Government-to-Person Payments (G2P)

Government-to-Person Payments (G2P)

CGAP estimates that 170 million poor people receiving regular payments from their governments, far more than the 99 million or so with an active microloan worldwide. Government-to-person (G2P) payments encompass not only conditional cash transfers, well-known for their poverty reduction effects, but other social benefits, payouts, pensions and wages.

Yet, CGAP estimates less than a quarter of all G2P payments land in a bank account. Some G2P programs now deliver funds electronically, with money landing in a basic bank account which also gives recipients a place to safely save, affordably send and receive other monies. To reach widely dispersed regions, cut cost of delivery, and maximize convenience for recipients, funds can be withdrawn outside bank branches via ATMs and cash-handling agents in the community through branchless banking. It represents an opportunity to bring millions of people in the formal financial sector for the first time.

However, not all electronic payment arrangements deliver financial inclusion. For example, Argentina’s Jefas y Jefes de Hogar program delivers payments via pre-paid debit cards to 1.5 million poor families including 15% of the population. But only the government can reload the debit card with new funds, meaning clients cannot use it to save. Benefits must also be drawn within 2 months or lost. While recipients report a 12-fold decline in bribes they paid to access their money, it was a missed opportunity to expand access to banking.

Financial inclusion and social protection are complementary. Giving poor people access to banking can help policymakers and social program managers achieve their existing goals, such as:

• Improved access to financial services is shown to help poor families (ii) build savings to reduce vulnerability to future crises, (ii) invest in productive assets, and (iii) boost the share of spending that goes to education and health.
• There are increasingly strong arguments that financial inclusion is a constituent part of sustaining pro-poor economic growth.¹ And such broad based growth helps sustain the poverty reduction achievements cash transfer programs have had over the past decade.²
• Arguments that cash transfers disincentivize work or amount to just short-term political populism can be combated by forging durable links between transfer recipients and the kinds of financial services that help them build assets, grown microenterprises, and exit poverty.

Despite the huge potential for financial inclusion, we recognize the challenges—particularly the business case for banks and usage rates of the accounts. Banks tend to see G2P payments as primarily an opportunity to capture fee income from government, rather than build a durable line of business banking low-income clients. Without good data about their own costs and the revenue potential from low-income clients, banks may refuse to participate. We need to better understand the business case for banks and what the usage rate would be if accounts were offered to G2P beneficiaries.

¹ Barrientos, Armando. “Social Transfers and Growth: A Review.” University of Manchester, June 2008.
² See for example, Lindert et al. “Nuts & Bolts of Brazil’s Bolsa Família Program: Implementing CCTs in a Decentralized Context,” World Bank, SP Discussion Paper No. 0709. 2007.