Social Inclusion Cannot be Achieved Without Financial Inclusion
Half of the beneficiaries of the Juntos cash transfer program in Peru didn’t know that they had a savings account that they could use, even though they were receiving their payments through it. Less than 1% of them knew what a bank statement, a voucher, or an interest rate was. How can we expect them to be able to fully utilize the multitude of opportunities for economic and social advancement in today’s world without these basic capabilities?
Photo Credit: Amanda Silvana Coen
At the Ministry of Development and Social Inclusion (MIDIS) in Peru, we have set ourselves the goal of serving especially marginalized populations within Peruvian society. We have identified almost 5 million Peruvians in this category comprising poorer, less educated households, households of indigenous descent and living in rural areas. We have set an ambitious target for our work: by 2016 one million of these vulnerable people in Peru should have access to the products and services offered by the formal financial sector, having the capability to make use of these offerings in a way that optimally meets their needs and goals.
Financial inclusion is a worthy goal in its own right, but it becomes even more valuable as a component of achieving a variety of welfare improvements. It is an important ingredient in people’s capacity to exercise their rights. New investment opportunities open up when the right financial tools are available – not just in immediately productive opportunities, but also in long-term investments like education.
Transfers give people a higher sense of security, which means less stress. They are able to make better use of scarce resources; planning for the present and the future improves. All of these build up to more individual empowerment, and households that are secure and better prepared to participate in growth.
To achieve these goals, we need to innovate and think critically about the programs and strategies we implement. Each of our projects at MIDIS starts with a needs assessment, followed by several pilots to find the most effective interventions that can subsequently be scaled up. At MIDIS we are currently conducting a series of pilots to test innovations that aim to lower transaction costs, and to find alternative channels to reduce obstacles and barriers to the use of financial services by currently excluded individuals. The recent law on mobile payments introduces an interesting new level of piloting and experimentation for the predominantly rural population with which MIDIS works, and we are hopeful that a mobile payments service may help us to reduce the time it takes for cash transfer beneficiaries to access their money. We are also working to gather evidence that would help us identify the best way to teach basic financial concepts by comparing different training methods and piloting the creation of a soap opera that delivers basic financial education.
Our strategy to promote financial inclusion is twofold: strengthen financial capabilities through training and education but also help a regular interaction between cash transfers beneficiaries and the financial system, and foster the supply of high quality financial services in rural areas, by different financial suppliers. The experiences from Peru and other countries in the region that have been discussed at the Evidence on Innovations in Financial Capability conference organized by Innovations for Poverty Action (IPA), with support from Citi Foundation, and in collaboration with Universidad del Pacífico and the Abdul Latif Jameel Poverty Action Lab, provide important contributions to our collective learning in this area, both on content and delivery methods for financial information and education and their impact on the poor. In my view, to close gaps in financial capability, education needs to be hands-on and practical – for example, showing how to use an ATM machine.
Information needs to be integrated into the design of financial products. On the supply side we need to encourage the private sector to attend this sector of the population: bank staff needs to speak indigenous languages and value the poor as clients, and we need products that better match the specific needs and constraints of the poor.
All of these changes require meticulous experimentation and testing, and in this, I am encouraged by the work presented at this conference and very much look forward to collaboratively discovering what works in improving the poor’s financial capabilities en route to full financial and social inclusion.
------ The author is Carolina Trivelli, researcher at the Instituto de Estudios Peruanos and former Minister of Development and Social Inclusion of Peru.
Watch a video on the IPA blog of Carolina Trivelli's keynote address at the Evidence on Innovations in Financial Capability conference.