TNRC Blog When anti-corruption innovations meet reality: Electronic payments in remote areas

When anti-corruption innovations meet reality: Electronic payments in remote areas

Pham Xuan Hung, Bui Duc Tinh, David Aled Williams, U4 Anti-Corruption Resource Centre | October 2021 | Field Note

A new model for Payments for Forest Environmental Services (PFES) is being tried in Vietnam. The idea is that replacing cash with electronic payments will be more efficient, transparent, and less susceptible to leakage and local elite capture. But, to receive electronic payments, you need a bank account and smartphone. Obtaining these is challenging for some beneficiaries in remote areas who can neither read nor write. And leakage and local elite capture are not the only corruption risks confronting PFES.

Paying for nature's services

Nature provides many tangible benefits, including water, food, timber, and plants that can be used for medicinal and other purposes. It also provides services that are less tangible, but essential for life to thrive, such as pollination or filtering water. Nature, quite simply, allows human beings to live as we do. So it makes intuitive sense that we should pay for nature´s many services. This train of thought has become a big trend in conservation over the past few decades. PFES interventions have multiplied, with people who benefit from nature paying a fee to protect it.

Vietnam was the first country in Asia to introduce a nationwide PFES system, at first with the help of international donors, later as a state-funded “Forest Environmental Service Users Programme.” In 2010, the PFES system was made part of the country’s legal framework.

Anti-corruption has also been high on Vietnam’s domestic agenda. The high prevalence of corruption in the forest sector, paired with this anti-corruption agenda, makes Vietnam’s PFES an interesting case. In which ways might PFES be susceptible to corruption? Can new PFES innovations contribute to anti-corruption goals? Under which conditions might this be best achieved? We sought answers to these questions during our initial fieldwork in Thua Thien Hue province.

How Vietnam’s PFES works

The forests of Vietnam provide shelter and livelihoods for more than 14 million people belonging to ethnic minority groups. These people are among the main beneficiaries of Vietnam’s PFES funds. As forest owners and patrollers, they protect the forests acting as water catchment areas upon which hydropower and water companies rely. Those companies add a PFES fee to the monthly water or electricity bills they send to consumers. This fee is then collected and transferred to the PFES fund.

In practice, this means the PFES budget depends on rainfall and quantities of water. More water and electricity consumption leads to bigger budgets. An arrangement like this is vulnerable to climate change, however, and the funds´ size is dictated by the electricity and water consumers use. Accurate measurements are needed to avoid opportunities for gaming the system, for example by reporting lower water quantities when in fact higher rainfall has led to a larger budget.

What used to be a central government endeavor has, since 2014, been a provincial responsibility. Local provincial people’s committees now manage PFES funds, organizing regular meetings with local communities. Moving the management of the PFES funds to the provincial level has given local communities better opportunities to meet with PFES fund managers and raise concerns about community issues and forest protection.

The potential corruption risks

Initial interviews pointed to corruption risks not only at the step of actual PFES payments to users, but throughout the entire payment cycle. For example, payments to forest owners depend on the score their forest area gets on the so-called K-index, which determines the economic value of the forest in question and the size of environmental payments. We found several instances of forest owners and PFES fund managers not agreeing on the real economic value and area of the forest. We also discovered that forest owners who sign up for a certain number of hours patrolling the forest sometimes do not agree with the forest owner management board (typically a group of households at commune level) on how many working days they have actually spent patrolling. So, who is right? And in whose pockets do the disputed days end up? At every step in the PFES payment cycle, including during the process of payments, preparing required documents, and determining the K-Index, one can ask similar questions. This calls for enhanced monitoring of PFES implementation, improved data management, analysis, and reporting.

Currently, USAID’s Vietnam Forest and Delta’s (VFD) Program, implemented by Winrock International, is working with the Vietnamese government on further developing such monitoring. Our continuing fieldwork aims to contribute more information to support this work from an anti-corruption perspective.

A system for the city? Tailoring interventions for remote contexts

Authorities in Thua Thien Hue province are also testing a switch from cash to electronic PFES payments. A switch to electronic payments is perceived as more efficient, secure, and transparent. Authorities hope it will reduce transaction costs and streamline payment processes. But making payments more secure and providing digitalized chains-of-custody could also prevent leakage and corruption. For example, a secure digital payment sent directly to a beneficiary´s smartphone makes it harder, in theory, for an unscrupulous village leader to capture funds intended for someone else.

Yet, several interviewees expressed discontent with the switch to electronic payments. In order to receive electronic payments, they need a bank account. They must also install an app on a smartphone in order to receive the money.

But the electronic system seems developed for the city, not remote forest areas whose infrastructure is not yet ready to absorb such systems. The system depends on an infrastructure that – many forest dwellers find – simply isn’t there. Internet connections are unstable at best, and people from remote areas have to travel long distances to make bank transactions, spending sometimes more on travel and accommodation than they get back in exchange for their forest protection services.

A different challenge is that, although national literacy is high, illiteracy is still prevalent in remote areas of Thua Thien Hue province. How are people in these areas supposed to use a system that requires bank accounts when they cannot understand the written information they receive? In addition, many interviewees had not received sufficient information about the PFES payment regulation, including how it works and that they are supposed to enroll in forest patrolling and get paid for their services.

For those directing the PFES system, on the other hand, the switch to electronic payments is seen as a move in the right direction. Electronic payments save administrative costs and spare the managers from having to travel to remote areas to hand out cash.

Early lessons

Our initial fieldwork reveals both some benefits and drawbacks of the Vietnamese PFES system and the ongoing efforts to make it more effective. It is too early to draw conclusions. We have yet to fully analyze the results of our fieldwork in the provinces of Son La and Lam Dong and may find that PFES works differently there.

But there are important early lessons from our findings in Thua Thien Hue regarding the effectiveness of PFES in countering forms of corruption. Our research shows that local adjustments are needed for PFES to work optimally, including to enhance its potential anti-corruption benefits. For example, the anti-corruption effects of digital PFES payments could be enhanced if accompanied by other interventions addressing local needs for socio-economic infrastructure, literacy campaigns, or provision of audio-visual information on how to use the system. Such supporting interventions could help these payments work more fully as intended, including in remote areas. Overall, our early results support the notion that anti-corruption success in the conservation space depend, at least in part, on thoroughly scrutinizing project assumptions, comparing them with real and evolving conditions at specific sites, then filling identified gaps with complementary approaches to improve those underlying conditions.