SmartSwitch Botswana (Pty) Ltd

The Problem

1) What was the situation before the initiative began? (What was the problem)

Prior to the implementation of the Food Coupon System (FCS), approximately 103 000 food grant beneficiaries, low income groups who receive government food assistance programme, located all over Botswana were provided food rations on a monthly basis through a project called the FOOD BASKET SYSTEM. Beneficiaries were made up of destitutes, orphans and home-based care patients.

Local Councils would publish tenders in their areas and merchants (shopkeepers) would tender to provide food to the beneficiaries. Merchants would enter a one year contract to provide monthly food rations (very prescriptive in terms of what food was provided) to beneficiaries.

On a specific day every month beneficiaries would present themselves along with basic identification at the specific merchant for their monthly food rations. All the food for the month would then be given to the beneficiaries. Scenes of long queues of people pushing wheelbarrows of food were common place and earned the beneficiaries the demeaning nick name of “batswa go phaka” [a derogatory term to refer to people who have just returned from collecting their food].

The entire process of public food collection was seen as highly undignified and demeaning. Since a single merchant was awarded a year-long tender to provide specific beneficiaries with monthly food, there was no choice for the beneficiary. The beneficiary was forced to go to the same merchant. The food basket was made up in advance by the merchant without input from the beneficiaries.

At month end merchants would bill the Council for food provided; a very administrative and time consuming process. Disgruntled merchants would get paid up to 6 months later, leading to merchants hiking their prices. Some merchants supplied poor quality products, expired food, and rotten meat and vegetables.

Beneficiaries had no access to refrigerators and so bread and milk were all consumed in the first few days of the month, went to waste or were used as payment to a neighbour for renting space in their fridge.

There was very little control over who collected the food and there was a strong suspicion that many people were on the program who should not have been (so-called “ghost beneficiaries”). The system was open to corruption on many levels from the tender process through to the selection and approvals of beneficiaries. Social workers were relegated to overseeing the award of tenders, taking them away from their main functions for extended periods of time. Council accounts departments found themselves consumed in administrative paperwork and reconciling accounts from merchants.

The Department of Social Services under the Ministry of Local Government intervened through issuing a tender for a paper based food coupon system through which it was intended to overcome all of the afore-mentioned challenges. Two main goals were outlined in the tender – Firstly the solution should restore DIGNITY to the beneficiaries and secondly the solution should offer beneficiaries CHOICE in terms of where they could shop and what they could buy.

Solution and Key Benefits

 What is the initiative about? (the solution)
The SmartSwitch solution was a biometrically-driven smart card system which utilised a nation-wide network of point of sale devices, all connected to a central switch which processed the transactions. Beneficiaries were issued a smart card containing personal details and fingerprints.

Each card has three “wallets”, one of which (the grant wallet) is used as the receptor wallet for the food grant. As per government’s instruction, the grant wallet could only be used to SPEND at very specific merchants. One of the other two wallets is used for cash deposits, cash withdrawals, money transfers and bill payments, while the second is an interest bearing savings wallet.

Since a minimum of two point of sale (PoS) devices were allocated per settlement, beneficiaries were afforded choice. No longer were beneficiaries to be provided with a pre-determined food basket. Beneficiaries were given the freedom to choose what they wished to buy with their food grants. Beneficiaries were no longer forced to collect their entire food rations on the first day of the month, but instead could now buy food as and when required. Beneficiaries were no longer beholden to a single supplier, and could purchase from any approved merchant anywhere in the country.

Merchants wishing to participate as food suppliers underwent a stringent assessment which included ensuring that the correct foodstuffs were sold. Merchants were provided with a free PoS device. This eliminated the need for annual tenders for food baskets; freed up social workers to perform much needed social work duties and did away with corruption around the annual award of tenders. Although 103 000 beneficiaries were expected to register, the deterrent of capturing finger-prints meant only 70,000 people presented themselves, resulting in significant savings for government.

Beneficiaries no longer suffered the indignity of having to queue up at the same time and offering the villagers a public spectacle. Beneficiaries could shop whenever they chose to. It soon became a source of pride for beneficiaries to go and shop and to “pay with plastic”. Dignity has been restored to the poorest of the poor. Where people would scuttle to collect food and attempt to hide from their neighbours, now they proudly do their shopping and present their cards with smiles on their faces.

Merchants now receive settlement for their sales within 48 hours of making the sale compared to the 30 to 60 days under the previous system. This has resulted in significant improved cash flow, enabling merchants to expand their stock levels, which in turn has provided more choice of foodstuffs for beneficiaries. Since merchants no longer have a hold over a set list of beneficiaries, there has been an increase in levels of service to beneficiaries and the unscrupulous practices of providing spoiled or expired foodstuffs have been eradicated.

It is now competition amongst merchants that drives customer service, ensuring that prices stay fair and that high quality goods are sold – poor service delivery results in the beneficiaries walking with their feet. Now that is true restoration of choice and of dignity.

Actors and Stakeholders

 Who proposed the solution, who implemented it and who were the stakeholders?
SmartSwitch Botswana was set up in 2006 with a view to providing access to financial services to the un-banked and under-banked sectors of the population. It was to do this through technology which brings banking to the people using merchants with point of sale devices, smart cards and a financial switch for switching the transactions.

The system was designed around the provision of social security grants via a biometrically-driven smart card, the Point of sale network and the switch.

The solution was proposed by SmartSwitch Botswana in response to a tender issued by the Department of Social Services under the Ministry of Local Government.

Once the tender was awarded the Department of Social Services worked very closely with SmartSwitch to effect the implementation of the system at 31 council offices. This involved the provision of hardware and software to each council, as well as the training of council officers to enrol beneficiaries on the system and to use the system to pay the beneficiaries. This roll-out happened countrywide. SmartSwitch was then tasked with the establishment of the required merchant network. Again there was close co-operation between SmartSwitch and the councils who were responsible for assessing and approving all merchants.

Once merchants were approved, SmartSwitch was tasked with sending out teams to visit every merchant, to install the point of sale device and to train the merchants on how to serve customers and how to settle their devices. Contracts were entered into with each and every merchant. This took place countrywide and proved expensive and challenging. 1,064 point of sale devices were rolled out countrywide. Stakeholders in the system include the beneficiaries (orphans, destitutes and home based care patients), the merchants, the social workers, the council payment officers, the Department of Social Services under the Ministry of Local Government & Rural Development and Bank Gaborone, a commercial private bank.

(a) Strategies

 Describe how and when the initiative was implemented by answering these questions
 a.      What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
A review of the food basket system in Botswana resulted in a decision by Government to put out a tender for a paper based food coupon system. The intended paper-based food coupon system was to provide Government with a mechanism through which dignity and choice were restored to the beneficiaries.

The new system was further required to address problems with the food basket system. These problems included elimination of “ghost beneficiaries”, merchants providing expired, rotten and inferior food, merchants overcharging Government for food sold, councils taking too long to settle merchant invoices, social workers being used as tender managers to the point of performing no meaningful social work and massive burdens created on council accounts departments to administer payments to merchants.

Although a paper based solution was envisaged in the tender, Government had enough foresight to also allow for alternative proposals. Through the tender process, Government identified the SmartSwitch system as a low cost, easy to use, highly secure, robust technology with the ability to process both on line and off line transactions. In short, ideal technology to overcome the deficiencies of both the food basket system as well as potential problems of any paper based coupon system.

Training was provided by SmartSwitch to the Department of Social Services on enrolment of beneficiaries. Enrolment included the capturing of all personal details as well as ten fingerprints per beneficiary. The necessary IT skills were transferred to council representatives country-wide. A mass enrolment drive followed and beneficiaries throughout the country were enrolled onto the system and issued with smart cards by Council enrolment officers. Many enrolments were performed out in the field using laptops equipped with GPRS modems, thereby enabling enrolment officer to visit remote villages as well as home bound home based care beneficiaries who were often too sick to travel to enrolment centers. Enrolment officers were also equipped to train beneficiaries on card use at the time enrolment was performed.

Merchants were then selected at council level after satisfying Department of Social Services criteria after which SmartSwitch installed point of sale devices country-wide, at the same time providing training to merchants on PoS use and how to serve beneficiaries.

A bank was found by SmartSwitch to secure grant funds as underwriter and an interest payment rate was negotiated for beneficiary funds held on the smart card.

Government elected to provide at least two PoS devices in each village, ensuring choice and stimulating competition between merchants which led to better prices and improved service.

Government provided free point of sale devices to merchants to ensure merchant buy-in which was significant once merchants realized that they would now receive payment within 48 hours of the sale.

Further council training was provided to council payment officers through centralized training provided by SmartSwitch. This training prepared council payment officers to prepare and submit payments using the system. Ongoing council training continues on an as-needed basis.

Reports are made available to the Department of Social Services (DSS) by SmartSwitch for effective on-going monitoring of the program.

(b) Implementation

 b.      What were the key development and implementation steps and the chronology? No more than 500 words
Back End Systems
The tender was awarded in April 2008 and was a three year contract. A final contract had to be negotiated and signed where-after actual implementation began. SmartSwitch had been set up in 2006/7 so the Head-Quarters based hardware and software as well as connectivity, backup and basic staffing had all been in place.

Hardware and software for the councils (31 of them) had to be sourced and provided.

Since the technology was new to all stakeholders there was a need to train all merchants, beneficiaries and councils on the system and how it works. Extensive training of all enrolment officers and payment officers at all 31 councils was undertaken with two major training sessions being held over a week each time in the capital city Gaborone as well as in the second largest city, Francistown. Training was provided during the months of Feb 2007 to April 2007.

PoS Network Build-up
Since the system relies on cellular signal to communicate between the point of sale device and the switch it was necessary to establish signals strengths in all villages throughout the country. This was done in January 2007 and revealed that signal strengths throughout the country were generally strong and reliable.

The Implementation of point of sale devices was carried out in two phases and took three full years to complete. By the end of the three years there were in excess of 1,000 point of sale devices spread throughout the country.

Beneficiary Registration
Smart cards had to be designed, ordered and procured. This was done within the first two months of the project. Once the smart cards arrived these were distributed to all councils. Councils then launched enrolment drives in their areas and registered 70 000 beneficiaries country-wide in a mammoth effort. SmartSwitch assisted with this by using the same team that had implemented the point of sale network to assist councils with enrolment of beneficiaries.

The project was phased in stages and with many unforeseen hiccups, so that the first payments were actually made on 1 April 2009. Payments then increased steadily until they plateaued at approximately 60 000 payments per month across the country. In the interim, SmartSwitch established a call centre to provide services to all merchants and councils as well as a repair centre to handle all issues with point of sale devices. A good working relationship was established between the Department of Social Services and SmartSwitch which facilitated the smooth running of the program. Bi-weekly meetings were held to assess any problems which had arisen. The three year contract period came to an end in April 2011 and the contract was then extended for an additional year. The project continues to be monitored and bi-weekly meetings are held between SmartSwitch and the Department of Social Services to ensure that any issues are quickly and definitively addressed.

(c) Overcoming Obstacles

 c.      What were the main obstacles encountered? How were they overcome? No more than 500 words
The biggest challenge was establishing the network of point of sale devices country-wide.

The point of sale implementation rolled out in two phases. Phase 1 prioritised villages with high beneficiary numbers so as to quickly offer the service to as many beneficiaries as possible. Phase 2 covered the remaining villages.

Mass enrolment was challenging but was handled by councils with enrolment stations being set up close to where beneficiaries were. All councils were trained at the same time and sent out to commence with enrolments. This was initiated early on and so beneficiary enrolments was never a problem. Many enrolments were done by field operatives who would travel with a laptop and a GPRS modem to remote areas to enrol people where they were. At one point there was a problem with the GPRS modems due to a conflict with the laptop drivers and so all modems had to be recalled and then swapped for a different make. The swapping of the modems resolved the problem.

Significant training was required for the system to work. Training sessions were provided centrally for councils in two of the largest “cities” in Botswana. Training covered enrolment and payment procedures.

Training of merchants was performed in merchant shops throughout the country. The challenge with the training was that there was significant travelling required the long distances to be covered to reach villages, some of which are very remote and difficult to traverse. Teams of four people were despatched in a vehicle with the necessary hardware, merchandising material, point of sale manuals and merchant contracts. Each team was responsible for covering a defined physical area and once complete, would return to Gaborone, replenish stock and go out to the next geographical area. This was the modus operandi until the entire country had been covered.

While 184 PoS devices had been proposed and accepted initially, a decision was later made to select small and micro businesses as food suppliers and increase the number of these food suppliers. The selection of merchants was restarted and was an ongoing process three years after the start of the project implementation.
The number of PoS devices required increased by 680, while no funds had been allocated for such. SmartSwitch responded by rolling out the PoS network and managing merchant training to match the drawn-out merchant selection process. The funds initially allocated to effect payments to 103,000 beneficiaries were too high. (70 000 enrolments materialised in the end) Savings from that allowance were used to purchase and distribute the extra 680 PoS devices while effectively keeping the project cost to Department of Social Services unchanged.
PoS device repairs was initially problematic as SmartSwitch had to ship all devices to the neighbouring South Africa for repairs resulting in long waiting periods and excessive costs. This was addressed by establishing a local repair center, cutting down on repair times and costs for all concerned.

(d) Use of Resources

 d.      What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
The financial cost of the initiative amounted to P15 million (US$1.9 million equivalent as at 25/10/2012) for the first year which included provision of 100 000 smart cards, all hardware and software for 16 councils, installation and training at councils, activation and payment fees for the first year, 184 point of sale installations and training, all user manuals and marketing materials. The initiative was wholly funded by the Government of Botswana from its capital and recurrent budgets.

Even though a decision was made to procure an additional 680 devices, savings made within the project were used to cover the related costs, which included supply of 680 devices, installation and training country-wide.

The biggest portion of the project cost (53%) by far relates to the deployment of the merchant network which cost approximately P8.3m (1.05 MILLION US DOLLARS) which includes device provision as well as country-wide installation. (864 devices)

SmartSwitch began the project with a team of seven (7) people and by the end of the project had a staff complement of twenty (20).

The Department of Social Services required the involvement of a Director and engagement of a project manager with an assistant. Councils were required to make some people available as enrolment officers and to have at least 2 accounts people trained as payment officers. SmartSwitch used its staff complement to take care of day to day running of the switch, country-wide device installations and merchant training, and all council training as well as call-center assistance and device repairs.

Sustainability and Transferability

  Is the initiative sustainable and transferable?
This initiative is sustainable as it has proven to be cost effective for government, accessible to beneficiaries, rewarding for merchants, a productivity boon to social workers and a significant contributor to SmartSwitch revenue. The project has resulted in significant cost savings for Government due to the elimination of “ghost beneficiaries”.

SmartSwitch are robust enough to continue providing and supporting the system. The strength of support from the merchants, beneficiaries and council officers also guarantees the project’s sustainability.

SmartSwitch are currently involved in the addition of other value added services to the point of sale network such as the sale of prepaid airtime, prepaid power, mobile money applications and the like. This will make the network even more sustainable and will give beneficiaries even greater access to technology and financial services. Cash deposits into a cash bearing wallet on the card will see beneficiaries being able to deposit value onto the card for safekeeping and will provide them with a savings tool.

The Botswana Government can further enhance the sustainability of the project by utilizing the network to effect payment to other social grant beneficiaries, thereby getting better value out of the network and achieving economies of scale.

The SmartSwitch system can be used very effectively to provide fully fledged banking services to the unbanked through the extensive point of sale network. Cash deposits, cash withdrawals, money transfers, balance enquiries, the earning of interest, savings wallet transfers, statement prints and third party bill payments can all be performed at the point of sale device thus truly bringing banking to the people where they live even in the remotest of villages.

Lessons Learned

 What are the impact of your initiative and the lessons learned?
There were a number of elements that all worked together to make this project the success it has been.

The initial tender committee must be praised for their willingness to assess a tender which really was an alternative tender to what they had in mind. Their willingness to embrace change through technology is also to be commended. One is always aware that embracing technology (especially new technology) carries risk.

The Ministry of Local Government & Rural Development made a decisive call to utilise local merchants as opposed to large retail chains. Although this decision was made post tender award (which caused problems and significant time delays), the decision was a good one in light of what Government hoped to achieve with regards to stimulation of rural economies and encouragement for small entrepreneurs to own and run their own businesses (a key pillar of the government’s Vision 2016 for the country).

Since there are so many stakeholders in a project of this nature, consensus building and continuous engagement with such diverse stakeholders takes some time. However, given close collaboration between Government and the private sector within clearly defined goals can yield the impressive results that this PPP has shown. The private sector has its strengths and can be an engine of growth. The decision to outsource the payments function to a private company rather than to try and effect the payments through a Government body or Parastatal (Public Enterprise) proved itself and shows that sometimes it is better to allow private business to deliver on what they do best. The decision to try and keep everything “in-house” is very often not borne out by stories of success.

One of the other lessons learned is that when people are exposed to new technology and it works they are often quick to adopt the technology and often prefer it to the old way of doing things after a short time. An obvious example is that of the preference for cash or e-value. The UNICEF report clearly shows that, given the exposure to the e-value, the overwhelming majority of beneficiaries opted for payment of e-value rather than cash – something which was completely unexpected.

It is believed that another critical ingredient in the recipe for success was that merchants were consulted at length before the decision was made to restrict food coupon participation to smaller locally owned general dealerships. This ensured the buy-in of the merchants who at all times felt part of the ultimate decision. Stakeholder consultation is thus critical to success.

Contact Information

Institution Name:   SmartSwitch Botswana (Pty) Ltd
Institution Type:   Organization Performing Outsourced Public Service Functions  
Contact Person:   Kevin Duke
Title:   Mr  
Telephone/ Fax:   +267 364 7700 / +267 364 7705
Institution's / Project's Website:
Address:   Unit 34/35 Kgale Mews Gaborone International Finance Park, C/o Private Bag 006, Ministry of Local Government & Rural Development, Gaborone, Botswana
Postal Code:   0000
City:   Gaborone
State/Province:   South-East
Country:   Botswana

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