Corruption Threatens Mobile Money Pilot Program for Police

C O N F I D E N T I A L SECTION 01 OF 02 KABUL 003863

SIPDIS

E.O. 12958: DECL: 12/02/2019
TAGS: EFIN ECON PGOV AF
SUBJECT: Corruption Threatens Mobile Money Pilot Program for Police
Salaries

Classified By: Ambassador E. Anthony Wayne; reasons 1.4 b &d


1. (C) Summary: Corruption threatens to subvert a mobile money
(m-money) pilot program to pay Afghan National Police (ANP). Roshan,
the company providing the service, recently reported that an ANP
commander in Wardak province had sought a cut of his subordinates'
salaries from an M-Paisa agent. The agent refused to disburse
salaries to the commander and, when threatened, subsequently went
into hiding. In addition, the Ministry of Finance and the Central
Bank have expressed concerns over regulatory oversight and the
m-money implementer's lack of experience moving large amounts of cash
and want stronger oversight. Ambassador Wayne raised this corruption
issue with Minister of Interior Atmar on December 1, who promised to
address it decisively in the next 24 hours. As the pilot expands,
avenues for corruption must be addressed in order for mobile money to
improve the current salary payment system for public servants. End
Summary.

Pilot Program Highlights M-money Strengths and Weaknesses
- - - - - - - - - - -- - - - - - - - - - - - - - - - - -


2. (U) With USG support, the Ministry of Interior (MOI) partnered
with Roshan, a cellular provider, to offer salary payments to 53
Afghan National Police in Wardak province using Roshan's M-Paisa
mobile money technology beginning in July 2009. (Note: four pilot
program participants have died since the program began in July.)
Initial evaluations of the pilot showed the police were happy with
the service and received a higher percentage of their salary since
superiors were no longer able to siphon funds from salary payments.
The pilot participants were among 6,500 ANP who receive their
salaries in cash.


3. (U) In light of the positive performance to date, MOI officials,
with Central Bank support, are enthusiastic about the program and are
awaiting final approval from Minister of Interior Atmar to continue
the pilot program and expand the number of participants. Other
ministries, including education, energy and rural rehabilitation and
development, have expressed interest in using M-Paisa for salary
payments, and USG entities are studying the service as a potential
tool for assistance and microfinance disbursements.


4. (U) Note: Nearly forty percent of Afghans own cellular phones,
versus just three percent who have bank accounts. Mobile money
generally relies on non-bank agents, allowing it to reach far beyond
Afghanistan's sparse bank branches. Azizi Bank has partnered with
Roshan to disburse payments through its branches, but most Afghans do
not live near a branch. Roshan, the nation's largest telecom, is the
only active provider of m-money services, although Etisalat is
developing a competing product. End note.

Corrupt ANP Commander
- - - - - - - - - - -


5. (SBU) Roshan recently reported that the ANP commander in Jalrez,
Wardak province, called Roshan employees and asked for a cut of his
subordinates' salaries. After his request was refused, he ordered
his subordinates to give him their phones and PIN numbers. On
November 22, the commander collected 45 phones and demanded payment
of their salaries from an M-Paisa agent. The agent refused to
disburse salaries to the commander and subsequently closed shop,
going into hiding. Roshan also reported that the same commander
registered phones for some new officers prior to their first month
and collected their salaries.


6. (SBU) Coordinating Director for Development Economic Affairs
Ambassador Wayne raised this issue with Minister of Interior Atmar
Dec. 1. Atmar said he would suspend the commander immediately and
ask the Major Crimes Task Force to investigate. Roshan has asked MOI
to support expansion of the M-Paisa pilot in January to a number of
high-to-medium risk districts.

Regulators Express Concern
- - - - - - - - - - - - -


7. (C) The Central Bank's Financial Supervision Department is
preparing an internal report on M-Paisa for the Bank Governor that
identifies some reservations about the pilot. The report will
include concerns that Roshan, as a mobile provider unaccustomed to
moving large amounts of cash, does not have sufficient documented
internal policies and procedures and is potentially comingling Afghan
Government salary payments with commercial accounts. Additionally,
M-Paisa services are only available in English, although Roshan has
promised to translate to Dari, and provide voice as well as text.
Given the low literacy rates among Afghan police, the potential
reliance on literate English-speakers to explain the system to
beneficiaries creates another opportunity for corruption. Roshan has
seven regional representatives responsible for educating customers,
and hopes to send them to all M-Paisa districts to provide

KABUL 00003863 002 OF 002


information on using the service to participants.


8. (C) In addition, MoF's Treasury Department expressed concern that
there is insufficient critical assessment of the pilot's outcomes and
risks and that Afghan Government entities rely too heavily on Roshan
and commercial bank assessments of the pilot program without
considering the commercial interests of these companies. The MOF
worries there is insufficient competition in selecting the program's
technology and banking implementers.

Agents Could Be a Problem
- - - - - - - - - - - - -


9. (C) The M-Paisa program relies heavily on small business owners as
agents, widely dispersed throughout Afghanistan. Roshan employs
about 250 agents, but has experienced incredibly high turnover - in
the last year, firing 300 agents, mostly for fraud. Roshan
executives said agents must demonstrate significant cashflow from
their primary business to cover salary disbursements and other
transactions. For the pilot, agents signed a waiver accepting
responsibility for the funds they process. The agents advance their
personal funds and then are reimbursed from Afghan Government
deposits in bank accounts. However, the MOF is legally responsible
for salary funds until they reach the recipient.

Comment
- - - -


10. (SBU) Mobile money is a tool of enormous potential for good in
Afghanistan, however, one corrupt official angry at depleted
opportunities for salary skimming has found a way to try to subvert
this technology. Just as importantly, as other developing countries
have no doubt found, poor financial oversight and staffing could
quickly undermine m-money's credibility. We will continue to partner
with the Afghan Government to follow up on these issues and ensure
this breakthrough technology is used effectively and transparently.

EIKENBERRY