Contraintes à l'inclusion financière numérique des bénéficiaires du programme de transferts monétaires PSARA en Haïti : Une analyse du côté de la demande et recommandations

Public Disclosure Authorized Public Disclosure Authorized SOCIAL PROTECTION& JOBS DISCUSSIONPAPER No. 2308 JULY | 2023 Public Disclosure Authorized Public Disclosure Authorized Constraints to Digital Financial Inclusion of Bene ciaries of PSARA Public Disclosure Authorized Public Disclosure Authorized Cash Transfer Program in Haiti A demand-side Analysis and Recommendations Cristina Martinez Cuellar Public Disclosure Authorized Public Disclosure Authorized Cornelia M. Tesliuc Pascal Jaupart Ailo Klara Manigat THE WORK WAS SUPPORTED BY THE RAPID SOCIAL RESPONSE - ADAPTIVE AND DYNAMIC SOCIAL PROTECTION (RSR-ADSP) UMBRELLA PROGRAM, ROUND 20 ‹ ,QWHUQDWLRQDO %DQN IRU 5HFRQVWUXFWLRQ DQG 'HYHORSPHQW 7KH :RUOG %DQN 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202- 522-2625; e-mail: pubrights@worldbank.org. Constraintsto Digital Financial Inclusion of Beneficiaries of PSARA Cash Transfer Program in Haiti A demand-side Analysis and Recommendations CristinaMartinezCuellar, CorneliaM. Tesliuc, PascalJaupart,Ailo KlaraManigat Abstract: The Adaptive Social Protection for Increased Resilience project (ASPIRE or PSARA for its acronym in French), financed by The World Bank and implemented by the Government of Haiti, aims to design and implement a cash transfer program for vulnerable households in Haiti, with a focus on increasing financial inclusion and digitizing payments. This report analyzes the financial inclusion landscape of beneficiaries; identifies demand-side barriers to the uptake of Digital Financial Services (DFS); and provides recommendations for promoting the use of DFS among beneficiaries and their communities. The findings of this report show that while access to formal financial services is limited, there is more access and usage of mobile money and informal services through the Village Savings and Loan Associations (VSLAs). The report recommends actions to remove barriers to DFS usage, such as creating and promoting DFS use cases among beneficiaries, increasing trust and confidence in using e-wallets, working with policymakers to provide IDs for beneficiaries and with regulators to reduce Know Your Customer (KYC) on low-tier accounts, and increasing mobile phone ownership. Additionally, the report suggests strategies to support a robust DFS ecosystem, including designing attractive products for low-income customers and building a sustainable Cash-in and Cash-out agent network. JEL: G2, G5, O1, O2 Keywords: Financial Inclusion, Digital Financial Services, Adaptive Social Protection, Haiti Table of Content Figures........................................................................................................................................................... ii Acronyms..................................................................................................................................................... iii Executive Summary...................................................................................................................................... iv 1. Introduction ..........................................................................................................................................0 1.1 Context................................................................................................................................................0 1.2 Research Background..........................................................................................................................5 2. Research Findings .................................................................................................................................8 2.1 Access, Usage and Quality of Financial Services.................................................................................8 2.2 Usage and Access Depends on Demographic Characteristics ..........................................................17 2.3 Vulnerable Households are Less Likely to have Financial Products..................................................23 2.4 Lack of Formal IDs and Mobile Phones Create Barriers to Digital Financial Inclusion......................25 2.5 Remittances and Social Assistance Programs Positively Correlate with DFS Usage.........................27 3. Recommendations..............................................................................................................................30 3.1 Priority Actions to Increase the Demand for DFS.............................................................................30 3.2 Supporting Actions to Develop a Robust DFS Ecosystem.................................................................34 4. Conclusion...........................................................................................................................................37 5. References ..........................................................................................................................................38 6. Appendix .............................................................................................................................................40 i Figures Figure 1: Distribution Of Beneficiaries Who Have A Formal Account By DFS Provider Figure 2: Reasons Respondents Don't Have An Account At An FSP Figure 3: Reasons For Not Having A Mobile Money Account Figure 4: Services Used With Mobile Money Figure 5: Respondents’ Reasons For Not Saving By Provider Figure 6: Borrowing Sources Respondents Use Figure 7: Respondents’ Reasons For Borrowing Figure 8: Wait Time To Withdraw PSARA Benefit Payments At A Moncash Agent Figure 9: Distance To Moncash Agent Figure 10: Travel Time To Nearest Moncash Agent And Estimated Cost Of Transport Figure 11: Account Ownership And Usage By Gender Figure 12: Account Ownership And Usage By Age Groups Figure 13: Geolocation Of Respondents By Commune Figure 14: Product Ownership And Usage By Region Figure 15: Account Ownership By Level Of Education Figure 16: Account Usage By Level Of Education Figure 17: Distribution Of Economic Activities Figure 18: Account Ownership And Usage By Economic Activity Figure 19: Product Ownership And Usage For Persons With Disabilities Figure 20: Vulnerability Index Distribution Figure 21: Product Ownership By Vulnerability Index Figure 22: Product Ownership And Usage By Ownership Of A Mobile Figure 23: Product Ownership And Usage By ID Figure 24: Product Ownership And Usage For People That Have Received Remittances Figure 25: Product Ownership And Usage For People That Previously Received Social Assistance Figure 26: Number Of Village Savings And Loan Associations By Commune Figure 27: Distance Of VSLA To Its Members ii Acronyms AML/ CFT: Anti-Money Laundering / Counter-terrorism financing ASPIRE: Adaptive Social Protection for Increased Resilience (acronym PSARA in French) BRH: Central Bank of the Republic of Haiti BMGF: Bill and Melinda Gates Foundation CICO: Cash-in Cash-out DFS: Digital Financial Services FSPs: Financial Services Providers (I.e., Banks, Microfinance Institutions, Credit Unions) G2P: Government-to-Person Transfers HDVI: Haitian Deprivation and Vulnerability Index KYC: Know Your Customer MAST: Ministry of Social Affairs and Labor MMOs: Mobile Money Operators NFIS: National Financial Inclusion Strategy P2P: Person-to-Person Transfers, including remittances PDM: Post-Distribution Monitoring SIMAST: Information System of the Ministry of Social Affairs and Labor VSLAs: Village Savings and Loan Associations WFP: World Food Programme iii Executive Summary On March 2021, The World Bank approved the Adaptive Social Protection for Increased Resilience (ASPIRE or PSARA by its French Acronym) project with the objective of i) designing and implementing a cash transfer program for highly vulnerable households; and ii) setting up the delivery systems for a shock-responsive social safety net program. The program includes accompanying measures to increase resilience and adaptation through Digital Financial Services (or DFS) as part of implementing cash transfers. Despite the program’s intention to principally channel the PSARA cash transfers through digital channels, mainly mobile money wallets, the challenges have been significant as many beneficiaries prefer to receive the payment in cash. At the beginning of the program’s rollout in April of 2022, only 3% of beneficiaries opted to use digital payments, independent of whether they had an e-wallet. Despite recurrent attempts by the World Food Programme’s (WFP) field teams, the implementing partner supporting the government, to sensitize and educate beneficiaries to receive digital payments and use the wallets, uptake was slow, and this added much pressure on the program given the situation of violence, shortage of fuel and liquidity in the country at the time. As a result of these factors, on November 2022, the local authorities, the World Bank, and the WFP agreed that any beneficiary with a valid National ID would receive their benefits through MonCash’s e-wallet (the Mobile Money Operator partner of the PSARA program). This led to a substantial increase in digital transfers, with 57% of targeted beneficiaries receiving the payment through e-wallets as of April 2023. It is important to recognize these efforts to digitize PSARA’s payments; however, there is still a wide gap between having a payment instrument and using it digitally and not only for cash out. This report has the dual objective of i) quantifying financial inclusion among beneficiaries across the three dimensions of access, usage, and quality; and ii) providing recommendations on supporting poor households to move from cash-based transactions to formal DFS. Haiti’s Economic Development and Financial Inclusion Landscape Haiti is one of the world's poorest countries, with over 60% of its population below the poverty line. Rural dwellers, women, and persons with disabilities are the most vulnerable. Haiti’s socio political history has led to decades of under-investment in basic infrastructure like water, electricity, roads, etc., creating an endless cycle of poverty in the country1. In recognition of the importance of inclusive financial markets for poverty alleviation and improving economic outcomes, the government has been working on financial inclusion since 2014, when it launched the National Financial Inclusion Strategy (NFIS)2. Despite these efforts, financial inclusion statistics keep lagging, especially when compared with most low-income countries and the region of Latin America and the Caribbean. 1 World Bank Group (2022). Haiti: Systematic Country Diagnostic 2 Alliance for Financial Inclusion, The Central Bank of the Republic of Haiti (2018). Haiti: Digital Financial Services (SFD) iv One of the latest attempts to break this poverty cycle and create a more inclusive economy is the launch of PSARA, supported by The World Bank and planned to last six years. As of April 2023, this program included over 22,000 households in the region of Grand’Anse, which is especially vulnerable to poverty and natural disasters. As part of its cash transfers component and goal to digitize such payments, the program has a financial education component and a strategy to strengthen “community banking” through building the capacity of existing and new Village Savings and Loan Associations (VSLAs) where beneficiaries participate (see appendix for more information on Grand’Anse VSLAs and PSARA’s initiative). Research Background This report leverages the data from the PSARA impact evaluation baseline survey collected in the second half of 2022, which includes a module on ownership and usage of formal and informal financial services. The quantitative analysis of this survey is complemented with data from the Information System of the Ministry of Social Affairs and Labor (SIMAST) 2021-2022 social registry, the Grand’Anse VSLA diagnostic survey (2022), and the Post Distribution Monitoring (PDM) surveys gathered in two disbursal cycles (both for cash and digital payments) in December 2022 and February 2023. To complement the quantitative analysis, an extensive literature review was conducted on international experience promoting DFS and recentstudiesin Haiti related to PSARA and financial inclusion. In particular, this study leverages the research and findings of the Bill and Melinda Gates Foundation (BMGF) PSARA beneficiaries’ baseline study3, the WFP study of Women’s Financial Inclusion in Grand’Anse, and the WFP research on the viability of partnering with MonCash to distribute PSARA cash transfers digitally to beneficiaries. Research Findings Financial inclusion, understood as the access and usage of formal financial services, among beneficiaries is low, and it is consistent with nationally representative surveys and other more recentstudies. The PSARA baseline survey indicates that only 20% of respondents have an account at a Financial Service Provider (FSP), 39% have an active mobile money account with a Mobile Money Operator (MMO), and 54% have used mobile money through an MMO. Access to DFS is limited mainly due to a lack of mobile phones (32% of respondents argue that they don’t have an e-wallet (of an MMO) for this reason, and 13% argue the same for FSP accounts. Lack of documentation (25%) and insufficient funds (19%) are the most cited reasons for not having an FSP account; no knowledge of products (17%) and no electricity (15%) are more pervasive barriers for mobile money accounts. Moreover, 30% of respondents participate in community “banking” groups or Village Savings and Loan Associations (VSLAs), which are considered informal sources of savings and lending. Regarding usage, mobile money transfers, including receiving, sending, and withdrawing funds, is the most used formal financial service. Formal savings are very low: only 10% of those with a mobile money wallet use it for this purpose, and only 21% have an FSP account. The most prevalent reason provided for not saving is lack of funds. In contrast, over 90% of beneficiaries 3 Bill & Melinda Gates Foundation, WFP Project (April 2022). PSARA Beneficiary Baseline Survey Report v participating in VSLAs also report saving in these groups. The gap between formal and informal savings is interesting. On the one hand, there is a difference in perception of what is “enough funds” to save at an FSP vs. a VSLA. On the other hand, it provides evidence that formal FSPs do not have adequate saving and lending products attractive to this segment of the population. When looking at lending, 31% of the sample confirm that they are currently in debt, and a vast majority, 78%, borrow from VSLAS. The second most popular borrowing source is friends and family, 17%, and in high contrast, only 3% borrow from a formal financial institution. It is essential to highlight why beneficiaries are borrowing, given that there is an unequivocal message of “lack of funds” as the main reason not to access and use formal financial services. The survey finds that almost half of the sample, 43%, use loans to cope with hard times, 15% use them for educational expenses, and 10% for medical expenses. Only 21% acquire loans to start a business, and 11% use them for agricultural investments. These percentages are worrying: beneficiaries mostly borrow to cover expenses, which come with interest rates and a high risk of over-indebtedness, which can trap families in a vicious credit cycle. This also presents an opportunity to understand better how to break the cycle by creating savings and insurance products that better align with customer’s needs, as well as educating customers on the responsible usage of such products. Regarding specific socio-economic demographics, women tend to fare worse from an access perspective but do better in usage when looking at payments and formal savings. By age group, those between 40 and 64 enjoy better access; use varies by product type, with young people making more digital payments. The elderly, those above 65, are the most financially excluded. Not surprisingly, being more educated tendsto correlate with more access and use of formal products. Economic activity is also associated with different levels of access and usage of DFS: the salaried are the most included (however, only 2% of the sample falls into this category). Self-employed beneficiaries follow in access, and those that work primarily at home are the most excluded. Finally, persons with disabilities and the most vulnerable households (measured by the Haitian Deprivation and Vulnerability Index or HDVI) are also the most excluded from an access and usage perspective. Beneficiaries living in the eastern part of Grand’Anse have more access and better usage across all products, including VSLAs, compared to their western counterparts. This could be explained by the fact Jeremie, the capital of the region, is located in the eastern part, which is better connected and has a more developed road network, making it more integrated into the national economy. In this line, there is also evidence of a positive relationship between financial inclusion, receiving remittances, and having previously participated in social assistance programs. This can be primarily because households likely used a financial intermediary for these activities. Recommendations The main conclusion from the research is that there is no one-size-fits-all solution to increase the demand for access and usage of DFS among beneficiaries: PSARA must first identify which beneficiaries are facing barriers to access or usage, and then design different priority actions to meet each customer in their digital and financial journeys. Furthermore, the research also vi highlights that a distribution channel strategy is vital for success and PSARA can influence the providers strategy through the below supporting actions. MMOs4, particularly MonCash (at least in the short term), are best positioned to provide attractive productsfor the target population and create accessible and robust agent networks. Given the community nature and relative popularity of VSLAs, they should be leveraged to increase the trust in DFS among beneficiaries. Lastly, PSARA should work with policymakers and regulators to remove access barriers regarding National ID ownership and the required documentation (Know Your Customer or KYC) to open accounts at formal DFS providers. SUMMARY OF RECOMMENDATIONS Priority Actions to Remove Barriers to Usage Priority Action 1: Support the promotion of use cases for beneficiaries who have e-wallets and already perform digital transactions The research results show that beneficiaries that have a MonCash e-wallet, and use it digitally, have notably high customer satisfaction. The goal for this segment is to offer beneficiaries productsthat are attractive to them, like merchant and bill payments,so they have more use cases to transact digitally. PSARA should support DFS providers by helping them identify and recruit merchants, schools, and healthcare facilities to accept digital payments. Additionally, provided that many beneficiaries use VSLAs to save and borrow, promoting the digitalization of payments to and from VSLAs, can help increase the use cases where beneficiaries can directly pay with the e-wallets. 4 PSARA and WFP have partnered with MonCash since the beginning of the project; however, Haiti Pay will start participating in the program in April 2023. Conversations with NatCash are at an early stage. vii Priority Action 2: Increase trust and confidence in using e-wallets to start transacting digitally for beneficiaries who have e-wallets and cash-out benefits As of April 2023, a significant portion of beneficiaries belong to this segment. This is due to the change in PSARA’s program rules, where now every beneficiary with a National ID is defaulted to receiving the payment digitally. PSARA needsto focus on increasing the knowledge and confidence of these customers in using the wallets beyond cashing out at a Cash-in Cash-out, or CICO, agent by leveraging the financial literacy training courses to double down in providing hands-on experience and demos of the wallets. Furthermore, it can set up "clinics" with DFS providers on cash-disbursal days to help beneficiaries solve doubts and troubleshoot issues with the e-wallets. Finally, given PSARAs initiative in relation to VSLAs (see appendix), it should work on identifying savvy members to become “DFS Champions” that can teach others in the group and their communities how to use the e-wallets and thus increase their trust in this service. Priority Actions to Remove Barriers to Access Priority Action 3: Work with policymakers to provide a National ID to beneficiaries who lack this requirement to open an e-wallet, and work with regulators to create a risk-based Know-Your Customer (KYC) approach for low-tier e-wallets The lack of documentation is the most biding barrier for DFS access at the moment. This has become more critical as of December 2022, when regulators increased the KYC requirements to download e-wallets. PSARA should partner with policymakers to ensure anyone who has the required documentation to get a National ID does so, and in parallel, work with regulators on a risk-based KYC approach to avoid excluding vulnerable populations from being able to access DFS. It should be highlighted that PSARA officials and other partners in Haiti have already begun talks with policymakers and regulators in these dimensions. Priority Action 4: Increase mobile phone ownership among beneficiaries who lack one Not having a mobile phone is the most critical factor in accessing and using DFS (from survey correlations and customer perceptions). Based on multiple answers referring to “lack of funds" to access and use DFS, PSARA should think about how, either directly or through partnerships, to provide mobile phones for free, subsidized, or through a lending program. Both lack of ID and mobile phones are relatively more prevalent for women, the elderly, and persons with disabilities. PSARA should prioritize removing the barriers for beneficiaries in these categories. Supporting Actions to Promote a Robust DFS Ecosystem In parallel to increasing the demand for DFS following the priority actions above, there also needs to be a partnership with DFS providers and VSLAs to promote a flourishing digital financial ecosystem. While supply-side efforts will be more dependent on DFS providers’ actions, PSARA can play a role in influencing and supporting them. viii Supporting Action 1: Support the construction of a sustainable (CICO) agent network in convenient areas for beneficiaries Many beneficiaries must travel long distances to reach CICO agents. PSARA needs to support and facilitate opportunities and partnerships to, for example, recruit shops where beneficiaries buy food and other household items to become agents. This will make it easier for customersto access agents. In addition, onboarding these agents to accept merchant and bill payments (priority action 1) will reduce the pressure of agent liquidity management for the entire network: most customers will be incentivized to transact digitally while helping balance PSARA’s transfer cash-out activities. Lastly, a potentially attractive solution is to hire and train VSLA's financially savvy members to become agents; this will bring customers and formal DFS providers closer, both physically and socially, to the communities they serve, as agents will live closer to customers, and they will also have a better understanding of their financial needs. Supporting Action 2: Increase trust and usage of DSF through VSLAs In Haiti, as in many parts of the world, trust can be a significant barrier to DFS uptake. Being part of the beneficiaries’ communities, VSLAs should be seen as partners, to connect formal and informal financialservices. PSARA should identify and train VSLAssavvy membersto champion DFS in their communities to gain trust and increase personal DFS usage among its members; having a close relationship can lead to building up their members’ digital financial confidence. As mentioned above, these members can also be eventually recruited to become CICO agents and further embed formal DFS in these traditionally hard-to-reach communities. Finally, the digitalization of VSLAs transactions (that is that members can send the savings contribution and receive credit through their e-wallets) can increase usage of e-wallets. Supporting Action 3: Promote training women as agents to increase financial inclusion of the most vulnerable PSARA should advocate for policymakers and DFS providers to invest in women agents. Recent research shows that in contexts where there are restrictive social norms toward women, like in Haiti, there are positive effects of recruiting women as agents on the financial inclusion of vulnerable segments in rural populations, like women, the elderly, students, and persons with disabilities – precisely the same segment that PSARA targets. Furthermore, research shows that women becoming agents can also have positive effects at the women’s individual, household and community levels. The report is structured as follows: Section 1 provides Haiti’s context on economic development, financial inclusion, and background information on the PSARA program, as well asthe data sources that were used for the analysis. Section 2 will present the results on the current state of financial inclusion in Haiti and identify barriers to further deepening Digital Financial Services. Section 3 provides recommendations on how to incentivize the usage of DFS and suggests obstacles to be removed to facilitate access to such services. Section 4 concludes. ix 1. Introduction 1.1 Context 1.1.1 Social and Economic Development in Haiti Haiti is one of the poorest countries in the world, with approximately 60% of its population under the poverty line in 2020, and in 2022 over a third of the population was expected to face high levels of food insecurity. According to the World Bank Systematic Country Diagnostic Update report published in June 20225, the country’s development continues to face obstacles related to recurrent political instability, economic and governance mismanagement, high levels of violence, and frequent natural disasters. All four combined have created a vicious cycle of poverty and vulnerability that has trapped Haiti for decades. The low public investment and governmental capacity have translated into most of the basic services being provided privately, like water, electricity, education, and health, taking a sizable portion of people'sincome, which disproportionally impactsthe poorest households. For example, less than 40% of homes have access to electricity, and outside the capital, the average is 4-6 hours of electricity a day at uncertain times. Furthermore, poverty has been historically concentrated in rural areas, with subsistence agriculture and self-employment being the main economic activities. Women and persons with disabilities are persistently the most vulnerable sector of society, with 30% of the former being illiterate and less than half of the latter having ever worked. Haitians have proved resilient despite so much instability and shocks. Community networks, such as the VSLAs, have been at the center of social and economic development and have helped many households become more resilient against social and natural shocks, particularly in rural areas. Haiti’s diaspora has also become a pivotal element in facing multiple challenges; at least 10% of Haiti’s population resides outside the country, and over 70% of households in Haiti receive local and international remittances. 1.1.2 Financial Inclusion in Haiti In 2014, the country launched the National Financial Inclusion Strategy (NFIS)6 to develop an inclusive financial market recognizing its role in creating more income-generating activities, poverty alleviation, and economic growth. Despite many efforts in the past decade, financial inclusion statistics keep lagging, especially when compared with most low-income countries and the region of Latin America and the Caribbean722. 5 World Bank Group (2022). Haiti: Systematic Country Diagnostic 6 Alliance for Financial Inclusion, The Central Bank of the Republic of Haiti (2018). Haiti: Digital Financial Services 7 World Bank (2022). Global Findex 0 In 2016, due to the struggle to make meaningful advances, The Central Bank of Haiti and The World Bank launched a survey to better understand access and usage of financial services (this is the most recent survey conducted in Haiti that is nationally representative). This nationally representative survey, conducted between September 2016 and March 2017, highlights that only 27% of the population has access to a formal financial institution account; 22% of adults have savings or checking accounts, and 14% have a mobile money account. Not enough money is cited as the main reason Haitians state they don't have an account, followed by high fees and a lack of trust in financial institutions. When looking at disaggregated data, the survey finds that higher-income segments are significantly more included, with 40% of this population having an account at a formal institution, in contrast with just 15% of low-income households. Likewise, people living in urban centers are more likely to have an account than their rural counterparts, with 48% and 15%, respectively. As for men vs. women, 24.3% of the former have an account, while only 18.5% of the latter do so. Finally, more sophisticated financial products like insurance and investment are practically inexistent in low-income and rural households. When zooming in on usage, 85% of the Haitian population doesn't save, 57% have not used credit products, and only 35% expressed using remittances. The difference in formal vs. informal financial services usage within different population segments is also worth highlighting. Formal services, like savings and lending, are used by higher-income and urban segments, while the rural segments rely on informal versions of these products. When looking at Haitians who are involuntarily excluded from formal financial services this is primarily due to lack of physical access, inability to afford the products, or lack of the required documentation to open accounts. Those voluntarily excluded don't participate in the traditional financial markets mainly because of a lack of funds: most respondents argue that they struggle to meet daily basic needs and hence don't have any money left over for savings. This is particularly true in rural areas due to a lack of income-generating activities, where more than 75% of households report being self-employed or working in agriculture, which usually translates into low and volatile incomes. 1.1.3 The Adaptive Social Protection for Increased Resilience Project In response to the continuous economic and social struggles, on March 2021, the World Bank approved a grant of USD 75 million to the Republic of Haiti to finance the Adaptive Social Protection for Increased Resilience Project, or PSARA. The project aimsto support building a bridge between the urgent humanitarian aid currently needed and the foundations of a national adaptive social protection system. PSARA has two primary areas of support: i) the design and implementation of an unconditional cash transfer program for highly vulnerable households (named Klere Chimen); and ii) setting up the delivery systems for a shock-responsive social safety net program. Haiti's Ministry of Social Affairs and Labor (MAST) is responsible for its execution, with support from the WFP for the first three years of implementation. 1 As of April 2023, PSARA served over 22,000 vulnerable households in the 14 communes of Grand'Anse (this region was chosen given its high poverty and vulnerability rate, and susceptibility to natural disasters). The targeting is based on the ‘most-vulnerable’ HDVI group, i.e., the bottom 25%-30% of the welfare distribution and the demographic composition where households with children under age 5, pregnant women, or persons with disabilities are prioritized. The program targets adult women when possible. The benefit is planned to be disbursed monthly and varies between USD 35-70 depending on the demographic composition of the household8; the World Bank assistance is programmed to last six years. Klere Chimen – Unconditional Cash Transfers To support the mission of increasing resiliency, the safety net program has a component of financial inclusion that aims to educate and incentivize the use of DFS to promote the ownership and usage of mobile money, savings, formal lending, and insurance9. The ultimate goal is to provide these vulnerable segments with the tools to prepare for crises through savings, accumulation of human capital, smoothing consumption, and being able to adapt as needed. Given this focus on digital financial inclusion, beneficiaries were initially asked at enrollment to indicate their preference to receive the monthly transfers in cash or via e-wallets. In the early stages, most beneficiaries opted for cash in envelopes andwere reluctant to accept mobile money, even if they owned an e-wallet (only 5% of beneficiaries with a wallet initially accepted having the subsidies be transferred digitally). As much as 80% of beneficiaries interviewed by the BMGF believed their money was at risk of theft with these products10. Later, in November 2022, when the program faced severe delays in delivering physical cash due to security issues, and a national fuel and liquidity shortage, consensus was reached that any beneficiary with a valid ID and a phone would need to open an account with MonCash, to receive their funds digitally. The program also distributed Digicel (MonCash’s parent company) SIM Cards to all beneficiaries that didn’t have one already. In addition, all new beneficiaries have been oriented at the program’s enrollment stage about opening and using the e-wallet. In April 2023, 57% of beneficiariesreceived their payment through MonCash, and almost all beneficiaries cashed out the entire benefit. 1.1.4 Key Local Partners for PSARA Mobile Money Operators Since the spectacular growth of M-PESA in Kenya, policymakers worldwide have recognized mobile money's role in leapfrogging financial inclusion, especially in developing countries with nascent financial infrastructure. Haiti has not been the exception in taking note of this trend and has worked on developing the mobile money market in recent years. Digicel, the biggest Telco in the 8 World Bank Group (2021). Haiti Adaptive Social Protection for Increased Resilience Project 9 World Bank Group (2020). Digital Financial Services 10 Bill & Melinda Gates Foundation, WFP Project (April 2022). PSARA Beneficiary Baseline Survey Report 2 country, has led this charge with the creation of MonCash. Numerous studies, including many where PSARA is involved, have recognized the unique role MonCash can play in the supply and demand side of DFS, especially for program beneficiaries. Hence MonCash, so far, has been the only DFS partner of the program. HaitiPay planned to start operationsin May 2023, and it will work on expanding its merchant and bill payments services in areas where beneficiaries shop. NatCash is in early conversations with PSARA officials. From the supply side, as of March 2023, MonCash had 1.5 million users11 (roughly 15% of the population) and 242 active agents deployed in 12 out of the 14 communes in Grand’Anse12. A study commissioned in December 2021 to inform the PSARA program of the feasibility of using MonCash to route all cash transfers concludes that MonCash has adequate infrastructure in the region to distribute payments. Based on recent studies in Haiti13 and the PSARA Post Distribution Monitoring Survey, from a demand-side perspective, MonCash is highly trusted among its users and enjoys strong brand recognition in the general population. Furthermore, their digitalsolution has a simple and intuitive user experience that is well-understood by agents and customers14. Users also value the speed at which transfers are made, the security that an e-wallet provides, as opposed to carrying cash, and the ability to make transfers in response to financial emergencies15. Specific to women, they have seen additional value in e-wallets as it allows them to manage their money more independently, save discreetly, and empower them by providing them leverage in the household decision-making process. It is important to highlight that most transactions performed through MonCash are cash in/cash-out, and customers are not always directly using the App, but rather asking the agent to complete such transactions. Despite the readiness and willingness of MonCash to provide its services to beneficiaries and the excellent brand recognition from its clients, some barriers still need to be addressed for this solution to reach its potential. International studies stress the importance of building a far reaching network of CICO agents that are trustworthy, efficient, liquid, and profitable to have a well-functioning DFS ecosystem16. This is true for Haiti too; agent liquidity management, that is, the ability of the agents to balance deposits (cash-in) and withdrawals (cash-out), is one of the biggest challenges MonCash has, more so when benefits are distributed to all beneficiaries simultaneously. This is exacerbated in rural areas, where the program operates, as the ecosystem is not developed enough for agents to receive cash-in activities, like bill-pay or merchant payments, and the distances to rebalance cash needs are significantly higher and hence more 11 MonCash webpage 12 World Food Programme (2021). MonCash Feasibility Study in Grand’Anse 13 World Food Programme (2021). MonCash Feasibility Study in Grand’Anse and Bill & Melinda Gates Foundation, PAM Project (April 2022). PSARA Beneficiary Baseline Survey Report. 14 Brett Hudson Matthews (2019) Hidden constraints to digital financial inclusion: the oral-literate divide, Development in Practice, 29:8, 1014-1028, DOI: 10.1080/09614524.2019.1654979 15 Tavneet Suri, Jenny Aker, Catia Batista, Michael Callen, Tarek Ghani, William Jack, Leora Klapper, Emma Riley, Simone Schaner, and Sandip Sukhtankar (2023). “Mobile Money” VoxDevLit, 2(2) 16 CGAP (2019). Agent Networks at the Last Mile 3 costly. Another more general constraint they face is that Digicel antennas have sporadic interruptions, bringing the MonCash system to a halt. Customers also face difficulties accessing their e-wallets when they cannot charge their phones due to a lack of access to electricity. Village Saving and Loan Associations VSLAs are uniquely positioned to advance financial inclusion in Haiti given how they have risen in popularity as a response to the lack of formal financial services available to low-income and rural customers. Both the Grand’Anse study and the baseline survey of BMGF find that community banking is the most popular financial solution and is the most trusted “provider” by the community17. However, legal and regulatory standards consider their access and usage informal. Introduced to Haiti in 2010, VSLAs are finance community groups that, in little over a decade, have grown to at least 10,000 with around 250,000 active members: in 2022, more than 1,000 VSLAs were identified in Grand’Anse (see appendix for further details on PSARA’s VSLA diagnostic survey, digitalization, and capacity building initiatives). Like many other Self-Help Groups(SHG) worldwide, people gather to save together and take turns borrowing funds. Haiti has an additional category, the Solidarity Box, where members contribute to an emergency fund to support any members facing difficulties. The groups vary between 25 and 30 members who have similar objectives, and 71% are composed of women18. The group cycles usually last one year, and some can reach capitalizations of USD 10,000. The operational activity is elementary and manual (not digitized), where cash is kept in boxes and transactions are recorded in books. Recognizing the importance of VSLAs in Haiti, and the potential they have in creating the desired savings behaviors and building resilience, one of PSARA's components aims to support these groups from an operational perspective and encourage them and their members to use DFS. As part of the capacity-building work stream, the program targets existing and new VSLAs, where PSARA beneficiaries participate, and trains them to strengthen their capabilities to: ξ Increase the financial security of households through the provision of mechanisms and financial resources accessible and adapted to their needs. ξ Provide VSLA members access to credit for investment purposes and to be able to respond to personal emergencies or shocks. ξ Create a space for discussions on topics related to gender roles in decision-making regarding household resources, money in the home, and the importance of harmony within the home for financial well-being. It should be highlighted that only 2% of VSLAs have an account at a formal financial institution. This brings many disadvantages, among which are higher risks of theft or loss of funds due to 17 Bill & Melinda Gates Foundation, PAM Project (April 2022). PSARA Beneficiary Baseline Survey Report and World Food Programme (2022). Analysis of barriers to digital financial inclusion and economic empowerment of women in Grand'Anse. 18 Results of the formative study on financial inclusion for PSARA/ Klere Chimen 4 natural disasters, as well as it can be a missed opportunity for formal providers to access the financial behavior of individuals or use the funds saved as collaterals, which can help them build a credit history and in turn the possibility of accessing formal financial services. In recognition of the role that VSLAs play in their communities and their lack of connection for formal financial services, there are existing initiatives to digitize the VSLA's record keeping and transactions. MonCash and NatCash provide group money accounts for these groups, while FINCA and HaitiPay are testing their methodologies. Most often, the groups are given tablets or smartphones to their loan officers, who record customer data and then transmit it to the platform, which allows transactions to be monitored and can eventually lead to access to capital of formal financial institutions or create a credit history for individuals that can then help them access more traditional financial products19. 1.2 Research Background The analysis primarily focuses on the data derived from the PSARA baseline survey. To supplement the survey, the report uses the Human Deprivation and Vulnerability Index constructed as part of the SIMAST social registry, the VSLA diagnostic survey, and the Post-Distribution Monitoring (PDM) surveys from beneficiaries that received the payments in cash and those who used MonCash for funds disbursement. 1.2.1 PSARA Baseline Survey The PSARA project incorporates an impact evaluation study to rigorously measure the impact that Klere Chimen interventions will have on beneficiaries and inform a potential program scale-up. This report will use its baseline survey as the primary resource for analyzing the current financial inclusion landscape in the beneficiary population. Two questionnaires comprise the survey: i) Households and ii) Women and Children. Both were collected in two enumerator field deployment stages: the first was completed between July and August 2022, and the second one from November to December 2022. Informed by statistical power calculations, a sample of households was drawn from the social registry SIMAST. The households were drawn around (on each side of) the INPV score threshold determining eligibility for the Klere Chimen program. A household reserve list was created for situations where households were absent or refused to participate in the survey. The survey is, therefore, not representative of the whole Haitian population or the population of the Grand’Anse department. Instead, the sample was defined to be able to estimate best the welfare impact of the Klere Chimen cash transfer program on beneficiary households. The size of the survey is nonetheless large enough to generate informative statistics on the vulnerable population targeted by the program. This analysis will consider 11,684 responses from beneficiaries, adult women that live in the same household, and adult heads of household (male or female). 19 VSLA training manual 5 Each household member had to complete the demographics section of the household questionnaire. The head of household completed specific sections, including questions on access and usage of financial services. Furthermore, all the women in the household answered the Women and Children questionnaire and included a section on financial inclusion, and so, the responses of the analysis included the responses of all the women of the household, and only the responses of men who are the heads of the household. Whenever the head of the household was a woman, they only answered the financial inclusion questions of the household questionnaire to avoid duplications. The analysis pools the data of all beneficiaries; that is, the is no differentiation if more than one respondent belongs to the same household. It does not consider potential intra household dynamics affecting financial inclusion or other relevant variables, such as mobile ownership. The financial inclusion questions focus on access to FSPs accounts and MMOs e-wallets, and usage indicators are based on savings, payments, and borrowing. Finally, the questionsinclude "why not" sections relating to account ownership, savings, and credit that complement the analysis of barriers to accessing products and the perceived quality of the services. The questionnaires also explore beneficiaries’ participation in VSLAs. Demographic variables such as gender, age, geolocation, education, and economic activity will be used to compare the levels of financial inclusion across the different segments. In addition, the literature suggests that characteristics such as mobile ownership, ID, receiving remittances, and having previously received social assistance positively affect financial inclusion. Therefore, the analysis will also include these variables. Finally, the vulnerability level of the household can also affect the level of financial inclusion; the report will also explore evidence of this. 1.2.2 SIMAST Social Registry Survey The MAST’s social registry, named the Information System of the Ministry of Social Affairs and Labor (SIMAST) and conceived in 2014, is the main government database of households in situations of deprivation and vulnerability. As of November 2022, the SIMAST covers about 25% of the Haitian population. The report will use this data to match the beneficiaries in the baseline survey with the level of vulnerability of their households20. 20 The SIMAST methodology generally relies on municipality census sweeps to collect demographic and socio economic data. After data is collected, a proxy-means test (PMT) algorithm is run to determine the Haitian Deprivation and Vulnerability Index (HDVI). Based on 20 socioeconomic and demographic indicators, the index classifies households by degree of vulnerability into four categories: non-vulnerable, less-vulnerable, mid vulnerable, and most-vulnerable. 6 1.2.3 Post Distribution Monitoring Surveys (e-money and cash disbursements) The PSARA program conducts Post-Distribution Monitoring (PDM) surveys for a random sample of e-money and cash disbursement recipients after payment cycles. The PDM e-money surveys are used to monitor the uptake of DFS (beyond cashing out the subsidy) and the quality of MonCash’s service and its agents. The surveys used f