The political events of August 2021 triggered a severe economic crisis in Afghanistan. The economic situation continues to spiral. The gross domestic product (GDP) is estimated to have further declined by 3.6 percent in 2022 after the 20.7 contraction in 2021. With a population estimated by the UN at about 40 million and GDP of US$14.3 billion in 2021, Afghanistan is among the countries with the lowest per capita income in the world (UNDP, 2023)

Women and girls have been hit the hardest. They are more likely to go to bed hungry compared to boys and men (UNDP, 2022). They have also been banned from education and work and had their movement severely restricted, limiting also their access to all forms of aid, including emergency cash transfers. 

With so many people in critical need, cash transfers are essential to prevent hunger, help local economy survive and provide access to basic services like education and healthcare. But their effectiveness depends on the speed, efficiency, and transparency of distribution systems. 

At present, 70 percent of humanitarian organisations use hawalas, a 200-year-old honour-based network of money transfers (Norwegian Refugee Council, 2022). This is significantly more expensive and riskier than formal banking systems for both beneficiaries and aid organizations. Digital payment services could offer a better solution but they currently reach less than one percent of the population (World Bank 2022).

Improving the reach and effectiveness of digital transfer systems

Several crises around the world have accelerated the uptake of digital payments. At the beginning of 2014’s Ebola crisis in Sierra Leone, less than five percent of the population owned a mobile money account. This increased to 11 percent by 2017 (World Bank, 2017). More recently, COVID-19 pushed governments around the world to use mobile wallets for emergency cash payments to citizens. 

Here in Afghanistan, UNDP and the UN Capital Development Fund (UNCDF) joined forces in 2021 to test the shift from cash to digital transfers, inspire NGOs and other actors to move to digital payments and encourage small businesses to make digital payments possible even in remoter areas.

The initiative was successfully completed with seven international NGOs participating in UNDP’s ABADEI programme, namely Care International, Norwegian Church Aid, Danish Refugee Council, Islamic Relief Worldwide, Swedish Committee for Afghanistan, ActionAid and Action Against Hunger. These seven NGOs received support to:

• Evaluate technical proposals from financial services providers (FSPs), negotiate transfer costs and select the best delivery channels and digital payment solutions

• Manage end-to-end cash disbursement via online portals and monitor cash disbursements in real-time

• Reduce the risk of fraud through two-factor user authentication at cash-out points and field-based monitoring

• Train cash recipients in digital and financial skills

Six digital payment solutions were tested to better understand which ones work best for beneficiaries and INGOs – mobile wallets, debit cards, e-vouchers, virtual accounts, QR-Codes and AfPay cards. The digital financial services were provided by seven FSPs, including two banks, two payment institutions and three mobile money operators.

The FSPs have digitally disbursed over $1,000,000 to more than 15,000 beneficiaries, including almost 3,000 women, reduced transaction processing times from 7 days to 48 hours, and saved almost 30 percent in costs of cash transfers, compared to the delivery channels INGOs were using previously.

But there are considerable obstacles to scaling up digital payments that the pilot tried to address. Below are some lessons learned and recommendations: