (funders, “owners” and implementers), the payment service providers (PSPs) and theirpartners and the recipients – and evaluating the opportunities and challenges related to leveragingcurrent cash and electronic disbursement mechanisms used by national G2P programs. If WFP aims toleverage existing programs to make emergency (i.e., short term) disbursements, what will it take forthese programs, their PSP partners and the recipients to effectively handle such a commitment?


3/34


AcknowledgmentsWFP commissioned Bankable Frontier Associates (BFA) to conduct this study. The authors of this reportare Jamie M. Zimmerman and Kristy Bohling.

We owe sincere thanks to the staff at the Government of Indonesia’s The National Team for theAcceleration of Poverty Reduction (TNP2K), Ministry of Social Affairs, State Ministry of NationalDevelopment Planning (Bappenas), National Board for Disaster Management (BNPB), Bank Indonesia andthe Coordinating Ministry for Human Development and Culture for their time and support of thisresearch. We are also grateful to the payment service providers and payment system experts inIndonesia who contributed so much substance and candor to this study, including e-MITRA, PT Pos,Bank Mandiri and Bank Rakyat Indonesia (BRI). Particular thanks goes to Michael Joyce at TNP2K, MicraIndonesia and the WFP country office for their substantial in-country support and guidance throughoutthe research. Finally, we are grateful for the support and input from BFA colleagues Caroline Pulverand Brian Loeb.

This study was funded through the generous support of the UK Department for InternationalDevelopment (DfID). The opinions expressed in this report are those of the research team and do notnecessarily reflect those of WFP or DfID. The responsibility for the opinions expressed in this reportrests solely with the authors. Publication of this document does not imply endorsement by WFP or DfIDof the opinions expressed therein.

US$1=IDR 12,484 (January 16, 2015)


4/34


ContentsAbbreviations .............................................................................................................. 5

Executive Summary ...................................................................................................... 6

1. The Indonesia Context ............................................................................................... 8 2. Program Keluarga Harapan (PKH) – The Family Hope Program ............................................. 12 3. PKH Payments Implementation and PSP Experiences ......................................................... 14

4. Program Stakeholder Experiences & Perspectives on E-payments ......................................... 20

5.

Recipients’ Experiences with E-money and PT Pos ........................................................... 22

6. Key Lessons .......................................................................................................... 23 7. Feasibility Assessment and Specific Recommendations ...................................................... 24 Annex 1: BNPB’s Interest in Cash Transfers for Disaster Management ........................................ 28 Annex 2: Details of the Family Welfare Deposit Scheme (KKS) ................................................ 29

Annex 3: Comparison of Cost per Transaction for G2P Programs in Low and Middle-income Countries 30

Annex 4: Meeting List .................................................................................................. 32

References ............................................................................................................... 33


5/34


AbbreviationsAlliance for Financial Inclusion AFIBank Indonesia BIBank Rakyat Indonesia BRIBankable Frontier Associates BFABantuan Langsung Sementara Masyarakat BLSMBeras untuk Rakyat Miskin RaskinBureau of Statistics BPSFamily Welfare Deposit Scheme KKSFinancial Services Authority OJKPayment service provider PSPGovernment-to-person G2PIndonesian Rupiah IDRKnow-your-customer KYCMobile network operator MNONational Board for Disaster Management BNPBThe National Team for the Acceleration of Poverty Reduction TNP2K

Pantawid Pamilyang Pilipino Program 4PsProgram Keluarga Harapan PKHSentral Giro Layanan Keuangan (Center of Financial Service Gyro) SGLKState Ministry of National Development Planning BappenasWorld Food Programme WFP


6/34


Executive Summary1 1.

In Indonesia, WFP works with the National Board for Disaster Management (BNPB) to: (1) strengthenthe Government’s emergency response capacity and (2) ensure WFP preparedness to renderoperational support to the Government in medium- and large-scale emergencies. 2 This reportassesses the potential for the Government’s conditional cash transfer (CCT) programs, run by theMinistry of Social Affairs and not designed for emergency response, to serve as implementingpartners for WFP’s objectives.

2.

Indonesia’s first CCT program, Program Keluarga Harapan (PKH), launched in 2007 as part of theGovernment’s national poverty reduction strategy. The program provides cash transfers to nearly2.8 million poor and ultra-poor households with children under 18, conditional upon accessingcertain health and education services. The payment amount is variable depending upon householdcircumstances and program conditionalities; the maximum potential benefit per pay period is IDR700,000 (US$56), for a maximum family benefit of IDR 2.8 million (US$224.28) per year.3

3.

The Ministry of Social Affairs uses the Unified Database to coordinate target recipients for its socialprotection programs. The database currently contains 96 million individuals from approximately 25million households. While some stakeholders reported that the database is outdated, thegovernment is looking to improve it, and it could be a valuable resource for WFP to leverage.

4.

PT Pos, the national post office, is the longstanding primary payment service provider (PSP) of

PKH, paying over 99 percent of recipients.4 It is the only institution with the scale to serve theprogram as it is currently designed and will continue to be so in the near term.

5. However, the program recently launched e-money pilots with Bank Mandiri and BRI to pay some(2,000) recipients. The new partnership was made possible by new e-money regulations issued2014.

6.

These pilots face challenges with customer awareness and capacity. Further, the value propositionfor the recipient (as opposed to for the implementing institutions) of using e-money is less clear:recipients are used to the PT Pos processes and, other than waiting in long lines to get theirmoney, they generally do not experience problems with the PT Pos payment system.

7. WFP would benefit from monitoring the progress of e-money in Indonesia. Stakeholders areincreasingly focused on financial inclusion and supporting government-to-person (G2P) e-moneypayments. However, until e-money infrastructure and processes are sufficiently robust to pay G2Precipients at scale and in emergencies, cash-based payouts via PT Pos are the most viable option

for emergency payments. These findings come from an in-depth study of PKH as well as availableinformation on the new Family Welfare Deposit Scheme (KKS) Program, which WFP should alsomonitor in 2015.5

8.

To evaluate whether WFP should partner with PKH specifically, the researchers developed sixcriteria against which to rate the alignment of WFP needs with PKH characteristics. Table 1highlights key criteria. Red circles indicate that PKH and WFP do not align; yellow indicates theyalign somewhat; and green indicates that they align significantly enough to move forward.

Table 1: How PKH Aligns with WFP Key CriteriaCriteria Rating Comments

Program has effectiverelationship with thePSPs.

PKH has a longstanding relationship with PT Pos, which is updating G2Paccounts to include store of value (to keep up with governmentexpectations). The program is also open to relationships with e-moneyproviders to create the most efficient processes. At the head office level,timely payments did not appear to be an issue, but nearly all e-money and

1 This report is based on interviews conducted in Indonesia in December 2014; it represents the situation with PKH as of thattime.2 “DRAFT Emergency Logistics Enhancement: BNPB-WFP XXX-Year Joint Strategy.” WFP draft of May 11, 2014. 3 International Policy Centre Policy Research Brief 42. Originally from Ministry of Social Affairs, PKH Profile, 2013.http://www.ipc-undp.org/pub/IPCPolicyResearchBrief42.pdf4 This paper refers to recipients as those receiving G2P payments. Beneficiaries or households are all those ultimately touchedby the program, for example through the recipient spending money on the needs of the family or household, not just theindividual.5 Launched in November 2014, KKS is a modernized and more comprehensive version of the Bantuan Langsung SementaraMasyarakat (BLSM), which was a bi-annual fuel subsidy provided by the former government. KKS intends to reach 15.5 millionrecipients.


7/34


Criteria Rating CommentsPT Pos recipients interviewed mentioned they did not receive paymentsfor the first half of 2014.

PKH and the PSPs havethe flexibility to makeadditional payments oradd more recipients.

Partnering with PT Pos, PKH appears to have the ability to add recipientsin a brief timeframe. However, PT Pos claims that only paying recipientsquarterly (rather than bi-monthly, for example), provides it with sufficienttime between payments to prepare. Natural disasters are not predictableevents that offer months to coordinate and prepare payments.

PSP has access tosufficientinfrastructure to makepayments that arerelatively low-cost tothe program.

PT Pos has in place the necessary infrastructure for making scaled G2Ppayments and has even remained open during past natural disasters.Meanwhile, e-money providers continue to develop their agent networksand mobile infrastructure. However, while all three providers appear tobe relatively low-cost compared to PSPs from cash transfer programs inother middle- and low-income countries, PT Pos’ fees are nearly two timeshigher than the e-money providers’ fees.

Recipients trust thePSP to pay them thecorrect amounts ontime at a reasonablyconvenient location.

Recipients interviewed in urban and rural areas appeared comfortablewith PT Pos payments, despite the long lines. E-money recipientsexperienced challenges with the e-money program, many of which theyare likely to overcome if they continue to receive e-money payments.

Program serves asignificantly large andinclusive group ofrecipients, likely to beaffected by naturaldisasters or otheremergencies.

The Unified Database is significant, covering the bottom 40 percent ofIndonesia’s socio-economic strata. However, data are now more thanthree years old, with research suggesting that exclusion errors and othermissing indicators exist, which may pose challenges in leveraging it inemergency situations. The timeline for updating it is apparentlyapproaching. PKH serves recipients in urban and rural areas but reachessignificantly fewer than other government programs such as KKS, andunconditional cash transfer program, and Raskin, a rice subsidy program.

Program is ready toembrace emergencyresponse partnershipwith WFP.

PKH staff play a key communicator role between PKH and recipients;those interviewed appeared to be cautiously willing to support emergencypayments. However, PKH stakeholders’ focus on e-money and financialinclusion and the program’s quarterly payments schedule may conflictwith WFP’s priority of rapidly getting cash into the hands of those affectedby disasters.

9.

WFP has an immediate opportunity to partner with a G2P program to leverage the cash-basedpayment system already in place with PT Pos. Meanwhile, WFP should monitor and considereventually partnering with e-payment providers as payments infrastructure improves.


8/34


1. The Indonesia Context6 Indonesia had a GDP per capita of US$3,475 in 2013, up from US$2,947 in 2010; it ranked 108 out of 187countries on the Human Development Index in 2013.7 In 2007, Goldman Sachs recognized Indonesia asone of the “Next 11” countries (following Brazil, Russia, India and China, the “BRICs”) to gain economicstature globally, based on its increasing urbanization, infrastructure investment, life expectancy rates,technology adoption and energy consumption.8 Indonesia’s economy remained strong through theglobal recession and, recognized by the World Bank as a Middle-income Country, it is Southeast Asia’slargest economy (Exhibit 1).9 However, inequality has increased in recent years. The GINI index hasrisen from 34 in 2008 to 38 in 2011.10

Exhibit 1: GDP of ASEAN countries, 2012

Source: World Bank, 2012. Brunei Darussalam, Cambodia, Lao PDR and Myanmar not included. Data not available for Myanmar.Brunei, Cambodia and Lao had combined GDP of US$40 billion in 2012.

The Government increasingly favors decentralization: the 33 provinces and over 500 districts areresponsible for delivering public services. While the central government believed decentralizationwould improve government services, the approach has exposed capacity gaps, particularly in poorerand more remote regions, which has affected its implementation of government programs.11

Food InsecurityDespite Indonesia’s economic growth, it has not seen a quick reduction in hunger and malnutrition.The government has combatted food insecurity by introducing food price stabilization and socialprotection programs. Its social protection and poverty alleviation programs are divided into threeclusters. Cash and in-kind transfers to individuals, community-based programs and microfinance

6 This report is based on interviews conducted in Indonesia in December 2014; it represents the situation with PKH as of that

time. For the list of stakeholders interviewed, see Annex 4.7 Human Development Index, 2013 rankings. http://hdr.undp.org/en/statistics/8 Sandra Lawson et al. “Beyond the BRICs: A Look at the Next 11.” Goldman Sachs, 2007. http://www.goldmansachs.com/our-thinking/archive/archive-pdfs/brics-book/brics-chap-13.pdf. The other Next 11 countries are Bangladesh, Egypt, Iran, Korea,Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam. While each country is unique and the 11 countries are not directlycomparable, strong economic growth in all 11 countries have led to businesses recognizing their stature as the Next 11 countriesto emerge on the global economic stage.9 Indonesia has the largest GDP of ASEAN (Association of Southeast Asian Nations). GDP (current US$). World Bank. 2012:http://data.worldbank.org/indicator.10 2011 is latest year with available data. GINI index measures the extent to which the distribution of income (or, in some cases,consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. AGINI index of 0 represents perfect equality, while an index of 100 implies perfect inequality. GINI Index. World Bank. 2011:http://data.worldbank.org/indicator.11 Stephen Turner et al. “Country Portfolio Evaluation: Indonesia: An evaluation of WFP’s Portfolio, 2009-2013.” InceptionReport. March 2014.

-

100

200

300

400

500

600

700

800

900

1,000

Indonesia Thailand Malaysia Singapore Philippines Vietnam

C u r r e n t U S $ ( b i l l i o n s ,

2 0 1 2 )


9/34


programs address food insecurity caused by lack of purchasing power for food. The largest socialsafety net directly targeting food consumption is the Beras untuk Rakyat Miskin (Raskin) Program, aimed at helping poor households to fulfill their food needs and reduce their financial burden byproviding 15 kilograms of rice per month, at a subsidized price that is about one-third of the marketprice. The program targeted 17.5 million households in 2012.12

Natural Disaster ManagementThe Centre for Research and Epidemiology of Disasters ranks Indonesia as one of the five countriesmost frequently hit by natural disasters.13 As the world’s largest archipelago, with more than 18,000islands, the country has suffered from natural disasters including earthquakes, tsunamis, floods andvolcanic eruptions. WFP estimates that, on average, disasters affect one million Indonesians per yearand, over the last 10 years, Indonesia has experienced 150 severe natural disasters. 14 The Governmentand its international partners therefore have a continual focus on natural disaster preparedness,management and relief.

According to Indonesia’s National Board for Disaster Management (BNPB), Indonesia experiences anaverage of IDR 30 trillion (US$2.4 billion) worth of damage and loss from natural disasters andemergencies each year. The budget for disaster preparedness and management has increased 2,680

percent since 2008, to IDR 15 trillion (US$1.2 billion), but BNPB argues that it needs five times thatamount to effectively manage all disasters each year. It wants one percent of the national budget peryear allocated for preparedness and management.

Within its disaster preparedness and management budget, BNPB allocated IDR 3 trillion (US$240million) for its response budget, IDR 1.5 trillion of which is allocated for post-disaster support and IDR1.5 trillion for “on-call” budget to send to local governments in cases of emergency.15 BNPB viewsdirect cash transfers to affected people as a promising means to providing a mechanism forreconstruction and resiliency of individuals and communities.16 For example, internally displacedpersons (IDPs) often stay in shelters for extended periods of time without work, so BNPB hasimplemented cash for work or other cash transfer schemes that allow the IDPs to purchase neededgoods, pay rent or rebuild their rice fields.

Importantly, BNPB uses its own database — separate from the Ministry of Social Affairs’ UnifiedDatabase — for targeting for emergency responses. (Regional level governments and approximately 20national level ministries use the Unified Database, as well.) BNPB’s targeting system aggregatesinformation from the social ministry, health ministry, army, police, search and rescue and publicworks for needs assessments, response activities and priorities. BNPB also coordinates with NGOs on arefugee database (which must include name, date of birth, gender, address and any specialdesignations such as elderly or pregnant). And it collects daily reports of needs in affected areasduring disaster situations. However, BNPB acknowledged that its database is not complete andwould benefit from improvements in coverage, indicators and maintenance, which would enable them toquickly and easily coordinate in emergency situations.

WFP Indonesia WFP’s current operations in Indonesia focus in large part on effectively enabling and providing food

assistance to best compliment the government’s evolving development and aid priorities. WFPmaintains close partnerships with the Coordinating Ministry for Human Development and Culture andwith BNPB. Current WFP-BNPB partnership objectives include strengthening the Government’s

12 “Terms of Reference: Indonesia: An Evaluation of WFP’s Portfolio (2009-2013)” from WFP’s Office of Evaluation. 13 “Terms of Reference: Indonesia: An Evaluation of WFP’s Portfolio (2009-2013)” from WFP’s Office of Evaluation. 14 “Terms of Reference: Indonesia: An Evaluation of WFP’s Portfolio (2009-2013)” from WFP’s Office of Evaluation.15 “DRAFT Emergency Logistics Enhancement: BNPB-WFP XXX-Year Joint Strategy.” WFP draft of May 11, 2014. 16 For more on BNPB’s interest in cash transfers for disaster management, see Annex 1.


10/34


emergency response capacity and ensuring WFP preparedness to render operational support to theGovernment in medium- and large-scale emergencies.17

Financial Infrastructure for Electronic TransfersIndonesia’s population dispersion across over 13,000 islands makes financial access a challenge. In

2012, Indonesia had 9.6 bank branches for every 100,000 adults and 36.5 automated teller machines(ATMs), significantly lower than Thailand, Singapore and Malaysia and similar to the Philippines. Also,10.5 percent of Indonesian adults had a debit card and 19.6 percent had an account at a formalfinancial institution, fewer than most ASEAN peers.18 Table 1 shows how Indonesia’s numbers compareto other ASEAN countries.

Table 1: Financial Access in ASEAN Countries, 2011

CountryATMs per

100,000 adultsCommercial bank branches

per 100,000 adultsAccount at a formalfinancial institution Debit card

Indonesia 13.4 8.3 19.6 10.5

Thailand 77.7 11.2 72.7 43.1

Singapore 58.6 10.3 98.2 28.6

Malaysia 46.4 10.4 66.2 23.1

Philippines 14.9 7.7 26.6 13.2

Vietnam 17.6 3.3 21.4 14.6

Lao PDR 4.3 2.6 26.8 6.5

Cambodia 5.1 4.0 3.7 2.9Source: World Bank Findex, 2011. Data for Brunei and Myanmar not available.

However, Indonesia has seen an increase in electronic payments over the past five years. From 2007 to2013, ATM/debit card, credit card and e-money payments more than tripled, as shown in Exhibit 2.

Exhibit 2: Volume of ATM/Debit Card, Credit Card and E-Money Payments in Indonesia, 2007-2013

Source: Bank Indonesia, 2014. http://www.bi.go.id

17 “DRAFT Emergency Logistics Enhancement: BNPB-WFP XXX-Year Joint Strategy.” WFP draft of May 11, 2014. 18 World Bank. 2012. http://data.worldbank.org/indicator. Full references in References.

-

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012 2013

I D R m i l l i o n s

ATM + Debit Card Purchases E-Money Transactions Credit Card Transactions


11/34


Indonesia has seen an increase in mobile cellular subscriptions in recent years. Indonesia had 211.3million mobile cellular subscriptions in 2010 (for a total population of 241 million), which rose to 282million subscriptions in 2012 for 247 million people and 303.7 million in 2013 for 250 million people. 19 GSMA reported SIM penetration to be 121 percent in 2014.20 A majority of consumers subscribe withthe leading three mobile network operators (MNOs), Telkomsel, Indosat and XL Axiata, though eight

other MNOs are also in the market.21

In 2007, Telkomsel was the first MNO to launch an e-money product, TCash, followed by Indosat in2008. The government introduced its first e-money regulations in 2009. XL launched an e-moneyproduct in 2012, while smaller MNOs and banks also launched e-money products. In 2013, the big threeMNOs partnered to enable customers to send money across each other’s networks, althoughinteroperability among most banks and agents does not yet exist. 22 Indonesians’ use of mobile phonesfor payments is still nascent; while e-money products have been in the Indonesian market since 2007,the World Bank’s Findex database revealed that less than one percent of adults used their mobilephone to pay bills, receive money or send money in 2011.23

The central bank (Bank Indonesia, or BI) is a member of the Alliance for Financial Inclusion (AFI) andhas promoted a “less cash” policy with a particular focus on financial inclusion, notably in the latest

branchless banking regulations from 2014. Progress has been slow: BI launched branchless bankingpilots in 2012, only to abandon them in 2013 due to regulatory confusion created when the governmentformed the Financial Services Authority (OJK, a quasi-independent entity) and put branchless bankingunder its purview rather than BI’s. Digital financial services continue to be regulated by BI.

As a core promoter of the government’s “less cash” policy, BI has played a central role in advocatingfor e-money-based G2P disbursements as a means of achieving a shift to electronic payments andenabling financial inclusion in Indonesia.

Evolution of Cash Transfers Schemes Indonesia’s first conditional cash transfer (CCT) program, Program Keluarga Harapan (PKH), launched in2007 as part of the Government’s national poverty reduction strategy, provides cash transfers to poorand ultra-poor households with children under 18, conditional upon accessing certain health and

education services. The payment amount is variable depending upon household circumstances andprogram conditionalities; the maximum potential benefit per pay period is IDR 700,000 (US$56), for amaximum family benefit of IDR 2.8 million (US$224.28) per year.24

The National Team for the Acceleration of Poverty Reduction (TNP2K), an ad hoc body convened by theoffice of the Vice President, plays a central role in the push to modernize social transfers in Indonesia.It led the creation of the country’s Unified Database, with technical assistance from the World Bank .25 In 2011 the Bureau of Statistics (BPS) collected 40 variables related to individual, family and householdconditions, using a national survey. It ranked the households to prioritize and select them for socialprotection programs. The bureau identified and prioritized forty percent of the Indonesian populationthrough this exercise.

The Unified Database currently contains 96 million individuals among approximately 25 million

19 World Bank. 2013. http://data.worldbank.org/indicator. Full reference in References.20 GSMA Intelligence 2014: Data Dashboard. Data from Q4 2014. https://gsmaintelligence.com/markets/1531/dashboard/21 “The Structure of Indonesia’s Telecom’s Industry.” Redwing, 2012-2014. http://redwing-asia.com/context/telecoms-industry-structure/22 “Implementing Mobile Money Interoperability in Indonesia.” GSMA, 2013. http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/10/Implementing-mobile money-interoperability-in-Indonesia.pdf 23 World Bank Findex. 2011. http://datatopics.worldbank.org/financialinclusion/. Full reference in References.24 International Policy Centre Policy Research Brief 42. Originally from Ministry of Social Affairs, PKH Profile, 2013.http://www.ipc-undp.org/pub/IPCPolicyResearchBrief42.pdf25 For more information on the background, objectives and functions of the Unified Database see:http://www.TNP2K.go.id/en/frequently-asked-questions-faqs/unified-database/


12/34


households.26 Regional level governments and national level ministries can choose to use the databasebut are not required to do so. TNP2K intended to update the database every three years. As ofDecember 2014, TNP2K was reviewing the next survey, which may include questions about households’banking and financial services practices.

To date, only banks and PT Pos, the national post office, have been authorized to act as paymentservice providers (PSPs) for G2P payments. The Ministry of Finance sets all rules around authorizedG2P PSPs via a decree, which it updates periodically. The State Ministry of National DevelopmentPlanning (Bappenas) and Bank Indonesia anticipate changes to the decree that would expand the poolof authorized payers to include e-money issuers, such as MNOs.

Indonesia’s newest cash transfer program is the Family Welfare Deposit Scheme (KKS), which intends toreach 15.5 million recipients. Launched in November 2014, it is a modernized and more comprehensiveversion of the Bantuan Langsung Sementara Masyarakat (BLSM), which was a bi-annual fuel subsidyprovided by the former government. Every other month, Bank Mandiri, one of the four largest banks inIndonesia, pays one million recipients via e-money and PT Pos pays the other 14.5 million recipients.The program leverages the Unified Database to target and manage recipients. Annex 2 provides moredetails about the program.

2. Program Keluarga Harapan (PKH) – The Family Hope Program

BackgroundThe Ministry of Social Affairs launched PKH as a pilot in 2007. The program served 388,000 recipientsacross seven provinces, and it quickly shifted from a pilot to permanent social safety net program.However, PKH has been slower to scale than many expected: between 2007 and 2010 the programbarely doubled in size. By the end of 2014, PKH had reached 2.8 million (87 percent) of the 3.2 millionrecipients it intended to target; it intend to reach four million recipients by the end of 2015.According to TNP2K, the program aspires to eventually reach the poorest 40 percent of the populationacross all 497 districts and provinces in the country, approximately 7.2 million households.

Exhibit 3: PKH Growth, 2007-2012

26 This paper refers to recipients as those receiving G2P payments. Beneficiaries or households are all those ultimately touchedby the program, for example through the recipient spending money on the needs of the family or household, not just theindividual.

0

50

100

150

200

250

0

1

2

3

4

5

6

7

8

B u d g e t ( m i l l i o n U S $ P P P )

N o . o f h o u s e h o l d s ( m i l l i o n s )

No. of households (millions) Budget (million US$ PPP)


13/34


Source: International Policy Centre Policy Research Brief 42. Originally from Ministry of Social Affairs, PKH Profile, 2013.Primary access provides number of households and secondary axis provides the budget numbers. Budget numbers beyond 2012were not available.

Table 2: PKH OverviewPayment Frequency Every 3 months (4 times per year) Payment Amount Variable; up to a maximum of IDR 2.8 million (US$224.28) per

household per year Population Targeted Poor and ultra-poor households with school-aged children

(target of reaching bottom 40% in all districts and provinces) # Recipients Currently Served 2,797,574 (approximately 8% of the lowest income group) Disbursement Types 2,486,299 (88.87%) via PT Pos’ Giro Pos (described below)

309,486 (11.06%) via PT Pos’ Pos Wesel (communitypayouts; described below)

1,304 (0.05%) via e-money at Bank Mandiri 485 (0.02%) via e-money at BRI

Geographic Areas Covered Across all 33 provinces Targeting Method Proxy means testing conducted by BPS until 2011. Since 2012,

the Unified Database, which also identifies recipients ofRaskin and KKS. Focus on Nutrition or FoodSecurity?

No; focus on health and education

Critical ActorsPKH is a centrally managed social protection program in a highly decentralized government. TheMinistry of Social Affairs runs the program, yet benefits from the support of several other national-level government agencies: the BPS (Bureau of Statistics) manages targeting; Bappenas (the StateMinistry of National Development Planning) provides oversight; and TNP2K provides additionalsupport for systems modernization, particularly payment systems and the implementation of e-moneypilots. According to the International Policy Centre, TNP2K’s influence on the program has grown since2010 as it promotes faster expansion of the program, the creation of more efficient systems and

greater impacts on the targeted populations.27

PKH TargetingBeginning in 2005, BPS conducted proxy means tests to identify extremely poor households as well ashealth and education facilities in each district (in order to determine readiness for PKH). BPS recorded19.1 million households in 2005 and then updated the registry in 2008. In 2008, BPS included 14indicators to determine households’ program eligibility. Since 2012, the program has relied on theUnified Database. According to PKH program officials, the Unified Database targets and selects newPKH recipients, but local government officials use the list to make recommendations for new recipientsand then the Ministry of Social Affairs makes the final selection. This system has also been the basisfor e-money pilots.

The Unified Database does have limitations. First, the 2011 update survey only captured households

living in fixed residences, and not homeless or displaced individuals or families. Second, since 2011,the Government has not approved funding to update the data. Finally, BPS did not collect the datawith electronic payments in mind. Hence necessary information for account (bank or e-money)opening, such as accurate name spelling, dates of birth and identification (ID) numbers, is erroneousor missing.

27 International Policy Centre Policy Research Brief 42. Originally from Ministry of Social Affairs, PKH Profile, 2013.http://www.ipc-undp.org/pub/IPCPolicyResearchBrief42.pdf


14/34


PKH CommunicationsThe program has an interesting operational structure that involves local program officers (called“facilitators”) and group leaders, rather than direct contact with each and every recipient (see Exhibit4). The national level provides policy, supervision and operational guidance, and it has authority overpayment orders and actively communicates with PT Pos.

Facilitators mobilize PKH recipients and serve as a point of first contact between the community andthe PKH program. They teach recipients about the payments and why they are receiving the money,and they alert recipients about when payments will arrive. They also monitor the recipients and helpPKH update the recipient database. Their role in keeping an open line of communication is especiallyuseful when comparing PKH to KKS. One source interviewed reported that even a month after KKSpayments had arrived, some recipients had yet to get their payments, or were just picking up theirpayments; they had not heard the payments had arrived and the program has no local staff akin toPKH’s program officers to inform recipients.

Facilitators first inform group leaders when payments will arrive, what documents recipients will needand when recipients should withdraw their money from the post office. Group leaders are recipientsselected to lead communications with facilitators. Since they live in the same neighborhoods as other

recipients, group leaders inform the recipients through word of mouth, phone call or text message.

Exhibit 4: PKH Flow of Communications

3. PKH Payments Implementation and PSP ExperiencesEach year, the Ministry of Social Affairs contracts a PSP for PKH through a tender. Only PT Pos andlarge regulated commercial banks qualify to apply. With the exception of two years in which BankRakyat Indonesia (BRI) and PT Pos shared the payments portfolio, PT Pos has been the only PSP toapply. Due to the lack of presence of other qualified PSPs outside of Java, it always wins the contract.


15/34


However, as PKH has grown, it has begun to digitize its payments. Following the e-money regulationsof 2014, PKH saw an opportunity for the banks to improve their service and launched a new pilot, withthe support of TNP2K, using e-money. PKH and TNP2K invited Bank Mandiri and BRI to partner on thepilot as soon as the banks received approval from Bank Indonesia to introduce e-money products. Thepartners now make e-money payments to a combined total of nearly 2,000 recipients, all of whom have

been with the program since 2007 and are familiar with the program.28

Table 3: Comparing PKH PSPs

Features PT Pos BRI Bank MandiriPayment Type Giro Pos & Pos Wesel E-money (T-Bank) E-money (E-Cash)Deposit Amount & Frequenc Quarterly payments, up to IDR 700,000 per quarter and up to IDR 2.8

million per year# of Recipients Served 2,795,750 485 1,304Geographic Areas Covered All 33 districts 2 areas in Jakarta &

East JavaKoja, Cirebon, Kupang

Withdrawal Fee None None NoneMinimum Balance None None, but if no

positive balance on

SIM, it will expire

None, but if nopositive balance on

SIM, it will expirePay Points (Type andNumber)

4,000 physicalbranches, plus ad hoccommunity basedpayments

10 agents in 2 districts 20

Withdrawal Restrictions Only one withdrawalper month

None None

Store of Value?a Yes Yes YesAuthenticationRequired/Used

Card & ID PIN or EDCb & ID Phone number OTPc &ID

Fee per TransactionCharged by PSP to PKHd

IDR 9,000 (US$0.72) IDR 5,000 (US$0.40) IDR 6,000 (US$0.48)

a Value is stored on the SIM in the case of the e-money accounts and into GIRO POS accounts for PT Pos. Neither of these are

savings products, per se, as they do not offer interest.b EDC stands for electronic data capture. c OTP stands for one-time password.d Recipients do not pay a fee to withdraw ever.

PT Pos PKH PaymentsPT Pos is the government’s longest running G2P payments partner. It has partnered with PKH since theprogram’s launch in 2007. It has 4,000 post offices in mostly rural areas throughout Indonesia, and it isthe only PSP that can effectively execute G2P payments countrywide.

Since 2011, PT Pos has used its bulk payment system called Giro Pos. Money goes into non-financialaccounts: recipients do not receive a card or passbook and they cannot deposit money into theaccounts.

PT Pos uses an extensive scheduling system to manage its payments. The payouts at PT Pos branchestypically occur as follows:

1. Based on the master schedule, PT Pos coordinates with the local government, which relies onfacilitators to communicate the payment schedules to recipients.

28 At a January 2015 workshop on e-money hosted by TNP2K, several commercial banks expressed a keen interest in competingfor PKH payments now that more entities qualify as PSPs. However, they were surprised to hear that PKH expected them toprovide the accounts free of charge to recipients. Banks said it would severely decrease their business case for operating theaccounts.


16/34


2. PKH sends both the money for the payments and all necessary payroll information based on itsdatabase to the PT Pos head office.

3. The PT Pos head office executes the payroll process and transfers the funds to the local officesthrough the SGLK system.

4.

Group leaders or program officers notify recipients when the payment will arrive, which is

typically two to seven days after the notification.5. Recipients travel to their nearest PT Pos branch at a time designated by their program officer.6. At the PT Pos branch, the program officer or group leader takes recipients’ national IDs and

PKH cards, completes one paper withdrawal slip per recipient and submits the slips for the postoffice staff to process.

7. Post office staff process the paperwork and call recipients to give them their money.8. Staff record each payment into the Giro Pos system, which allows payment reconciliation

online and in real-time. However, recipients still need to fill out paper withdrawal slips ateach transaction.

Technically, recipients can keep money in their accounts, but this is not well known or understood. Inresponse to the government’s focus on financial inclusion for G2P recipients, PT Pos recently tried toeducate PKH recipients on their Giro Pos account features. But this effort slowed down PT Pos staff’s

processing of PKH payments as post offices filled with recipients, so staff abandoned it. PT Pos aims totransition recipients to more traditional financial accounts and is working to obtain approval from BIfor a license to interoperate with the banking system.29 Stakeholders interviewed from PKH, Bappenasand Bank Indonesia contend that PT Pos’ G2P payment system needs to be modernized. However, PTPos considers itself the most viable option for G2P distribution in the country. It cites that the bankscurrently authorized to disburse G2P payments have the technology but lack the capacity andinfrastructure necessary to deploy payments at scale everywhere in the country. PT Pos earns IDR9,000 (US$0.72) per transaction, 33 percent more per transaction than that charged by banks.However, at two percent of the average grant amount, PT Pos’ fee as a proportion of grant is similar tonational G2P programs in South Africa, Mexico and Kenya (Annex 3).

PT Pos staff said post offices face staffing and liquidity challenges with the monthly or bi-monthlypayments expected with the KKS system, and the quarterly PKH payments are more manageable and

allow branches to hire temporary staff for scheduled pay dates. This has implications for anypartnership with PT Pos in which WFP requires more frequent payments to recipients.

Despite PT Pos’ extensive reach across Indonesia, PKH includes recipients located more than 20kilometers from the nearest PT Pos branch. In such cases where PT Pos determines that a significantnumber of recipients must travel more than 20 kilometers to reach a branch, post office staff willtravel to the communities to make cash payments via “Pos Wesel”, or community payments, attemporary pay points. PT Pos uses a paper-based manual recording and reconciliation system for itscommunity payments.

In EmergenciesPT Pos staff interviewed in Padang, West Sumatra said PT Pos would be an effective partner inpreparing for and operating through emergencies. They cited their ability to pay about 6,000 new

PKH recipients with only one month’s notice from the regional office in late 2014. PT Pos wasprepared to make the payments because its systems were in place, staff were prepared and PKHfacilitators were available to support the process and verify recipients’ identities. The branch alsostayed open in the aftermath of a 7.9-magnitude earthquake in 2009, attesting to its reliability.

Staff suggested that, should it have an agreement with PKH or WFP to do so, making emergencypayments to more than the current number of recipients in the wake of a natural disaster would berelatively simple, provided they had clear instructions about (1) how much money the branch willneed to disburse, (2) how many recipients the branch will pay and (3) what resources and support the

29 The researchers cannot speculate as to whether Bank Indonesia would authorize such a request.


17/34


branch will have to make the payments. Support would include additional staff and capital resources(such as computers) and local government assisting facilitators with informing recipients.

E-Money PKH Payments

SIM Cards for RecipientsFor the PKH e-money pilots, TNP2K elected to provide all e-money recipients with new SIM cards.TNP2K cited the universality of Telkomsel SIM cards as a key reason for providing new SIM cards; anumber of recipients only had SIM cards from smaller providers not compatible with Bank Mandiri’ssystem. Additionally, TNP2K found that fewer recipients than it expected had SIM cards in the firstplace. As such, rather than surveying recipients about SIM card ownership for the e-money pilot,TNP2K decided to provide new SIM cards to all recipients. 30 Recipients’ minimal SIM card ownership issomething for WFP to take into account, especially in emergency situations when SIM card distributionahead of payment would risk being a clumsy, resource-intensive step.

The standard SIM to which PKH e-money accounts are linked requires minimum usage and balance tostay active, an admitted oversight in the design of the payment mechanism. PKH has encounteredsignificant problems in its e-money pilot as recipients fail to use (or leave a balance) on their program-

registered SIM cards, rendering the SIMs expired by the next payment date. For example, a BRI agentserved 99 recipients for the first e-money payout. However, she only served 51 recipients at thesecond payout due to a number of recipients having expired SIM cards.31 After receiving reports fromfacilitators and field staff on inactive SIMs, PKH must provide new SIMs to recipients with expired SIMs.The program and government are hoping to resolve this issue in 2015, whereas KKS operations havebenefited immensely from an agreement with MNO partners to waive SIM activity requirements for fiveyears for all KKS SIM holders.

Recipients interviewed also complained about needing to pay for airtime in order for their SIM cards tostay active. Interestingly, no one seemed to agree on how much they needed to spend. One group ofrecipients said they should add IDR 10,000 (US$0.80) per month, another group said IDR 5,000(US$0.40) per week. One woman pointed out that, only receiving IDR 125,000 (US$10) every threemonths, the airtime plus the transport cost hardly made it worth getting the PKH payment.

Additionally, if the payments are delayed for any reason, this would require recipients to add moreairtime without receiving a PKH payment.

Registering RecipientsUnder a relaxed KYC agreement with BI, Bank Mandiri and BRI have been able to open e-moneyaccounts for recipients with the following minimum information: name, ID number, PKH ID, birthdate,mother’s maiden name and occupation. For the e-money pilot, PKH required e-money recipients toregister their e-money accounts and SIMs. The vast majority, 91 percent, do so with assistance fromothers, typically a PKH program officer, a family member or a group leader. While more than half ofrecipients were able to successfully register their e-money account on their first try, one thirdreported it took three tries to successfully register their accounts due to network problems.32 Mass SIMregistration was also a significant hurdle, as most SIMs in the marketplace are not registered to theirowners. In the PKH program, TNP2K hired interns to manually register all 1,800 SIM cards over USSD.

BRI PKH PaymentsIn response to a government policy push to extend banking services to the unbanked and poor, BRI firstbecame a PSP in 2011, managing 100,827 PKH payments totalling IDR 35 billion (US$2.8 million) torecipients via their Simpanan Tabunganku savings product. By 2012, BRI served 500,827 recipients (34percent of total) who could retrieve their money at any of the 15 BRI bank branches or 120 bank units

30 Information gathered by MICRA at TNP2K-led workshop on the evaluation of e-money for PKH payments. January 2015.31 A program-wide number of recipients unable to withdraw their payments due to SIM card issues was not available at the timeof the research.32 TNP2K, 2014.


18/34


(similar to a bank agent) in the covered areas. Although the recipients received their payments intoregulated bank accounts and could take advantage of the account features (e.g., safe place to storevalue, interest on deposits), very few recipients actually did take advantage; rather, they typicallycashed out their payments in full.

PKH cancelled BRI’s contract in 2013 due to challenges such as long lines at the pay points, challengesverifying customer identities (know-your-customer, or KYC, requirements) arising from lost or damagedIDs, poor customer service and unfulfilled expectations that BRI would deploy mobile ATMs to helpserve recipients faster.33 PKH then relied exclusively on PT Pos for its growing number of payments.

When the e-money pilot opportunity arose in 2014, BRI agreed to participate again with PKH, using e-money accounts and its agent network. BRI served 485 recipients in Jakarta and East Java during thepilot using 10 agents. According to BI, BRI already has 14,000 agents nationally and plans to grow itsagent network to 25,000 within the next two years.

BRI uses a proprietary electronic data capture (EDC) technology for the transactions. It relies on MNOTelkomsel for enough signal strength to ensure online, real-time reconciliation. If the signal is weak orthe network goes down during payments, agents either wait or conduct their transactions offline and

reconcile manually. The EDC machine used for transactions is essentially a unique POS device solelyowned and operated by BRI to connect to and transact via their EDC system. To pay recipients, BRIproceeds as follows:

1.

BRI sends an SMS blast to recipients informing them that their payments are available.2.

Based on its program lists PKH sends both the money for the payments and all necessary payrollinformation to the BRI head office.

3. The BRI head office then executes the payroll process and coordinates with agents to ensureadequate liquidity at payouts.

4. Notified by SMS, recipients can withdraw their money at an agent, an authorized ATM orsupermarkets Aflamart and Indomart.34 As soon as they receive the SMS telling them thatmoney is available, recipients can go to cash out from ATMs, whereas if they go to an agent,they must wait until their designated day.

5.

At the agent, recipients request and receive pass codes sent via SMS message.6. Recipients give pass code and phone number to agent, and agent enters phone number in EDCmachine.

7.

Recipients input PIN, followed by the pass code.8. Agent pays recipient and records on receipt paper.9. BRI conducts and reconciles all transactions electronically and sends a data report to PKH for

monitoring.35

The government pays BRI by committing to deliver the total payment amount in advance of thedisbursement and by paying a per-transaction fee (which BRI splits with agents). Interestingly,however, it charges the lowest transaction fee of the three PKH PSPs (IDR 1,000, or US$0.08, pertransaction less than Bank Mandiri and nearly half of what PT Pos charges). With the emphasis on e-money and payments innovation growing in the country, BRI also appears to be leveraging the e-money

pilot as an opportunity for product testing as it moves forward with its e-money and branchless bankingexpansion strategy. BRI expressed no concerns over challenges of agent liquidity. However, one BRIagent expressed concern with the banking technology: BRI’s IT division trained her on the EDC machine

33 To learn more about PKH’s experience disbursing payment through BRI bank accounts, see the 2012 OPM report Disbursementof Social Cash Transfers through Bank Accounts.34 Withdrawals at ATMs and merchants seem merely aspirational at this time, as most BRI ATMS are unstandardized and not yetcompatible with the SIM-based cards.35 Payment process comes from interviews that BFA conducted in December 2014 and TNP2K & Spire Research and Consulting.“Monitoring and Evaluation of Digital Payments Services for a Pilot of Payment of PKH Beneficiaries .” Presentation. January 29,2015.


19/34


three times, yet she claimed she would still prefer the BRI staff to be present during PKH payouts (asthey were for the first two payments) since she is still learning the machine.

BRI reported that recipients have trouble with the banking technology and with remembering theirPINs. The same BRI agent said that most of her recipients are older women who are unfamiliar with

operating mobile phones and do not own their own phones. She observed recipients giving their PINs toher, to BRI staff or to PKH staff to enter into the EDC because they were not familiar with PINs, theEDC or the mobile phone. She benefited from BRI and PKH staff being present during the payouts toassist with these issues.

In EmergenciesOne agent recommended making emergency payments in cash, rather than e-money, until the e-moneysystem is better established. Particularly due to recipients’ lack of familiarity with the mobile phones,she also feared recipients would be confused and doubtful about the payments, which would causemore work for the agents, bank staff and PKH staff. Nonetheless, she claimed to have sufficientliquidity to serve additional recipients in times of emergency, and recommended that she wouldbenefit from (1) more staff to help pay recipients, (2) additional EDC machines to process paymentsand, since she would likely be handling more money, (3) more security (particularly given the

emergency context).

Bank Mandiri PKH PaymentsBank Mandiri is a new partner for PKH, currently serving 1,304 recipients. It has previous experiencewith G2P payments, having formerly served the Ministry of Religion to pay teachers via its electronicbank account product. Similar to the BRI experience with delivering PKH payments through basic bankaccounts, Bank Mandiri struggled with crowded branches at times of payment and found little financialbenefit in the arrangement. It did not renew its contract with the Ministry of Religion and has largelystayed out of the G2P space until its recent partnership with PKH and KKS to pay recipients through e-money, which the bank sees as a potentially lucrative business line. Bank Mandiri intends to recruit10,000 agents in 2015, with the ultimate goal of having 25,000 agents by the end of 2016.

Bank Mandiri’s e-money product, available over USSD or smartphone app for users connected on any of

Indonesia’s three largest MNOs, features no minimum balance and no withdrawal fees foraccountholders. The Mandiri e-cash management system is web-based down to the agent level, suchthat it depends on a strong network signal in order for the bank and its agents to access the accountsand process and reconcile payments. The payment process is as follows:

1.

Bank Mandiri sends an SMS to recipients informing them that their payments are available.2.

To process payments, the agent inputs recipients’ mobile phone numbers (one at a time) intohis/her laptop computer and then asks the recipients how much money they would like towithdraw.

3. Recipients receive six-digit one-time passwords (OTPs) via SMS to their phones, typically withassistance from the agent, which the agent inputs back into the computer.

4.

The agent confirms the amount to pay the recipients.5.

The recipients receive transaction confirmations and balance notifications via SMS. The agent

also receives a transaction confirmation.6. The agent records the withdrawal on receipt paper and in his notebook.36

What is notably missing is the use of a PIN to ensure a secure payment. Mandiri reports that they donot use PINs because recipients cannot remember them. After observing BRI, observed BRI recipients’challenges with PINs, Bank Mandiri decided it would pursue an alternative, potentially easier methodfor recipients by using OTPs.

36 Payment process comes from interviews that BFA conducted in December 2014 and TNP2K & Spire Research and Consulting.“Monitoring and Evaluation of Digital Payments Services for a Pilot of Payment of PKH Beneficiaries .” Presentation. January 29,2015.


20/34


Finding the Right AgentsAs BRI and Bank Mandiri grow their agent networks, TNP2K evaluated the ideal criteria for agents.Specifically, agents should be trusted in their communities, have liquidity, be in convenient locationsfor the recipients and know how to use the banks’ technology. Interestingly for the pilot, the banksbrought the cash to the agents before they began payouts, rather than requiring the agents to provide

the cash up front and apply for reimbursement. The bank staff would assist the agents with thepayouts, complete the settlement reports and take excess cash back to the bank with them. Whilesuch intensive intervention from bank staff may be helpful to ensure liquidity and quick settlementwhile agents are trained and growing, these practices are costly, atypical and hence unsustainable inagent-led financial services models.

The best examples of agents are retail shop owners who are reliably in their shops so that, if arecipient cannot withdraw her money on the designated payout day, she can find the agent on anotherday (and the agent would have enough money to serve her). Problems would arise with agents who arevillage chiefs, for example. While community members may trust the chief, he would not have cash onhand to serve recipients on any day; he would rely on the bank to bring the cash on payout days anddisburse it.37

Financial Inclusion and E-Money AccountsConsidering the government supports e-money G2P payments in order to promote financial inclusion,BRI and Bank Mandiri e-money recipients reportedly can and are even actively encouraged to save someof their payments in their e-money accounts. TNP2K reported that as much as 10 percent of recipientskept money on their phones. One BRI agent reported serving some recipients who decided to keep aportion of their payments in their phones. However, when the recipients asked to withdraw the moneyon the next payment date, the agent could not disburse it. BRI told her that agents can only disbursethe cash amounts stated in the data given by the Ministry of Social Affairs (which would be equivalentto the amount for one pay period per recipient). The agent was unclear whether and how therecipients would be able to retrieve the money remaining in their accounts. TNP2K and PKH will surelyneed to modify the systems based on such lessons from the pilot, and WFP will want to monitor thissituation as it seeks to partner with G2P programs using these payments methods.

4. Program Stakeholder Experiences & Perspectives on E-Payments

PKHThe 2014 approval of national e-money regulations broadened the possibilities for PKH partnershipswith banks for disbursing payments. However, bottlenecks still exist. First, the program reported thatonerous annual procurement processes cause payment delays, as the tender process must finish beforepayments can go out. Although PKH envisions a scenario in which a variety of PSPs could serve theprogram, drawn out tenders leading to delayed payments may only be exacerbated if the programcontracts with numerous PSPs. Second, the pilots have exposed some challenges to using traditional e-money services. For instance, the program reports that SIM cards are an expensive investment, despitelower transaction fees for e-money payers, especially if recipients do not use their SIM cards frequentlyenough and the SIMs expire. Third, recipients do not appear to grasp the e-money concept and areprone to giving away or forgetting their PINs, causing concerns of security risks on the one hand, andstalled or prolonged payout processes on the other.

Despite PKH’s challenges with e-money and despite PKH’s ongoing partnership with PT Pos, the PKHdirector saw limitations with PT Pos’s current cash-based and non-financial system. The director sawthe new e-money and branchless banking regulations as an opportunity to expand the payment options,particularly leveraging agent networks. Staff were also open to partnerships that leverage thei rdifferent cash disbursement methods in emergencies. However, they were at the same time quick to

37 Information gathered by MICRA at TNP2K-led workshop on the evaluation of e-money for PKH payments. January 2015.


21/34


note that the budget, internal capacities, current reach and the available infrastructure for e-moneyare all lower than may be needed to do so in even non-emergency situations.

State Ministry of National Development Planning (Bappenas)Bappenas is a staunch promoter of more effective and efficient government programs. It firmly

believes that electronic payments will reduce waste and leakage within government as well as provideopportunities for more effective policies that link the Indonesian people with markets and services.Yet it acknowledges that electronic payments are still in their infancy.

For PKH especially, it has observed that in some pilot areas, the network signal is still too weak, bothfor BRI’s EDC technology and Bank Mandiri’s web-based platform.38 Even where signals andinfrastructure are strong, staff acknowledged challenges with recipient capacity to use and understandthe new systems, such as forgetting and losing PINs and SIMs, or registering twice for the same accountor product.

Nonetheless, Bappenas finds the need for PKH to innovate and modernize as critical. PT Pos feescontinue to increase annually and, as coverage of the program continues to grow, Bappenas expressedconcerns that PT Pos’ fee increases will become increas ing ly unsustainable. The prospect of

paying via e-money agents is particularly appealing when the transaction fees charged are nearly halfof what is charged by PT Pos.

TNP2KTNP2K has done the most of all the stakeholders to promote and design G2P e-payment solutions. Itsstaff monitor and evaluate the PKH e-money pilots and have commissioned new research to considerthe future of e-payments opportunities, not only for PKH but for several other government socialprotection schemes as well.

TNP2K believes that e-money and electronic payments, by offering multiple pay points andinformation via mobile phone, will offer flexibility and convenience to recipients while boosting theoperational efficiencies of the program. Its staff were encouraged to see that in the early stages ofthe e–money pilots, 10 percent of recipients left a balance in their accounts and 15 percent of

recipients chose to withdraw from ATM instead of agent.

However, TNP2K staff also offered several observations on the most critical issues related to the PKHpayments and e-money pilots. First, staff interviewed noted that TNP2K overestimated recipients’ familiarity with phones and capacity to manage SIMs and the understanding of the added value that e-money accounts might provide them. Despite a sensitization campaign spearheaded by Bank Indonesiaon e-money for recipients, TNP2K staff involved in the pilots noted that children helped their mothersoperate the phones and few recipients choose to save. Second, they expected that real-timereconciliation, which reduces the number of required staff and the potential for leakage andcorruption, would be an advantage of e-money. However, the program will only benefit from real-time reconciliation with reliable network signal. The continued requirements for paperdocumentation in addition to electronic records further weaken the envisioned potential efficienciesand savings from real-time reconciliation. Third, agents are still learning the e-money processes and

have not consistently been prepared enough to disburse the money once recipients receive notice thatthe money is available.

Bank IndonesiaTNP2K staff described Bank Indonesia as the champion of e-money in Indonesia, writing the e-moneyregulations in 2014 and advocating the use of e-money for financial inclusion, particularly through G2P

38 At a January 2015 event hosted by TNP2K, the Indonesian Telecommunication Regulatory Authority cited political andprocedural roadblocks impacting signal strength in certain areas: some local regional governments have not allowed sufficientinvestment in cell towers. They also require MNOs to renew their tower permits every two years, which carries heavy costs forthe MNOs. In some instances, if MNOs do not comply with the permit renewal requirements, local governments have torn downthe towers. MNOs are now advocating for relaxed regulation.


22/34


payments. BI staff noted that their biggest investments toward the shift to electronic G2P paymentshave been in payment infrastructure and e-money awareness and financial educationinitiatives, for both the recipients and for the new e-money agents.

BI staff expressed their satisfaction with the gradual approach PKH is taking to its e-money pilots, such

as conducting agent training and recipient awareness building activities one month in advance of thefirst payments. However, they believe more could be done through this process to facilitate awarenessand capabilities of agents and recipients. For instance, they note that PKH facilitators and agents areon the front lines, but they are not consistently trained and may be confused about who is responsiblefor recipients registering, transacting and understanding the e-money based payments process.Additionally, BI raised questions about to whom recipients turn when they have problems with their e-money-based payments.

5. Recipients’ Experiences with E-Money and PT PosPKH reaches people of diverse backgrounds in rural, peri-urban and urban areas with different terrainsand economic activities and who are at risk for different natural disasters, including flooding,earthquakes and tsunamis.39 The majority of recipients did not own their own cell phone and few hadbank accounts or had ever used an ATM. Some recipients (both e-money and PT Pos) saw the paymentas a gift and did not feel that they are in a position to complain when something goes wrong with apayment. One group said they were not even sure to whom they should complain.

Surprisingly, recipients did not complain about the late payments – which were six months late forseveral e-money and PT Pos groups interviewed. All the groups emphasized their reliance on PKH topay for school costs, such as exams, new semester fees and uniforms and supplies, and they were evenable to borrow against the PKH payments. However, the quarterly frequency of payments causedrecipients to rank them as less reliable and important than their income from employment, typicallycasual labor and micro businesses.

PT Pos recipients did not know they could keep money in their account, though several recipientsexpressed interest in keeping money in the account. E-money recipients interviewed for this study saidthey do not keep money in their account, in part because they are afraid that the government will take

away the amount they leave in and then exclude them from the program. Few other recipientsclaimed they would prefer receiving payments through the bank because it is easy to reach, but theywere afraid to have an account, as they did not want to pay administrative and maintenance fees.

While PT Pos recipients said they would be interested in receiving their payments via e-money, few ofthem either owned or were comfortable operating a cell phone. The recipients were willing to usewhatever payment method was necessary to receive their payments and they assumed (without anymention or probing from the researchers) that an e-money agent would be more conveniently locatedand more quickly able to process payments than PT Pos. Ultimately, the recipients’ responsesunderline that their biggest constraints to accessing the current PKH payment process appear to be thedistance and cost to reach the pay point, and the time they wait to receive their payments.

While some recipients reported taking advantage of waiting at the post office for their payment to also

see their friends and socialize, recipients said they have spent hours waiting for their payments. In2012, the average waiting time to receive a Giro Pos payment at PT Pos branches was two hours, whilePos Wesel community payments were less than 90 minutes. PT Pos staff interviewed pointed to thePKH program as the root of this continued problem, claiming that the program, which currently

39 BFA conducted research with recipients with the following characteristics for this study:- Recipients in Semper Barat and Koja in North Jakarta, most recently receiving their payments through e-money- Recipients in Pasisir Selatan, south of Padang in West Sumatra, receiving their payments through Giro Pos payments at

PT Pos branches- Recipients in Padang, West Sumatra, just receiving their first payments through Giro Pos payments at PT Pos branches

in December 2014- Recipients in Bogor, south of Jakarta, receiving their payments through Giro Pos payments at PT Pos branches


23/34


24/34


response. However, whether and how their enthusiasm aligns with WFP’s priority of deliveringcash to vulnerable populations in emergencies remains to be seen. During interviews,stakeholders demonstrated a clear focus on pushing ahead with e-money payments, even if itslows the payment process temporarily as the program, agents, PSPs and recipients adapt to anew, more modern system. Additionally, the stakeholders appear to prioritize financial inclusion

in such a way that demands the G2P payment mechanism includes a store of value account.Such focus is not directly relevant to WFP’s desire to find the most effective way to payrecipients in emergencies.

4.

The Unified Database is a targeting tool to leverage, though it has room for improvement.

With an impressively large and comprehensive list of poor households in Indonesia, the UnifiedDatabase is increasingly used not only to target PKH recipients but all other manner of socialprograms targeted to the poor. However, its supposed cases of outdated data underline the needfor the government to update it, and it is unclear whether that will happen soon. With updates andimprovement, which WFP could potentially inform to align them with WFP targeting needs, theUnified Database can offer a clear opportunity for leveraging a central government list fortargeting in emergency situations, regardless of a G2P partnership.

5. KKS is another potential partner program for WFP to monitor in 2015 and beyond.

An in-depth analysis of the structure and functioning of the newly launched KKS was outside of thescope of this research. Early information available, however, indicates that the program, whichwill reach 15.5 million poor recipients using cash and electronic payment methods, has thepotential to be a partner program for WFP. At this time, the government has focused on itsmodernization through aiming to pay one million recipients through e-money. With such anambitious plan, KKS has already encountered challenges such as those experienced by PKH.Before engaging as partners, WFP would benefit from monitoring the program’s progress, thePSPs’ commitment (particularly the e-money PSPs) and the recipients’ experiences to confirmwhether it would serve WFP’s needs and be interested in so quickly partnering with WFP on anew initiative. For more information on KKS, see Annex 2.

7. Feasibility Assessment and Specific Recommendations

Program Feasibility: PKHGiven the current limitations of e-money, PT Pos’ position as lead G2P payments provider,stakeholders’ prioritization of e-money and financial inclusion, the strengths and limitations of theUnified Database and the other G2P programs managed by the Ministry of Social Affairs, six criteriaemerge for evaluating whether WFP should partner with PKH:

Program has effective relationship with PSPs. Do the program and PSP(s) see a continuedrelationship, or is it at risk of ending soon? Are the program and PSP typically able tocoordinate to pay recipients on time? In emergency situations, such as after an earthquake orflood, would the program and PSP be able to work together to make on-time payments?

Program has the flexibility to make additional payments or add more recipients. Do theprogram and PSPs have the capabilities to promptly add payments or recipients (at leasttemporarily)?

PSP has access to sufficient infrastructure to make payments that are relatively low-cost tothe program. Are the necessary infrastructure and systems in place for each PSP? How do PSPtransaction fees compare to other fees in low- and middle-income countries?

Recipients trust PSP to pay them the correct amounts on time at a location convenient (orat least not inconvenient) for recipients. Do recipients have problems receiving theirpayments, whether because payments are late or the incorrect amount? How far do recipientshave to travel for their payments? How long do they have to wait to get their payments?

Program serves a significantly large and inclusive group of recipients likely to be affectedby natural disasters or other emergencies. Does the program cover a substantial number of


25/34


relevant beneficiaries in rural and urban areas?40 Does the program have a database that iscomprehensive, inclusionary and up-to-date?

Program is ready to embrace emergency response partnership with WFP. Are the programand supporting stakeholders prepared to partner on an emergency cash transfer initiative? Dostaff appear willing to (and perhaps compensated for) work additional hours, such as in

emergency situations? Are staff available to deliver messages to recipients whennecessary? (Do they?)

Table 4 lists the criteria and rates how PKH aligns with the criteria based on a scale of red, yellow andgreen circles. Red indicates that PKH and WFP do not align; yellow indicates they align somewhat; andgreen indicates that they align significantly.

AlignsignificantlyAlignsomewhatDo not align

Table 4: How PKH Aligns with WFP Key CriteriaCriteria Rating Comments

Program has effectiverelationship with the PSPs.

PKH has a longstanding relationship with PT Pos,which is updating G2P accounts to include store ofvalue (to keep up with government expectations).The program is also open to relationships with e-money providers to create the most efficientprocesses. At the head office level, timelypayments did not appear to be an issue, but nearlyall e-money and PT Pos recipients interviewedmentioned they did not receive payments for thefirst half of 2014.

PKH and the PSPs have theflexibility to make additionalpayments or add morerecipients.

Partnering with PT Pos, PKH appears to have theability to add recipients in a brief timeframe, asdemonstrated in Padang. However, PT Pos claimsthat only paying recipients quarterly (rather thanbi-monthly, for example), provides it withsufficient time between payments to prepare.Natural disasters are not predictable events thatoffer months to coordinate and prepare payments.

PSP has access to sufficientinfrastructure to make paymentsthat are relatively low-cost tothe program.

PT Pos has in place the necessary infrastructure formaking scaled G2P payments and has evenremained open during past natural disasters.Meanwhile, e-money providers continue to developtheir agent networks and mobile infrastructure.

However, while all three providers appear to berelatively low-cost compared to PSPs from cashtransfer programs in other middle- and low-incomecountries, PT Pos’ fees are nearly two times higherthan the e-money providers’ fees.41

Recipients trust the PSP to paythem the correct amounts ontime at a reasonably convenient

Recipients interviewed in urban and rural areasappeared comfortable with PT Pos payments,despite the long lines. E-money recipients

40 The research team used program size as a criteria in earlier stages of the project in determining which program to study indepth.41 For a comparison of transaction fees across select low- and middle-income countries, see Annex 3.


26/34


Criteria Rating Commentslocation. experienced challenges with the e-money program,

many of which they are likely to overcome if theycontinue to receive e-money payments.

Program serves a significantly

large and inclusive group ofrecipients, likely to be affectedby natural disasters or otheremergencies.

The Unified Database is significant, covering the

bottom 40 percent of Indonesia’s socio-economicstrata. However, data are now more than threeyears old, with research suggesting that exclusionerrors and other missing indicators exist, whichmay pose challenges in leveraging it in emergencysituations. The timeline for updating it isapparently approaching. PKH serves recipients inurban and rural areas but reaches significantlyfewer than other government programs such asKKS, and unconditional cash transfer program, andRaskin, a rice subsidy program.

Program is ready to embraceemergency response partnership

with WFP.

PKH staff play a key communicator role betweenPKH and recipients; those interviewed appeared to

be cautiously willing to support emergencypayments. However, PKH stakeholders’ focus on e-money and financial inclusion and the program’squarterly payments schedule may conflict withWFP’s priority of rapidly getting cash into thehands of those affected by disasters.

PKH’s alignment with the criteria suggest that it remains a potential partner for WFP, but not the onlyone. In order for WFP to further evaluate its options for emergency cash transfer partners, theresearchers recommend the following actionable steps for WFP.

Host workshop on the potential of G2P payments for emergency preparedness in Indonesia withgovernment players including Bappenas, BNPB, TNP2K, Ministry of Social Affairs, BI and OJK.

Use the workshop as an opportunity to (a) become familiar with all the stakeholders as theybecome familiar with WFP’s interest in leveraging G2P schemes; (b) understand thestakeholders’ roles in G2P payments and emergencies; and (c) discuss how and when toimprove the Unified Database.

Approach and establish relationships with the Ministry of Social Affairs, TNP2K and Bappenas.As the stakeholders that appeared most willing to explore a partnership with WFP onemergency cash transfers, they will be WFP’s most likely champions for any implementation.

If WFP is anxious to establish a relationship with a PSP in the short-term, approach PT Pos tointroduce the idea of partnering on emergency cash transfers to gauge their interest,commitment and financial expectations.

As Indonesia currently lacks a cash and vouchers (C&V) working group, play a leadership role infacilitating a cross-sector dialogue on cash and vouchers in Indonesia, particularly consideringthe potential opportunities and challenges of e-money and branchless banking options, to

explore additional opportunities for partnerships. Meet with TNP2K to discuss how WFP might get involved in strengthening the Unified Database,

with an eye toward emergency response targeting. TNP2K (along with Bank Indonesia) may alsobe interested in exploring ID verification systems, such as UN’s Scope system or otherbiometrics, that could replace recipients using PINs and pass codes to receive e-moneypayments.

Using the above criteria, evaluate how programs such as KKS and Raskin align with WFP’s needsas compared with PKH. One way to evaluate these programs would be to conduct a pilot withBappenas that provides e-payments via the new nutrition cards connected to the KKS scheme,or that experiments with electronic payments for Raskin. According to Bappenas, all PKHrecipients should also receive Raskin as a matter of course (though this is not supported byfindings from the recipient research).


27/34


Conclusion PKH’s e-money pilots could be the first step toward a robust and competitive system that offers arange of payment mechanisms. However, the current status of the program would make leveraging thesystem in a post-natural disaster or other emergency environments difficult — payments just do not getto recipients in a timely manner. Because it would benefit from improved local capacity in targeting

and payment, WFP can take a leadership role and engage with the Government to identify priorityareas for funding and training support.


28/34


Annex 1: BNPB’s Interest in Cash Transfers for Disaster ManagementBNPB has some limited experience deploying cash transfers for emergency response. However, BNPBstaff expressed clear interest in understanding how best to most efficiently and systematically conductemergency payments. In general, they were enthusiastic about the idea of leveraging G2P schemesthat are already in place, especially as those schemes move toward more electronic payments. Staffviewed recipients having one card through which to receive payments as convenient for the programand a better way to track who qualifies for payments. Trying to pay qualified displaced people inrefugee camps, they have experienced problems with the number of people in camps suddenlymultiplying at payment times. Staff also suggested that recipients would be less likely to spend moneyon unnecessary goods because they would not have physical cash to easily spend.

BNPB outlined the following areas in which they believe additional technical or operational supportfrom WFP could help them enhance their capacities on cash transfers or e-payments:

Providing information on best practices in cash and voucher working group implementation,regulation and payment options.

Supporting BNPB’s integration and coordination with other institutions for emergency response.

Advising on how to communicate best with people about cash transfers payments, purposes and

processes in an emergency (such as early warning and evacuation).


29/34


Annex 2: Details of the Family Welfare Deposit Scheme (KKS)Launched in November 2014, KKS is an unconditional cash transfer scheme that reaches the bottom 25percent (15.5 million recipients) of the Indonesian population every other month. The program pays14.5 million through PT Pos and the other one million through Bank Mandiri’s e-cash account usingTelkomsel SIMs. Recipients receive IDR 400,000 (US$32.04) every two months. They learn aboutpayment dates from local government officials, which receive letters from the PSPs, or from neighborsand other KKS recipients. Recipients have no clear program officer to contact in case of questions,problems or misunderstandings.

Learning from the challenges of PKH e-money registration, TNP2K and PSPs have simplified the SIMregistration process for KKS payments. For KKS, Bank Mandiri benefits from a government waiver thatallows it to register recipients’ accounts and activate recipients SIMs (via Telkomsel, XL and Indosat) inbulk. This process requires registration data to be precise with no spelling errors, or the data will notmatch the information in the Unified Database. Bank Mandiri claims that KKS offers a much simplerback end system than PKH. For recipients to register, TNP2K arranged registration points whererecipients exchange their cards related to the previous version of the KKS program for four new cardsto access different family welfare services, including a SIM-embedded card to receive KKS payments.Unlike PKH SIM cards, KKS SIM cards will remain active for five years regardless of the owner’s activity

level of calls, SMS and adding airtime.

Upon registration, recipients go to an agent who scans their SIM-embedded card, checks their ID anddisburses their money. Although considered an e-money transaction by the program, the transaction isnot a traditional e-money payment. At PT Pos, recipients complete withdrawal slips, the PT Pos staffscans recipients’ SIM-embedded cards and checks their ID to conduct the transaction. Some PT Posbranch staff prefer the PKH system where program officers typically complete the withdrawal slips forrecipients; KKS does not have similar program officers.

Bank Mandiri drives the e-money payment system but has contracted PT Pos as a payment agent incertain areas. KKS transmits funds to Bank Mandiri, which transmits the grants to recipients’ SIM-embedded cards. Recipients recei

Assessment of Potential WFP G2P Partner Programs in Indonesia

Documents

Transcript of Assessment of Potential WFP G2P Partner Programs in Indonesia