Around the world, the COVID-19 pandemic has changed the way we think about life and work. India remains in lockdown as field operations have been shut down and work-from-home is implemented across the board. Much of the fintech startup ecosystem will have to wait and watch to see how the situation unfolds after the official lockdown is over.
However, some early trends signal what is in store:
Digitalization wave
We will see digitalization happening across the board, from processes, to how employees interact with each other, to how the banks, fintechs, and other players reach their customers. Let us look at a few examples:
Functioning of microfinance institutions (MFIs) and non-banking financial institutions (NBFCs): MFIs and NBFCs have traditionally been driven by physical methods of cash collection, physical verification and onboarding of new customers. With the new normal of curtailed physical interactions, these institutions will seek ways to transform their physical and manual processes into automated and digital ones. They will look toward fintechs, especially start-ups, as they can support the MFIs and NBFCs in making this change with lower costs and quicker turnaround.
Agricultural practices: The COVID-19 pandemic will affect the incomes and modes of payments of farmers. In India, agricultural practices are largely labor-intensive and manual. This applies to tilling, plowing, sowing, and harvesting. Farmers also need to physically visit lenders—private money-lenders in most cases—and must get cash to revisit and repay their loans. The farmers, especially small landholders who have feature phones and even smartphones generally use them to consume entertainment content. We anticipate a big change coming here. Due to the restrictions imposed because of the pandemic, many lenders will embrace the idea of digital payments and farmers will thus be aligned to do so as well. In the coming months, digital payment collections should see large-scale adoption in rural areas through methods, such as UPI, IMPS, and auto-debit facilities, such as NACH.
E-commerce and its effect on payment fintechs
A major bulk of revenue for fintechs that work in payments comes from transactions in the e-commerce industry. E-commerce platforms like Flipkart and Amazon India sell a mix of non-essential and essential items. Because of the COVID-19 pandemic, these online retailers have recently stopped selling non-essential items in the short to mid-term, or between a few weeks and a few months. Since the essential items that are now sold on these platforms have low margins, the private digital payment companies or payment fintechs in India will see their revenues shrink. This will be because their margins ride on the volumes and values of transactions. With essential services being sold more frequently, despite higher volumes being sold, the effect on the margins on these low-priced goods will have a more drastic impact on their revenues.
Hit on short-term savings
With the uncertainty around the availability of food and essential items in the market, many people will switch from savings to keeping money (cash or digital) readily available to spend at short notice. This behavior will lead to a decrease in the usage of short-term savings instruments for the near future.
Survival or not
As private investors get jittery over making any new investments, they are trying to first selectively invest any available money to protect companies in their portfolios in this hour of crisis. Hence, fintechs with weak business models that rely heavily upon investor money will fizzle but the ones with solid though smaller revenue models, especially the bootstrapped ones will have a good chance to come to the fore, provided they have or can build their runways for the next 6-12 months at least.
What can be done to help the fintech ecosystem?
In these times when the future of business is uncertain and survival of fintechs—especially startup fintechs—is doubtful, the government can play a pivotal role in supporting them. How? For instance, the central and state governments can give tax breaks, tax holidays, or other incentives to the banks and financial institutions who utilize the technology strengths of fintech startups in digitalizing their processes—especially in the priority lending sector. As discussed earlier, many NBFCs and MFIs still have either manual processes or rely on archaic technologies. They have never prioritized upgrading to more automated software systems. Yet now is the perfect time to help them do it as they look at ways to grow their businesses with a minimal workforce.
We have all seen, with mounting horror, the health and economic impacts of the Covid-19 crisis as they have unfolded globally over the past months. Unlike any crisis before, we face a challenge in that traditional humanitarian responses may not work. This crisis is unique in affecting large parts of the world at the same time, and responders who would usually be organizing ground-based efforts to specific locations and populations are themselves in lockdown, and often stunned by the scope and scale of the needs to be addressed.
We are having to work out, in a very short amount of time, how we offer humanitarian relief and solutions to these problems, and how we do this from a distance. Most are turning to digital platforms such as DFS (digital financial services) as the answer. Many donor organizations are immediately looking to replicate reactions from elsewhere in the world by organizing massive G2P (government-to-person) payment programs to alleviate missing incomes and are looking to use DFS and mobile money to execute them.
At MSC and Caribou Data we wanted to see how we could contribute to making these programs more successful, and we asked ourselves how we can, also from a distance, use our experience and platforms to understand what the situation for mobile money and banking agents is on the ground in Kenya. We wanted to understand how they’re coping with lockdowns and curfews, social distancing and hygiene, and reduced hours of bank opening. We wanted to understand how cash flow was changing, whether liquidity was becoming an issue, and what the experience of being at the very physical frontline of a digital banking system felt like for an agent in these troubled times.
After a brief discussion, we dove directly into a research sprint, using near-live data from the Caribou Data platform and MSC’s extensive contacts within agent networks to attempt a seven day research process to understand what’s going on within these agent networks. We drew quant data from over 1,000 users in a demographically representative panel to see what real cash flows were over time, and we spoke to 20 agents, one super agent and five bank agent supervisors with a simple structured questionnaire to get a sense of the experiential issues of being on the frontline of money distribution.
Our full findings are below in this report, but in summary our findings show that:
DFS wallet balances are volatile, with an initial cash-out spike evolving into a pattern of reduced overall transaction volume but increases in transaction size, with the net effect of a halving of average wallet balances since the crisis started.
Agent commissions have halved, putting pressure on their own livelihoods, and increased transaction sizes are making liquidity balancing harder and harder.
Hygiene advice is poorly communicated to agents, if at all. Without clear advice, guidance and protective equipment, agents are at risk to themselves and their customers.
We recommend that the central role of agents as frontline workers in this crisis be recognized and supported, particularly as they will be crucial to managing cash out and liquidity as DFS social payment schemes are rolled out across large numbers of the population
Further detailed research on DFS agents’ experiences in the Covid-19 crisis is available from MSC here. We plan to investigate more areas for future research, such deep dives into gender, urban/rural differences and other countries such Ghana, South Africa and Bangladesh. We welcome other organizations support and ideas for future research topics – contact us at covid19@cariboudigital.net
In the wake of the COVID-19 pandemic, the global economy will be impacted by USD 1 to 4 trillion, depending on the agency you want to believe. What underlies the statistics? What is the impact on agriculture and microenterprises?
Preliminary qualitative research on the impact of India’s lockdown provides important indicators on what is to come. For most people in India, lockdown means home confinement. Exceptions include government officials and a few services deemed “essential”. All public transport—road, rail, and air remains suspended, while private transport is heavily regulated.
In this article, we have grouped microenterprises into four major categories.
Agriculture and allied activities
Corner shops and services
Manufacturing and production
Transport
At a high level, this is where they are, and the position will change—you bet!)
Impat of COVID-19 on business
Read on for a more nuanced and detailed understanding of agriculture and allied sectors and the corner stores and services sector.
We have split agriculture and allied sectors into three subsectors:
Animal husbandry and dairy: Farmers in this sector rear cows and buffalos to collect and sell milk. They form a significant part of the portfolio of microfinance institutions (MFIs) and banks, and have both an urban and rural presence. These farmers rarely sell milk directly to consumers. An intermediary or milk collection agents collect the milk on behalf of large dairies, such as Parag or Amul. In the case of intermediaries, they sell milk in the market and retain a margin. The farmers are paid less, but the payment is regular.
As of now, even though the consumption of milk has reduced (remember, the sweet shops and restaurants are largely closed!), the intermediary has been buying all the milk, selling a part of it and converting the rest into ghee (clarified butter). However, since the clarified butter cannot be sold at the pace at which it is being produced, the intermediary will not be able to pay the farmers for long— their cash flows are being affected. Hence, the dairy farmers will see a greater impact in the days to come—only so much milk can be converted into ghee and milk powder!
Indian poor farmer
Implication: As a first step, the government should prevail on large dairies, especially those in the cooperative sector to continue buying milk from the market, convert it into ghee or milk powder and keep paying the farmers. The rural economy will be severely impacted otherwise.
Crop farmers: Most farmers in India or around 70% own less than one hectare of land, which is below the subsistence level. Such farmers depend on MFIs for credit— this also includes landless farmers who rent land every season and cultivate. As of now, vegetable farmers are not impacted, and indeed are seeing an upside as prices of some vegetables, such as potatoes, have risen amid fear of scarcity. Farmers who cultivate staples are still on the edge—they are either harvesting their crops or have harvested their crops and are waiting to sell the produce.
Somewhat apprehensive, they are still hopeful that the administration will arrange to sell their produce in the market and they will realize a good price. In contrast, farmers engaged in flower cultivation are badly impacted. The demand for flowers has plummeted as temples and places of worship have shut down alongside flower retailers.
Implication: Mandis, which are wholesale grain, fruit, and vegetable markets, have to remain functional and farmers have to be provided transport for their produce. Farmers, especially those with mature crops should be allowed to harvest and get their grains to the market. The availability of farm labor is an issue, but the farmers will likely sweat it out in the field, with their family, to harvest standing crops. If the state can facilitate the journey from the farm to the market, we might see the current rural stress reduce somewhat. Otherwise, not only will the farmer be unable to repay debts, the next crop cycle will be impacted. Also, food grain prices will increase if the produce does not make its way to the markets.
Agri trading: This includes trading of grains, animals—cow and buffalos, seeds, fertilizers, and fodder shops. Seeds, fertilizer and fodder shops see moderate to low impact. In any case, it is early days for the demand for seeds and fertilizers. However, trade in animals has been affected seriously because the movement of goods is restricted.
Implication: The government will need to allow movement of agri essentials—seeds and fertilizer to keep the supply chains moving—both to provide inputs to farmers and to maintain food supplies. Although state governments have been vigilant in this aspect, the economic equation of demand and supply remains at play, and food grain prices have started to increase. In an atmosphere of hoarding induced by fear, it will be a herculean task to maintain normal food prices. Let us hope a good harvest can control price escalation.
Corner shops: Petty businesses, largely street shops and vendors play a critical role in the local economy. Except for those selling essential goods such as groceries, vegetables, and medicines, all other businesses are severely impacted as they are under forced lockdown. Those in the grocery business may be making a little extra money—or at least someone in the value chain is pocketing the extra cash that consumers are being made to shell out as prices begin to increase. On the brighter side, this segment of corner shops will be the first to bounce back once the lockdown ends. Though revenues may remain muted for some time, cash flows will resume as recovery gains ground and cash begins circulating in the economy.
Implication: Replenishing supplies at corner stores will call for more working capital. Will banks and MFIs have the liquidity to meet this need? A lot will depend on the relief package from the Government of India and the Reserve Bank of India. As of now, a three-month moratorium, which does not apply to NBFCs—the mainstay for these corner shops—is grossly inadequate. In case the informal economy is to survive, RBI will have to announce a six-month moratorium and include NBFCs and NBFC-MFIs as beneficiaries of the repayment holiday. How else will money flow into the informal economy?
Corner shop in India
Services: All activities under the services category are severely impacted. Either the demand for services has reduced or access remains an issue, or a combination of both continues to plague services. However, here again, recovery will be quick once the lockdown ends. MFIs and banks have moderate exposure to this segment and its loan requirements are not significant. In most cases, the person or entrepreneur is selling their skills.
Implication: These businesses may or may not need additional working capital. In case a loan is outstanding, stagger the repayments and increase the repayment period. The trickle of customers into these service outlets will build up gradually. Revenues will remain muted for some time to come. Spread the tenure of loans and—pray!
Mohammad Islam runs a small grocery shop in Dhaka. Like many, he was aware of the COVID-19 crisis unfolding in China. Yet he could never anticipate the pandemic would hit him and his business so fast, and so hard. Since the Bangladesh government announced a national lockdown, Mohammad Islam has seen his revenues decline by 20%. Thankfully, his business falls in the “essential services” category. He is allowed to open his shop albeit for limited hours. However, his stock levels have been depleting and supplies remain unpredictable. He thinks small traders like him, particularly those whose businesses are shut completely, will suffer the most. These businesses are also least likely to receive support from anyone, including the government. “The government plans packages for large businesses and the poor—nobody thinks about us”, ruminates another small trader in Nagerhat, Bangladesh.
Policy measures will be needed to minimize the impact on micro and small enterprises (MSEs) like those managed by Mohammad Islam. This case is symptomatic of the position of MSEs across low- and middle-income countries. These businesses are more vulnerable because they have limited cash reserves. And of course, business cash flows are fungible with household cash flows and vice-versa. They have rents to pay, typically make a significant proportion of sales on credit, and rarely use formal financial products.
Since the pandemic, the realization of sales proceeds on credit has crashed even as revenue continues on a rapid, downward trajectory. This will have an impact on the survival of MSEs in the short to medium term. Such businesses are un-registered, which makes it even more difficult for policymakers to target them effectively for support.
In this context, MSC kick-started a three-stage research exercise across eight countries in Asia and Africa to understand the nature and extent of the impact of the COVID-19 pandemic on micro and small enterprises. The research will gather evidence to inform policymakers to devise short–term, medium-term, and long-term support for such micro and small enterprises. The research will also inform MSE-focused financial institutions and their investors on remodeling business strategies to address the evolving needs of such enterprises better.
The early evidence from our research provides important insights that policy makers and other key stakeholders should consider as we prepare for recovery and rebuilding.
Most micro and small entrepreneurs believe that it will take at least another three months to normalize businesses, once the pandemic has been contained. Businesses that had purchased inventory immediately before the lockdown are the most affected.
Data from 57 of Stuart Rutherford’s financial diarists, all of whom are from low- and middle-income households, in Hrishipara in Bangladesh, highlights a sharp decline in income and expenses immediately after the national lockdown. The Hrishipara Financial Diaries provide invaluable granular details on the lives of the poor and the impact of COVID-19. They show that income per household per day has currently dropped to BDT 100 (USD 1.18). Their expenditure has consistently been larger than income during the period, suggesting that household reserves are being eroded steadily.
This decline in economic activity and erosion of savings at the household level is likely to reduce demand, which will further have an impact on micro and small businesses that serve these low- and middle-income households.
Household Income and Expenditure graph
The story is similar in Indonesia, where the availability of credit from suppliers has started to dwindle, affecting the liquidity position of micro and small enterprises. “Before the Corona pandemic, my wholesalers allowed me to buy goods on credit. The pandemic has resulted in scarcity, and the wholesaler has stopped extending credit for products that are in high demand, such as vitamins, paracetamol, antibiotics, and flu medicine”, said a small pharmacy owner in urban Jakarta. He went on to add that wholesalers accept nothing but cash payment for these products. Restrictions have also been placed on the volume that can be stocked to avoid hoarding. “For other products that are not so much in demand, the wholesaler is still willing to give credit for one month”, he says.
Financial Diary of a village shopkeeper in Bangladesh
While credit from wholesalers is drying up, MSEs are finding it difficult to realize cash from credit sales that they have made to their long-standing customers. “I give items on credit to many of my repeat customers—most of whom are daily wage earners. These customers used to pay me in cash on a weekly or monthly basis. However, because of the lock-down, people are not allowed to move freely and the amount owed to me is mounting. I am now worried whether I will ever realize my dues,” rued a small retail trader of tobacco and bakery products in India. Despite the challenges, some grocery retailers in India feel obliged to provide credit to their existing customer base, further adding to their liquidity crunch.
Given the evidence so far, a comprehensive policy framework to support micro and small enterprises will be essential. Many governments have responded with specific measures, such as a moratorium on the repayment of existing loans by MSMEs. However, these are at best, short-term solutions. A more nuanced approach will be needed going forward. Otherwise, the survival of most MSEs will be open to question.
A policy framework to accelerate the recovery of micro and small businesses should achieve the following objectives:
Address the immediate shock in cash flow
The liquidity crunch has severely affected microenterprises, particularly those managed by low-income families. They need immediate cash assistance to manage short-term cash flows. A cash transfer spread over three to six months will help these enterprises address the immediate shock in their cash flow. The volume of such cash transfer should cover the basic monthly expenses of the household.
Support enterprises to reduce expenses
Governments may consider offering direct subsidy to micro and small businesses through a waiver of utility bills. However, such a waiver should be tier-based to prevent wastage and overuse. “Electricity and water should be available for free for up to three to six months so that we can cover our losses. This might help us a little. Otherwise this year we do not know what we will earn and what we will save,” said a manufacturer of printing machinery in India.
Take proactive measures to boost sales and augment supply
Even amid the national lockdown in several countries, businesses classified as “essential services” are allowed to function with certain restrictions. The government, particularly local authorities, should work with such enterprises to ensure they can sell their goods without any fear of forced closure of shops. Our research shows that the police response across and within several countries is variable—some allow stores to remain open, while others insist that they shut.
Also, local authorities should permit and promote enterprises that offer home delivery services to support their sales.
Policy-makers should also focus on improving supplies. The value chain that gets raw materials and goods to MSEs must function effectively. Evidence from grocery stores in our research sample from India suggests that while the supply of food grains is robust, the supply of packaged food and other non-food essentials, such as toiletries and personal hygiene products is limited. This may be because the manufacture of such products has stalled or due to the closure of state borders, which restricts the movement of goods.
Promote the adoption of digital payments and the use of social media
Many entrepreneurs, especially in India, have been taking orders over WhatsApp. Customers enter the items they want or send a picture of their hand-written shopping lists. Digital payment options like Paytm and GooglePay facilitate home delivery options. The government should promote social media and digital payments as it helps social distancing even as business can be carried out. Governments may partner with private sector players, such as digital payments firms and social media platforms to enhance both personal hygiene communication and the development of the digital ecosystem.
Increase access to credit
The moratorium on existing loans to MSMEs, where allowed, will help address immediate challenges in liquidity. Nonetheless, those businesses that are allowed to operate during the lockdown will be able to repay their existing loans. However, they will need assurance that they will get additional credit once they complete their repayments. Therefore, policymakers and financial service providers need a nuanced, rather than a blanket approach.
Digital lenders that offer working capital assistance based on cash flows may be positioned better to offer instant credit delivered remotely. Any repayment moratorium on loans to enterprises should be based on the recovery cycle and the cash flows as they build-up. Similarly, a moratorium for those entrepreneurs who take loans after the initiation of lockdown should be reconsidered, so that lenders have the confidence to advance credit to businesses that are still functioning. This will help maintain credit discipline while maintaining some business revenue and liquidity for financial institutions offering loans to such enterprises.
Financial institutions are also part of a value chain. Unless those that extend wholesale credit to MSEs, such as microfinance institutions, get similar repayment moratorium, the liquidity position of frontline financial institutions will be affected. Hence, repayments have to be reworked across the credit supply chain.
The government should also use the opportunity to boost efforts to formalize micro and small businesses to deliver some of these policy outcomes effectively. This may require confidence-building measures among the micro and small enterprises and for MSEs to realize the benefits of formalization. The question remains — what are these and how do we communicate them effectively?
The Finance Minister of India announced a relief package worth INR 1,700 billion (or USD 22 billion) on 26th March, 2020 primarily to shield the poor during the on-going COVID-19 pandemic. Among several measures, the Finance Minister announced that approximately 200 million women account holders of the Pradhan Mantri Jan Dhan Yojana (PMJDY) would receive a credit of INR 500 (or USD 6.5) in their PMJDY accounts, monthly, for three months. The government relies on a cadre of a million-plus business correspondent agents, or cash-in/cash-out (CICO) agents, to ensure that the cash reaches the intended beneficiaries. Of these CICO agents, 60% are located in rural areas.
Governments the world over depend on CICO networks to deliver cash assistance in case of calamities. Between November, 2013 and February, 2014, using CICO agents, the Philippines government was able to quickly release USD 12.5 million of cash support for families affected by the Yolanda typhoon. The US government also utilized direct electronic transfer to offer cash assistance to communities during the Ebola epidemic in West Africa.
Given the importance of CICO agents, MSC is currently conducting a study to understand the impact of the COVID-19 pandemic on their businesses across eight countries in Asia and Africa. Specifically, we want to understand the impact on the demand for financial services through agents, agent operations, and their ability to support government cash transfer programs. We have also partnered with Caribou Digital to undertake a deep dive in Kenya.
Early evidence from our research points to the unique challenges that agents currently face and highlights the need to support them through favorable policies.
Dwindling demand for cash-in/cash-out
Fino Payments Bank, which has a network of over 100,000 CICO agents in India, reported an 80% decline in the volume of domestic remittances. This is likely because migrant workers, the key remittance senders, have returned to their homes once small businesses closed due to the nationwide lockdown. Worse still, they are stuck in large urban centers without any means of livelihood.
CICO agents in Kenya and Uganda also report low footfall due to social distancing and lockdown. “Business has always been good as I am strategically located in a high-traffic area and operate two outlets. But with the current situation, I have been forced to close one outlet because there are no customers”, says a CICO agent in Kenya. See our work with Caribou Digital for a more granular analysis of this based on quantitative data on transaction volumes and values at agents, and a series of additional qualitative interviews with agents.
In Indonesia, since the government offered relaxation on payment of utility bills, the footfall at agent outlets has reduced by up to 70%. “Because of the government’s waiver of the electricity bills, there are almost no electricity payments for March, 2020. Clients are happy, I am not”, says a rural CICO agent in Indonesia.
The operations at CICO outlets across all the geographies studied continue to remain affected. In many countries where lockdown is imposed, law enforcement agencies are not allowing agents to operate. Many agents are also reluctant to open their outlets fearing that exchange of cash may lead to transmission of the disease. Customers are demanding a level of hygiene from agents, else they will not transact at the outlet.
Liquidity management challenge has aggravated
The liquidity management challenge is more pronounced in India due to the upsurge in cash-out transactions in rural areas. Several factors have made rebalancing cash difficult. These include the sudden demand for cash, restrictions on movement—even when CICO agents are exempt, the distance to bank branches that are often as far as 10-12 kilometers, shutting down of public transport, and lack of personal transport options for agents. The low daily transaction limit also means that the agents need to make multiple visits to the bank to rebalance. In some countries, agents have reported reducing their investment in liquidity to use the money and feed their families.
CICO agents in India
Agents have taken measures to cope with the pandemic
Focus on low physical touch in transactions
In Kenya, some agents are encouraging customers to use the “bill pay” function to make their purchases, despite the loss of commission on cash-out. In Indonesia, agents have also been prioritizing payment modes that involve “less physical touch”, such as using mobile phones over “physical touch-heavy” modes, such as biometric and PoS.
“I only use the POS machine to disburse G2P payments, not for regular transactions. I want to minimize any chances of disease transmission from touching the POS machine, debit cards, or food packages. For regular or daily transactions, I have been using the mobile application of the service providers instead of the POS device”, says a CICO agent in semi-urban Makassar, Indonesia.
In India, a few agents had voluntarily shut their outlets as their operations involved using tools and devices that required physical touch, such as POS devices and debit cards.
Strict adherence to social distancing and hygiene
A few rural CICO agents in India moved operations away from their homes, where they would usually conduct transactions, to the offices of the local government to limit exposure of their families.
Some of our respondent agents across all eight countries also reported using masks, gloves, and hand sanitizer and maintaining appropriate distance with customers while running their operations. In Kenya and Uganda, customers themselves demand that agents ensure preventive measures are undertaken. “Some customers are asking for the physical cash to be sanitized and some will not even enter the shop if they do not see a sanitizer on the counter. Customers are doing their part and taking precautions”, notes a CICO agent in Kenya.
CICO agents in Kenya & Uganda
Use of social media
CICO agents in Indonesia have started using social media for promotions. This has yielded some positive results as agents report that the daily customer footfall has started to increase.
“My business volumes have dropped up to 70-80% after Corona. I am making efforts to revive it by doing a lot of promotions on my Instagram and Facebook accounts. I have been able to attract between one to three new customers per day because of such promotions”, says a CICO agent in urban Jakarta.
Policy framework to support CICO agents
In many countries, the effective functioning of agent networks will be key for the governments to deliver cash support payments to the most vulnerable segments. Several governments have taken measures to help CICO agents offer uninterrupted service. The Government of India classified CICO agents under “essential services”, which allows them to operate even during the lockdown. The Bangladesh government increased the daily cash limit to facilitate high-value transactions at CICO outlets. Kenya increased cash limits and persuaded mobile money providers to waive fees.
However, many governments have announced and disbursed cash support payments with little warning and without considering the needs of agents in terms of crowd management, liquidity, and personal hygiene. There is a real risk of the cash support disbursed by agents becoming the vector for the disease to enter into vulnerable communities. Governments and mobile money operators will need to inform and train agents as role models for appropriate social distancing, hygiene, and protective behaviors. Monitoring mechanisms will have to be implemented to ensure compliance by agents. However, we are yet to see evidence of this. CICO agents are essential frontline workers. It will be good if governments and financial institutions equip them for this role.
Governments must work quickly with MNOs and banks to develop and implement a comprehensive policy framework to support CICO agents. The policy should include the following measures:
Classify CICO business as an essential service. Since CICO networks are at the forefront of delivery of direct benefit transfers (DBT), the government should classify them as “essential services”. This will allow them to continue operations and help reduce the burden on traditional banking channels and prevent overcrowding. It may be time to review existing policies in countries such as Nigeria and Indonesia, where regulations limit the activities and reach of some types of agent networks or in countries such as Kenya, where G2P payments are made exclusively through bank agents.
Focus on the health and safety of CICO agents. Together with banks and financial institutions, the governments should offer life insurance cover to CICO agents working during the pandemic. Agents should be provided with an adequate supply of masks, gloves, and hand sanitizers to safeguard them against the transmission of the disease. Agents should receive adequate training to ensure they understand the preventive measures, follow these when conducting transactions, and become role models for their customers.
Offer special remuneration. The government should also offer enhanced commission payments for CICO agent networks that disburse cash support payments. Such remuneration should be linked to the performance of the agents to incentivize them to maintain adequate liquidity for the increased withdrawals in countries where governments have extended grant support. Governments should make the withdrawal of G2P payments economically viable for agent networks. Solely relying on the goodwill of banks and hard-pressed frontline agents can work in the short term but in the long term, it may lead to client harassment or overcharging, or both.
Ensure better coordination across government agencies and service providers. Evidence from India and elsewhere suggests that while the government allows agents to operate, local law enforcement agencies are not aware and agents have often been forced to shut their outlets. Government authorities should work with service providers to ensure up-to-date information on all necessary permissions to operate are communicated to the relevant authorities.
Actively provide liquidity management support. Governments should stagger cash support payments and service providers should take up the role of cash rebalancing actively to minimize the need for agents to travel. The government should also compensate service providers adequately to offset the additional cost incurred on liquidity management for agents.
[As things unfold and the world gradually moves to curtail the pandemic, watch this space for a series of blogs that analyze the experience and behaviors of CICO agents. Meanwhile, MSC is keeping a close eye on the ground to provide policymakers, banks, and agent network managers with evidence-based analysis to aid decision-making.]
The pandemic has pushed humanity against a wall. Economies both formal and informal seem to be falling off the cliff. These are indeed unprecedented times and hardly anyone alive today has experienced anything that comes even close in terms of scale. We have to admit that our perspective is limited and it will take some time to understand the scope and scale of the impact.
This reminds me of a meeting with Rubina at Dhaka, Bangladesh. These were pre-COVID-19 times and Rubina headed a typical low-income household where she faced and managed multiple challenges. Her husband had left her, she had persistent health issues, and her son had lost his job. As a result, Rubina suffered from emotional stress and had no money. The story of Rubina, or its variant, will now be the story of billions of low-income households across the globe.
Financial distress is not unheard of in low-income households. However, we are now facing a blast situation across a billion households which has turned into an acknowledged economic pandemic. Do policymakers have the resources and the data for effective countermeasures?
Knowledge, attitude, and practice
Knowledge regarding the disease is in of itself a big impediment. Two months after the WHO’s announcement of the pandemic, many believed that the coronavirus will not impact them. WHO has rightly pointed out that the pandemic is also an infodemic with an abundance of misinformation. Low-income individuals are not immune to this problem. MSC has heard the following statements as part of our ongoing knowledge, attitude, and practice (KAP) survey across several countries:
“I have increased my intake of waragi—a crude local gin. I was told that the virus cannot attack a body that is saturated with waragi,” said a person in Uganda.
“If you have never left the country, how can you get infected with the virus?” asked a person in India.
“If you walk barefoot, the virus will not attack you,” said a person in Uganda.
“All one needs is to maintain immunity. The virus cannot impact a healthy body,” said a person in India.
“Runny nose is the symptom of coronavirus infection,” said a person in Bangladesh.
“Coronavirus is a problem of the heart. We’ve been too busy to spend time with God,” said a person in Indonesia.
“I know there is a helpline number but I do not remember it offhand,” said a hawker in India.
“I don’t know where the hospital is [for coronavirus] because I just came [from Manado],” said a woman in Indonesia.
“This is a very fatal infection but that is all I know,” said a person in India.
Nonetheless, some valuable information is getting through. The fear that the disease spreads through the exchange of currency notes is real. In Uganda, some people are keeping the leaves of a neem tree with their cash to disinfect it. Others are washing their currency notes. In almost all countries, many people adhere to the government policies on social distancing or curfews. However, some individuals are against these restrictions and question their efficacy.
We do not know the on-ground health situation in detail since health reporting in developing countries is patchy at best. MSC firmly believes that a feedback loop of evidence-based information must provide the basis for the development and deployment of effective communication and hygiene campaigns. To enable this, we have partnered with a range of government ministries and financial services providers.
The household economy
In addition to the assessment of KAP, our studies will explore the changing household economy as well as the role and experience of women in these times. We will also examine the coping mechanisms of poor households. Workers in the unorganized sectors are, at best, earning a fraction of the money they used to receive, if at all. Even those economic activities that have not come to a standstill, such as dairy, horticulture, corners shops, and vegetable or fruit shops are hampered by broken supply chains and rising competition. It is difficult to say if they will get enough fodder, enough insecticides, or enough FMCG supplies in the weeks to come.
The pandemic is also the first real crisis for the gig-economy. It is very important to understand the impact on gig workers who do not have a social security net. How is the emergent digital economy faring in this pandemic? These are all questions we need to understand.
“If this lockdown lasts for another 1-2 months, I am planning to pawn my motorcycle. I think it is the best thing we can do for now. We will celebrate Ramadan in a few weeks, which is generally a time when food prices tend to increase. What will it be like this year? And at the end of the month, we will celebrate Idul Fitri,” worried a person in Indonesia.
The poor are nothing if not resilient. Evidence suggests that people are changing their profession or strategies in response to the loss of income. A migrant laborer has become a house help while daily wagers are now fruit or vegetable vendors. City migrants have come back to their village and are now working in agricultural fields while a Gojek masseuse has taken to selling sanitizers. People are sleeping in their shops and market places to avoid traveling to their homes, afraid that they might infect their children. A fundamental restructuring of the economy is underway.
How can governments minimize the negative impact of this change? MSC is keeping track of these changes in household economies and the usefulness of the governments’ support systems. This will enable the formulation of recommendations on additional measures and policies to minimize the economic impact on the poor.
Remember gender
Policymakers must bear in mind that this pandemic hits women the hardest. Women, especially in patriarchal societies, are responsible for the health of their families. They provide care, supervise children, procure groceries, cook, and manage many more myriad tasks. COVID-19 is likely to amplify these demands. Husbands and children will be home and household tasks will need heightened activity despite the difficult circumstances.
“Every day I go to work at 7 am and return home at 4 pm. Before going to my employer’s house, I need to prepare food for my family,” said a woman respondent from Indonesia.
“I hate this situation. My work has increased so much!” said a woman respondent from India.
Indonesian Women sitting
All government policies must be framed within this reality. It will be important to ensure that there is no gender gap in access to hygiene along with medical and financial resources. Indeed, the pandemic may provide an opportunity to empower women within the household. Essential commodities and grant support can be delivered to women. In India, the government has distributed INR 500 (USD 7) per month into the bank accounts of poor women under the PMGKY scheme. This will be repeated every month for three months.
Governments have a tough time ahead
People do not have adequate information and the economy has come to a standstill. Savings are being depleted, while stored food or rations in households are running out and there are already growing reports of people sleeping hungry. Preliminary trends from our studies present a grim situation, where the vast majority of respondents report lack of employment and a growing financial crisis in their households.
On the plus side, governments are taking action. In India, the central and state governments have been distributing cooked food among low-income households. The Governments of Bangladesh, India, Indonesia, and Kenya have announced relief measures that include moratorium on loans. The types of loans that qualify for this exemption varies from country to country. Moreover, this may not entirely cover the loans taken by low-income households.
However, a moratorium on loans is just a start. A lot more needs to be done. Governments have to take measures to not only curb the pandemic’s spread, identify cases, and treat them, but also ensure cash support and the supply of essential goods to buy. Efforts are required to control the prices of inflation, provide financial assistance to those who have lost jobs, and ensure the safety of those who are working. Amidst this, for a low-income household, loan repayments, food supplies, and sustenance are the bigger concerns. As a woman in Bangladesh remarked, “Death from COVID will be much easier than starvation.”
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We are having to work out, in a very short amount of time, how we offer humanitarian relief and solutions to these problems, and how we do this from a distance. Most are turning to digital platforms such as DFS (digital financial services) as the answer. Many donor organizations are immediately looking to replicate reactions from elsewhere in the world by organizing massive G2P (government-to-person) payment programs to alleviate missing incomes and are looking to use DFS and mobile money to execute them.
