The UN Capital Development Fund (UNCDF) is leveraging its unique financial capabilities to enhance the delivery of Cash Voucher Assistance (CVA) in Ethiopia. Through strategic partnerships and innovative approaches, UNCDF is helping to transform humanitarian aid delivery by improving digital payments and strengthening financial service ecosystems. This work is a clear demonstration of UNCDF’s capital mandate to deploy public and private finance to where it’s needed most. It also reflects the broader purpose behind UNCDF’s efforts to open markets, create jobs, drive foreign exchange into local economies, and ultimately reduce poverty.

Why digital payments matter

Cash transfer programming has emerged as a cornerstone of humanitarian aid, empowering recipients to prioritize their needs while stimulating local economies. By 2016, the UN Secretary-General emphasized that cash transfers should become the primary support method for crisis-affected populations whenever feasible. Digital payments take this a step further by ensuring faster, more secure, and scalable delivery of assistance.

Ethiopia's CVA distribution under the Productive Safety Net Programme (PSNP) began in 2005, introducing mobile money in 2015. While account ownership rose to 46% by 2022, rural access and gender gaps persist. Expanding financial inclusion will require FSPs to build trained agent networks and adopt scalable business models. The transition to digital payments will therefore represent a significant opportunity to enhance financial inclusion and economic resilience. More than just improving aid delivery, this shift is about building the foundations for long-term economic development and poverty reduction. UNCDF’s work in Ethiopia aligns with this strategic focus on inclusive digital finance. By deploying its financial and technical expertise, UNCDF addresses gaps in the capabilities of Financial Service Providers (FSPs) to meet the demands of humanitarian aid services. This effort is part of the Digital Finance for Resilience (DFS4Res) Programme, funded by the European Union (EU) and the Organization of African, Caribbean, and Pacific States (OACPS).

UNCDF’s intervention: Bridging gaps in digital payments

In collaboration with MicroSave Consulting (MSC), UNCDF conducted onsite assessments to identify the challenges faced by FSPs in delivering CVA effectively. The findings highlighted that humanitarian agencies are using various channels, some of which include direct cash, financial institutions, branch offices, designated locations, and mobile money for delivering assistance. Most agencies are moving toward digital payments using mobile money due to its promise of easier financial service access point development. Key gaps identified included the need for a robust agent network, efficient liquidity management, and streamlined onboarding processes. These gaps, if addressed, can unlock broader market participation and stimulate local economies.

To address these challenges, UNCDF launched a pilot initiative involving three FSPs: Commercial Bank of Ethiopia, Shebelle Bank, and Cooperative Bank of Oromia. This pilot, implemented in the Somali region, facilitated a World Food Programme (WFP) intervention that is assisting 65,000 individuals. Key components of the initiative included:

1. Strengthening Agent Networks: UNCDF emphasized the importance of a trained and incentivized agent network to ensure last-mile delivery of digital payments. Over 300 new active agents were onboarded, with a focus on gender inclusion to enhance financial access for women.

2. Capacity Building: Tailored training sessions equipped agents with the skills needed to manage liquidity, deliver services efficiently, and adhere to compliance protocols.

3. Promoting Financial Inclusion: By aligning financial services with the needs of beneficiaries, the initiative aimed to bridge gaps in access and usability, particularly in underserved rural areas.

Lessons Learned

The pilot project yielded critical insights that can inform future interventions:

• Agent Recruitment and Retention: Reliable agents are the backbone of a successful digital payment system. Comprehensive training and incentive structures are essential for maintaining a robust network.

• Liquidity Management: Effective float and cash replenishment strategies are vital to prevent service disruptions, particularly during large-scale humanitarian distributions.

• Compliance and Accessibility: Simplifying KYC and onboarding processes can expand the agent network and encourage greater participation, especially among women and unregistered businesses.

• Stakeholder Collaboration: The involvement of humanitarian agencies, telecom operators, and government bodies is crucial for creating a sustainable digital payment ecosystem.

While the pilot focused on the Somali region, the lessons learned have broader implications for Ethiopia and beyond. Expanding this model will require continued collaboration among stakeholders to address compliance challenges, enhance agent support systems, and ensure the sustainability of financial services.

By fostering a well-structured financial ecosystem, UNCDF is not only enhancing the efficiency of humanitarian aid but also contributing to long-term economic resilience and poverty alleviation. This initiative exemplifies UNCDF’s commitment to mobilizing capital for impactful investments and driving inclusive growth in vulnerable communities.