> Posted by Jamie M. Zimmerman, Director, Global Assets Program, New America Foundation
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Good news for the audacious folks putting forth a vision of financial inclusion by 2020: government-to-person (G2P) payments are poised to serve as a significant on-ramp to financial services for the most excluded populations. In the last decade, the use of cash to alleviate poverty has gained a lot of popularity. Armando Barrientos and David Hulme, authors of the well-received “Just Give Money to the Poor,” have estimated that more than 500 million poor people around the world benefit from cash transfers. Even better news is that these individuals, mostly young women and girls, and many of them among the poorest and most marginalized populations in society, make up a sizable portion of the elusive “bottom billion” – those often deemed “too poor” to effectively take advantage of traditional microfinance services.
Naturally, those receiving periodic cash just to subsist don’t make for the most attractive new client segment for financial services providers. But it looks like this is all about to change: Shifts to e-payments seem poised to offer new opportunities for financial institutions to serve a sizable new market. Indeed, many policymakers, donors, and providers are now taking note, and those who aren’t should.
In 2009, inspired by the behavioral outcomes of conditional cash transfers, Yves Moury and I posited that there is a unique opportunity to improve the efficiency and effectiveness of such payments by linking them with accounts and opportunities to save, build assets, and access other financial services. Yet, at the same time, CGAP released a report estimating that only 25 percent of G2P payments globally were delivered in a “financially-inclusive way,” such as through a bank account. In 2011, I launched the Global Savings and Social Protection Initiative in order to, among other activities, collect and analyze data on the delivery and payments of government to person (G2P) cash transfers to the poor. We aim to understand the potential for financial inclusion and asset building that these cash transfer systems offer, not only to the paying government and the receiving individuals, but also to the financial intermediary that services a new and unique type of client.
This November, we released initial findings from our current data set, which aggregated data from 84 G2P programs across 43 developing countries, covering roughly 174 million individuals. The data are very encouraging: Most astonishingly, our data indicate that in three short years, the use of financially inclusive e-payments has risen sharply: from 25 to 61 percent. That translates to over 115 million very poor individuals linked to “store of value” (the ability to save, typically through but not limited to bank accounts) opportunities through their regular G2P payment. Of these, over 103 million are paid into a bank account and among those a small portion – almost 3.7 million – are even encouraged (or, in some cases forced) to save and build assets. These shifts are so pervasive, that in Latin America and the Caribbean alone, only 4 percent of G2P beneficiaries are still linked with programs that deal only in cash. And with new initiatives aimed at cash-lite payment flows, such as the recently launched Better Than Cash Alliance, we predict continued momentum toward universal e-payment systems globally.
On the surface, this appears to be a boon for financial services providers interested in a new, potentially sticky client segment who enjoy regular, steady flows of capital into a bank account. But while these numbers are encouraging to some, they beg for caution as well: Connecting payments to a bank account or other store of value option does not always or even necessarily equate to effective financial inclusion. In Colombia, for example, while an estimated 90 percent of Familias en Accion recipients receive their payments into an account at Banco Agrario, the vast majority don’t take advantage of the financial service, solely withdrawing all of their transfer at once. Indeed, several programs we studied link payments to accounts with features (fees, restrictions, etc.) that many would not consider “pro-poor.” What’s more, relative to the pace of the shift toward e-payments, innovation with payment and delivery channels remains surprisingly light. Despite the rapid growth of and interest in mobile banking for the poor, only two G2P programs (and small ones at that), leverage mobile solutions for their payments.
In the next few years, investment in and focus on payment systems will rise dramatically, presenting a unique opportunity to quickly and actively bank a whole new client segment—the aid-receiving poor. If we do it right, the G2P market will boost our efforts to reach the bottom billion and achieve the FI2020 vision. But creating the channels won’t be enough. The real opportunity here is to leverage the proliferation of these e-payment systems in order to create more effective and appropriate products, policies, and services for a vulnerable population whose needs, demands, and risks we still know relatively little about. The FI2020 Working Group on Products & Clients should take note: Here is a challenge that fits perfectly with the Working Group’s dual focus of understanding the needs of excluded market segments and of ensuring that innovative products are designed and implemented to serve them.
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Jamie M. Zimmerman is director of the Global Assets Program at the New America Foundation. She launched Global Savings and Social Protection Initiative in 2011, which recently released “From Protection to Investment: Understanding the Global Shift to Financially-Inclusive Social Protection Payment Systems.”
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