In this moment of crisis, the poor and needy should be aided with cash support via MFS
Bangladesh has started working with the extreme consequences of the global coronavirus pandemic in earnest, with curtailed financial activities manifested in factory closures, cancellation of and/or sharply reduced export orders, falling remittance inflows, and depressed demand for domestically produced goods and services.
The collapse in external demand coupled with the closure of most economic establishments -- micro, small, medium or large -- due to the lockdown have made an incredible number of workers
The poverty rate has almost doubled to 40 % of the populace, at least temporarily, reversing all of the gains achieved in poverty reduction front over more
To bring about a quick recovery from the collapse, the federal government has declared a stimulus package of Tk 95,619 crore (3.3 % of GDP).
The unfolding extraordinary situation requires extraordinary measures and therefore the policy intent of the support measures is pretty clear and commendable.
While financial recovery will be of utmost importance as the lockdown eases and the spread of the infection is contained, at this moment the priority should be to provide income support to an incredible number of poor and vulnerable households (including the 'new poor' arising from loss of jobs and earning opportunities) who are actually faced with serious livelihood challenges and thus need support.
Hunger and deprivation of bare minimum needs could spark social unrest, potentially undermining our hard-earned socioeconomic progress achieved in the last decades.
Although not a fairly easy task, designing and implementing a comprehensive support system directly targeting the indegent and vulnerable groups is not impossible either.
How many people (or, number of households) will require immediate support to push away hunger and fulfil their minimum needs?
Simulation of falling incomes using the distribution of households around the poverty line seem to be to suggest that 10-12 million households will require direct support.
How much is necessary for the cash transfer programme?
A transfer amount equal to the poverty line incomes, which Bangladesh officially uses to make the distinction between poor and non-poor, would require providing each beneficiary household with a monthly amount between Tk 8,500-Tk 11,000.
We take the view that it might not constitute a practical approach not only because budgetary costs will be too high but may also cause perverse incentives for the recipients and attract non-targeted households.
In our view, a lower monthly cash transfer of Tk 3,000 could be very an effective support.
This is based on some ground realities as Brac is currently administering such a cash assistance scheme because of their discovered poor and vulnerable households.
We do acknowledge that this amount is small, but -- predicated on the expenses related to the basic minimum needs -- this should help the households to survive the crisis.
This amount is unlikely to inspire many non-poor households to seek assistance.
It really is estimated that if a complete of 12 million households should be supported with monthly direct cash assistance of Tk 3,000, the total programme cost for 90 days will be Tk 10,800 crore, which is calculated as just about 0.36 % of Bangladesh's estimated GDP for fiscal 2019-20.
For an extended duration of half a year for the same number of households, the computed cost will be is less than 0.75 % of GDP.
Photo: Sk enamul Haq
WHY CASH ASSISTANCE?
We don't undermine the need for in-kind assistance using special circumstances.
Otherwise, there is a huge body of evidence to suggest great advantages of cash transfer programmes over in-kind schemes.
Cash programmes are better as they usually do not distort consumption choices.
There is evidence that such transfers are 25-30 % cheaper than in-kind interventions.
Due to the known advantages, the National Social Security Strategy that Bangladesh adopted in 2015 proposes to transform all workfare-based food transfer interventions into cash assistance schemes.
There is also yet another reason behind suggesting cash assistance. Given the rapid expansion of mobile financial services (MFS), money can now be delivered to even remote places in Bangladesh.
Yearly transactions through MFS exceeded $50 billion in 2019. There are currently about 1 million MFS agents coping with 80 million registered accounts, which 35 million are considered active.
The MFS infrastructure thus stands prepared to inject the cash cost-effectively while being significantly less susceptible to corrupt practices.
Under the current social distancing guidelines, additionally it is exceedingly difficult to distribute in-kind distribution, let alone the proliferation of thefts and misappropriation of relief materials, as reported frequently in media.
Cash assistance can be important to help persons keep their consumption as diversified as possible. This can sustain local-level demand for diversified goods and services.
Otherwise, many small growers of such items as vegetables, fruits, eggs and dairy products will walk out business.
HOW TO GET IN TOUCH WITH THE BENEFICIARIES?
The National Social Security Strategy needed a national household database to recognize the poorest and vulnerable populations groups.
However, even after many years, the proposed mechanism cannot be established.
Therefore, by using a nationwide database to track and reach the needy households at this time of crisis would remain a missed opportunity.
International experience drawn from Brazil, Chile, India, Malaysia, Pakistan, Peru, the Philippines, Thailand, and from a great many other countries seem to advise cash assistance delivered directly through digital financial services work within an extremely efficient manner.
The basic principle of our proposed approach is to create a crisis Cash Allowance Programme (ECAP) for 10-12 million households.
Households looking for assistance should self-identify or self-register for the allowances.
They are able to register by sending SMS to dedicated mobile numbers. The registration process ought to be simple enough in order that most potential beneficiaries can apply without needing much assistance.
Through the registration, they should provide names of family members head and household members with their NID numbers, family address, and information on the preferred MFS take into account making payments.
Payments ought to be made through cellular phone accounts using any MFS providers of their choice such as for example bKash, Rocket, Nagad, SureCash, etc.
If households need assistance in registering, they could use the services of several million MFS agents scattered in the united states. It is possible that many applicants currently do not have MFS accounts.
However, since e-KYC is currently in procedure in Bangladesh, opening such accounts using NIDs takes just a few minutes.
It is possible that one beneficiaries either do not have their NIDs or have misplaced/lost them.
Under those circumstances, they might be registered using their birth certificates.
Opening of e-KYC accounts without NIDs could be temporarily allowed-as may be the case with the garment personnel -- and these accounts, if needed, could be terminated later.
There already are some solid examples of the currently existing MFS infrastructure being an efficient method of delivering cash transfers.
Between 6 and 20 April, about 2.6 million garment personnel could open their MFS accounts to get their salaries.
Under a social security scheme, the principal Education Stipend Programme (PESP), some 14.4 million primary students are enrolled and their 10 million-plus mothers receive monthly allowances through MFS.
Therefore, opening accounts using MFS and delivering cash assistance already are well-established in the united states.
Introducing an ideal system for cash transfer perhaps will not be possible.
We must acknowledge some scope of leakages/mistargeting. That is why we suggest a relatively low amount of transfer be produced each month.
Given the reduced financial literacy of most of our poor people, regular monthly payments may help with better management of household cash flow.
The measures suggested above might need further refinements to create them operational, but certainly doable.
Finally, the proposed cash assistance programme ought to be thought to be complementary to already declared intervention measures.
The expansion of the safety net programmes, as already announced by the federal government, should be implemented furthermore cash assistance programme to help make the support system more impactful.
Time is of the essence within delivering critical support to the indegent and needy.
The proposal outlined here implies that implementing a vast cash assistance programme -- to meet the essential needs of 50 million people (including members of the family) -- is very much in your fiscal and technological means and therefore ought to be pursued immediately.
The existing government deserves a whole lot of credit for expanding the MFS in Bangladesh, and it could only be most timely and befitting it to use the infrastructure to supply the prompt livelihood support that people need.
Ahsan H Mansur, executive director, Abdur Razzaque, research director and Bazlul Khondker, director of the Policy Research Institute of Bangladesh (PRI). This article is produced within PRI's Policy Advocacy Initiative on Digital Financial Services in Bangladesh.
