CBA for digital payments in Lesotho summary report.

Innovative technological advances are leading the rethinking of market based business models applied by financial intermediaries that previously did not consider low income rural poor populations as a potential market for investable funds. Electronic money is rapidly coming to the fore as a game changer made possible through the use of cheap mobile phones, expanded cellular network coverage and fast internet services. Technical advances catalysing innovations include new ways of delivering financial services through agents / agencies, realigning Know Your Customer (KYC) requirements employing Tiered or Proportional KYC that encourage low income clients to open electronic money accounts, facilitating savings mobilisation, access to credit and insurance services.

As Africa’s highest contributor of social protection, Lesotho’ treasury faces considerable pressure to meet Government’s social protection obligations of mitigating the impact of poverty on Basotho. Declining revenues from the Southern African Customs Union (SACU) threaten to derail the social protection agenda and plunge more Basotho deeper in poverty. Consequently financial inclusion is gaining traction within the Government of Lesotho (GoL) as a strategic intervention to ameliorate poverty and induce unbanked low income, rural Basotho into the modern financial system where they can access and benefit from access to credit, savings mobilisation, access to employment and business development services promoting the growth of micro, small and medium enterprises.

The objective of this study was to identify, measure and value economic, financial and social benefits and costs of defined policy interventions to transform Lesotho’s economy from cash based payment platforms to an electronic payment platform. This was followed by an assessment of the existing legal, policy and regulatory frameworks and finally the analysis of technical and technological requirements of payments and collection points to develop electronic payments platforms.

The study utilised two case studies namely, the Child Grants Programme (CGP), representing social transfer payments – G2P; and Lesotho Revenue Authority (LRA) Electronic Taxation Project representing revenue collection – B2G; to demonstrate feasibility of transitioning to electronic payments. The case studies illuminated opportunities and challenges of electronic payments and revenue collection platforms from three sides; that of economic and financial viability; the legal, policy and regulatory feasibility and technical and technologically viability for payments and collection points to promote cashless payment systems.

Four options were identified under the Child Grant Programme CBA namely; Cash In Transit (CIT); Over The Counter payments (OTC); Mobile Banking (MB) and Mobile Money (MM). Five scenarios were assessed; one from each of the four options (CIT, OTC MB and MM) and a combination of mobile banking and mobile money.
The LRA E-Tax CBA identified three options; a) Cash taxes paid at LRA banking hall, border posts and in banks; b) Mix of cash (50%) and mobile banking (50%)) via agents, using Point Of Sale (POS) devices and Automated Teller Machines (ATMs) and c) Mix of cash (50%) and mobile money (50%) through M-pesa and Ecocash agents.
The Child Grant Programme cost benefit analysis demonstrated that cash in transit and over the counter options were not economically or financially viable. Negative Net Present Values (NPVs) and Benefit Cost Ratios (BCRs) less than 1 at 0.86 and 0.83 respectively were calculated. On the other hand, mobile banking had a positive NPV with BCR of 1.03, mobile money had a positive NPV and BCR of 1.05; and a strategic mix of MB and MM had a positive NPV and the highest BCR at 1.15.

The Child Grant Programme cost benefit analysis demonstrated that the Government of Lesotho and stakeholders can potentially earn cumulatively M 300,518,144.52 nominally or in present value terms M 97,392,168 discounted at 7 percent using the Central Bank of Lesotho policy rate by shifting to electronic payments from cash based payments. Continuing with the current cash in transit payments, the GoL will lose in nominal terms an estimated (M 131,370,466.85) or in present value terms an amount of (M 84,758,880)
The LRA E-Tax cost benefit analysis showed all three options are economically and financially viable. The current cash revenue collection system had a positive NPV and BCR of 1.0071 followed by mobile banking with a BCR of 1.0152 and the mobile money option had the highest BCR or the highest returns of 1.016 implying that for every Loti spent, M1.0163 is earned.
The study illustrated that by adopting the electronic payments for the LRA E- Tax project an estimated M1,393,758,949 in nominal terms or M 753,397,557 discounted at 7 percent over the ten years 2012 to 2021, will be earned. If however the LRA continues to pursue current cash tax collection efforts it stands to earn an estimated M623,077,719 nominally or M 326,074,579 in present value terms. This is half of what LRA may earn.
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