We’ve been thinking about the link between government-to-person (G2P) payments and financial inclusion through the innovative use of technology for the past couple years. We co-authored a paper with David Porteous on behalf of DFID on this very topic last year called Banking the Poor via G2P Payments. Since then, we’ve been engaging with several social protection programs around the world that want to improve the manner in which payments are made to beneficiaries to be more efficient and timely, and also to include a financial inclusion component.
A diverse group of practitioners, researchers, policymakers and funders from the financial inclusion and social protection worlds gathered together a few weeks ago at the Ford Foundation in New York to discuss the increasing synergy between these two fields of work. The 2010 Global Expert Colloquium on Savings and CCTs was co-sponsored by the Ford Foundation, Citi, UNDP, New America Foundation and Proyecto Capital.
Some of the pioneer social protection programs that have already made this link with financial services were in attendance, including Juntos in Peru, Bolsa Familia and Caixa in Brazil, McKinsey and BANSEFI on behalf of Oportunidades in Mexico, ACCION Social in Colombia, Bankable Frontier Associates (BFA) on behalf of the Hunger Safety Net Program in Kenya, and the Department of Social Development in South Africa. There were even two women beneficiaries from the Juntos program in Peru who came to share their experiences about their new savings accounts.
The discussion over the two days was very rich, so I could write about many different aspects of the dialogue. But let me attempt to summarize the key messages that emerged around three main areas of discussion: the business case, the delivery system and the beneficiary demand.
First, one of the biggest questions that linger in this space is whether there is a business case for banks to provide small-balance savings accounts to poor social protection beneficiaries. David Porteous from BFA suggested that there are at least 4 levels of the business case worth examining:
- the individual accounts themselves;
- the overall client relationship, which would include cross-selling;
- the entire portfolio of the product, in this case savings as a means of funding;
- and the strategic positioning for other business, i.e. winning other government bids.
Henri Dommel from UNCDF furthered this discussion by explaining that cross-selling seems to be the answer to the bank profitability question, yet cross-selling to these customers is still far from given.
Second, perhaps the business case discussion needs to be inserted into the larger delivery system discussion. That is, how do we crack the infrastructure problem so that all beneficiaries are within 30 minutes of a touch point to access a store of value transaction account into which they can deposit?
Obviously, this is where I get excited about the potential of branchless banking and innovative technology. It’s great if someone has a savings account, but if the bank is 100 km away and only accessible by paying for a long bus ride, are we surprised that beneficiaries withdraw their whole payment in one go? Frankly, I’d do the same thing.
Third, if we can figure out a way to provide these services, what will be the subsequent demand from the beneficiaries themselves? It is an intriguing new idea to link programs that are traditionally aimed at increasing consumption to increasing savings and building long-term assets. But pilots with Proyecto Capital in Latin America have found that savings also helped women consume better. Not surprisingly they found that women were already saving some of their payments, just informally due to a lack of better options.
Sendhil Mullainathan from Harvard University and ideas42 suggested that savings can free up “mental space” that was previously used to worry about money, and clearing the mind will allow beneficiaries a great opportunity to change behavior.
The social protection crowd at the colloquium reminded all of us that financial inclusion is but one of many tools for social protection graduation. Furthermore, social protection comprises both a protection and promotion agenda. Financial inclusion would probably fall into the promotion part of the agenda, but the fundamental protection of the poor beneficiaries cannot be ignored.
In conclusion, there was consensus on the need for more research to answer many of these questions. Yet I particularly appreciated the comment from David Hulme from the University of Manchester that research often reveals what is already common sense knowledge of practitioners. So we must be smart about how we design research to avoid being unnecessarily complex and to actually add to our knowledge base.
And here’s my last word on the topic: Pilots are good opportunities to test different ideas on a small scale in order to refine models and gather evidence. But we shouldn’t be distracted from the pioneer programs that are already linking their social protection payments to savings accounts on a national scale. These “second-generation” issues focus not on whether it can work, but whether it can work again and again for millions of people without breaking the bank. These new challenges merit smart subsidy and thoughtful attention.
- Sarah Rotman