Our recently released Focus Note on Social Cash Transfers and Financial Inclusion looks at the evidence from four large and well established programs in Brazil, Colombia, Mexico and South Africa to attempt to answer three broad questions that are relevant to different stakeholder groups:
- For governments: Is building inclusive financial services into social cash transfer programs affordable for the social programs?
- For recipients: Will poor recipients use financial services if these are offered to them?
- For providers: Can financial institutions offer financially inclusive services to G2P payment recipients on a profitable basis?
In the first post, Sarah Rotman looked at the costs to government. Today, I am going to expand on what we found about the recipient experience of receiving payments electronically and into “mainstream financial accounts”. David Porteous will look next at whether there is a business case for providers to offer financial services to social cash transfer recipients.
Last week, Sarah explained our characterization of payment approach into three categories: (i) physical cash, (ii) limited purpose instrument and (iii) mainstream financial accounts. We set the bar quite high for what we deemed to be fully “financially inclusive” – to earn the title of a mainstream financial account it must allow a recipient to store funds indefinitely, access them through the mainstream financial infrastructure (think ATMs and POS devices) and deposit additional funds. Some schemes only enable some of these features and while we recognize the steps that they are taking toward being fully financially inclusive we label these accounts “limited purpose”.
The data show a very clear trend over the past few years away from recipients receiving their payments in physical cash and toward electronic payments. Three of the four countries also showed increases in the number of customers receiving their transfers into a mainstream financial account with South Africa leading the way by paying 59% of transfers paid into mainstream accounts. There is now a significant pool of people that have received their payment via different mechanisms, making it possible to compare recipient perceptions of the different payment approaches. In researching this paper we conducted qualitative research using focus groups and interviews with more than 400 recipients. We also analyzed recent quantitative survey data available from the Inter-American Development Bank and the GAFIS Project. See the full table comparing recipient experiences from our paper here.
First, the evidence showed that recipients welcomed the move toward electronic payments primarily because of the increased convenience. As one Familias en Accion recipient from Colombia explained: “You had to wait for the day when it was your turn and stand in huge lines, not now….” Our research suggested that recipients were spending less time travelling to the payment location to collect their money.
Second, our research reinforced previous work that shows that poor families can and do save. What was perhaps surprising was that very rarely did beneficiaries save in the accounts set up for them to receive their payments into, preferring instead to withdraw the grant in cash in full and then make use of other saving instruments. There are probably several reasons for this including some obvious ones such as the fact that some recipients may have urgent need of the money. But our research also suggested that some recipients were not aware that they could save the money in the account and others feared that leaving part of their grant in the account might suggest that they did not need the money and jeopardize their eligibility to continue to receive payments. Even when the saving options were well understood there was confusion and anxiety around bank fees for making multiple withdrawals.
If recipients are not using their accounts is there any point in providing them? We think that there is. Accounts have uses beyond savings such as making transfers or purchases. Our research does, however, suggest that we need to recalibrate our expectations about how these accounts are likely to be used, at least in the short term. It will take time for behavior patterns to change and this will require clear, consistent communication from government programs and from banks – and possibly incentives to encourage particular behaviors.
Even if it takes time for customers to become accustomed to having accounts, the move toward the mainstream payment infrastructure should be encouraged. As recipients become familiar with their options, they may start to explore and use additional financial products that can have a positive impact in their lives. This of course also has important implications for providers which we will explore in our next post in this series.
This is the second blog in a series on G2P and financial inclusion, based on CGAP’s new Focus Note Social Cash Transfers and Financial Inclusion: Evidence from Four Countries. Read the first post here.
- Chris Bold