Digital Solutions for Direct Cash Transfers in the COVID-19 Crisis

Posted by Gerardo Una, Sailendra Pattanayak, Richard Allen, and Gwenaelle Suc[1]

Experiences during previous pandemics and economic crises have shown that a range of transfer programs and modalities can be effective in protecting vulnerable households, including those in the informal sector and poorer regions. In the wake of the COVID-19 pandemic, many governments are considering direct cash transfers to protect vulnerable households. In several developing countries, the scale of these payments is unprecedented (in the Philippines, over 70 percent of households will receive emergency transfers).

For people living in extreme poverty, such cash support can be a lifeline. However, low-income developing countries (LIDCs) and emerging market economies (EMEs) often have a large informal sector, constituting up to 50 percent or more of the population in some cases, which makes it more difficult to deliver such support quickly and securely. In the absence of adequate safeguards and control, cash transfer schemes may also be subject to financial irregularity and abuse. For example, crisis-related support was associated with financial scandals during the Ebola epidemic in DRC in 2019. And a 2006 study by the U.S. General Accounting Office of the Federal Government’s Disaster Relief for Hurricanes Katrina and Rita estimated that 16 percent of payments were improper and potentially fraudulent .

A recent FAD note focuses on three main issues that the PFM system and associated digital solutions need to take into account to ensure that cash transfers are made in a timely and secure manner and are adequately controlled, reported and audited.

First, how should potential beneficiaries of the cash transfer scheme be identified and enrolled? Challenges here include the absence of a defined database of intended beneficiaries; the wide geographical dispersion of targeted groups; and a migrant labor force that in many LIDCs comprises a large share of the informal sector workforce. The note defines some key enabling factors, notably:    

Second, how should cash transfers be made to reach beneficiaries in a timely and reliable way? Challenges here include the potentially large number of beneficiaries who have no bank account or access to the banking network; and low levels of adoption of digital financial platforms and/or poor coverage of the cell phone / internet network. Key enabling factors are:

Third, how should cash transfer payments be recorded in the budget, controlled, and reported? Challenges here include the need for streamlining PFM processes and making adjustments to the government’s FMIS; finding the right balance between making payments efficiently and transparently while complying with the PFM legal framework; and ensuring adequate recording and public disclosure of information on cash transfers. Key enabling factors include:

The table below summarizes the key measures recommended in the note.


I - Identifying and Registering Beneficiaries

For the formal labor market, utilize available social security and tax administration databases.

For other beneficiaries, utilize other available databases (e.g., social security, tax, public utilities).

Validate enrolments with other data sources using APIs and RPAs where possible.

Consider an incremental approach—initially small amounts of relief followed by formal enrolment.

Establish a unit in the ministry of finance to oversee the scheme and coordinate with other government agencies, the banking sector, and mobile network operators.

Ensure through validation both that individuals meet the benefit criteria and avoid duplicates (one person receiving benefits multiple times) and ghosts (non-existent people receiving benefits).

Ensure that data protection standards are applied for the scheme and its databases.

II - Reaching Intended Beneficiaries and Executing the Cash Transfers

Making direct transfers through the central bank electronic payment network is the most cost-effective solution when intended beneficiaries have bank accounts.

Commercial banks, post offices and prepaid cards may be other payment options.

When digital cash transfers would take more time to set-up, consider two parallel delivery mechanisms: (i) physical distributions of cash over-the counter, and (ii) digital cash transfers.

Where cash payments are the only option, regional treasury offices, other government service delivery units, and/or on-site or mobile branches of financial institutions could be used.

Banks, other financial institutions or post offices engaged in implementing the cash transfer scheme would need to be compensated to meet their administrative costs.

III - Processing, Controlling, Recording and Reporting Cash Transfers

Adjust where necessary finance laws and regulations to deliver the scheme flexibly and quickly.

Use earmarking to dedicate some funds (e.g., donor grants) for targeted cash transfers.

Streamline controls and approvals for registering, accounting and paying COVID-related expenditure, and make necessary adjustments to a country’s FMIS.

For countries with a Treasury Single Account, centralize direct cash payments at the treasury by utilizing the central bank’s national electronic payment system.

Adopt strong mechanisms to prevent fraud and corruption through ex post audits and inspections.

Publish regular reports on the disbursement and use of cash transfers, ideally on a real time basis.

Strengthen the capacity of the finance ministry’s IT department to apply the government’s cybersecurity policies and procedures.

This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.


[1] Fiscal Affairs Department, IMF.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.