Policy Innovation toward Financial Inclusion: Colombian Government Links CCTs to Savings

Jamie Zimmerman — Mon, 20 Apr 2009 16:54:00 -0400

Just days before the New America Foundation released its Global Assets Project policy brief, "Savings-Linked Conditional Cash Transfers: A New Approach to Global Poverty Reduction," the Colombian announces a major effort to do just that - link the beneficiaries of its nationwide CCT program with savings accounts. This major policy development in Colombia has emerged in part as a result of the efforts of the policy brief's co-author Yves Moury (Executive Director of Fundación Capital), and his project, Proyecto Capital. Our brief, released today, advocates using the (typically) massive CCT infrastructure to formally bank the largely unbanked poor populations in developing countries. But we also advocate going one step further: use the power of CCTs to encourage saving and asset accumulation of the poor. This approach can be viewed as a two-pronged poverty reduction strategy of building income and assets while increasing the effective financial inclusion of an entire poor population.

Back in September 2008, the Proyecto Capital signed a cooperation agreement with the Government of Colombia to mobilize, in bank accounts, the savings of millions of beneficiary families of Familias en Acción (Families in Action), promoting their financial inclusion and facilitate their socioeconomic graduation from the program. Proyecto Capital's role in the agreement includes assessing possibilities (and possible bottlenecks) for these families to participate in a program that would encourage them to save part of the conditional cash transfers they receive from the CCT programs in a savings account.

Late last week, the administrators of the Familias en Accion, announced the official launch of this massive financial inclusion effort. The plan is to open no-minimum balance savings accounts for up to 3 million beneficiary families in a partnership with Colombia Bank, Banco Agrario. Beneficiaries will also receive debit cards for the accounts.

The administrators are calling it "the largest financial inclusion plan in the history of Colombia." Not only will all beneficiaries of the CCT program have access to savings accounts and debit cards, but those who comply with the requirement of the program (based on proper education and nutrition of poor families, in particular children), will receive their conditional nutrition and education subsidies on their debit cards, without the use of intermediaries. The Colombian government stated that it believes this effort will reduce the vulnerability of the poor to costly informal financial services, such as payday lenders and other informal loans to help them smoother consumption.

The Government of Colombia should be congratulated for their bold effort to provide their poorest and most vulnerable citizens with formal financial access, in particular access to savings account that will help them smooth consumption, prepare for their futures, invest in themselves and (hopefully) move out of poverty. I hope the financial inclusion field watches this effort with keen interest to observe if and how it achieves its ambitious goals.

*Please Note: We will discuss this innovation along with a number of other policy ideas for linking CCTs and Savings at an upcoming event at the New America Foundation on April 29^th. For more information, click here.*

Cash-22: Social Protection Not for the Unbanked?

Jamie Zimmerman — Thu, 06 Nov 2008 20:09:00 -0500

Social policies around the world are shifting to account-based systems. Governments and corporations are using accounts to deliver a wider array of benefits. Between 1980 and 2004, the presence of defined contribution plans with public support increased from 10 to over 50 countries. But account strategies are also growing for the purposes of education, home ownership, health, and benefits directed at children.

Many of these account-based systems, however, are provided by employers and/or assume that persons have relationships with financial institutions, leaving out millions of low- and no-income people. This pattern is repeated in nearly every country.

Take, for example, the obviously frustrated account of Cape Town, South Africa resident who is desperately seeking to do right by her injured employee by helping him receive his unemployment benefits payments (from today's Cape Times, via Charles Klingman's awesome "unbanked listserv"):

"Siphendule Ndudane is our gardener. For five years we have contributed to unemployment insurance believing that he could access funds in the event of illness. Not so.In June, Siphendule was knocked off his bike, spent a month in hospital, and was put off work until November. We were told that unemployment benefits could be paid into my bank account because he does not have one. But for the past week, I have gone from one official to another who all sing the same song - without a valid bank account the UIF will not pay out. Siphendule cannot read or write, he lives in a community of RDP houses, there are no utility bills available and his ID book has been stolen. To open a bank account, we will have to get another ID document, which will take 10 weeks. He has just spent another week in hospital and is unable to work. If I pay him, it will disqualify him from getting benefits and if I don't he will starve. It is inconceivable that the UIF does not recognise that 50% of South Africans use cash only because their circumstances make opening and using a bank account a formidable task and one which offers little benefit to them. So if you are making UIF payments and your employees do not have bank accounts, you might just as well flush the money down the toilet."

And this in a country that has made great advances in financial access through its advent of the no-frills Msanzi account, innovations in branchless banking through Wizzit, and a financial sector charter aimed to encourage if not mandate financial inclusion.

In fact, the Center for Financial Services Innovation (CSFI) took a delegation of financial services experts (including out own Ellen Seidman) on an "innovation exchange" mission to South Africa just last year. By and large, the trip shored up a lot of excitement for banking products like the Msanzi account and shown a spotlight on the need to figure out Know Your Customer regulations that makes, for some, opening a bank account a quite tedious process. Yet, even with all the innovation, the relative cost of being banked in South Africa (high fees to open, use and maintain an account as well as lack of access) is high. Coupled that fact with the historic distrust of or exclusion from banks among the poor and what results is large swath of the population (about 40%) without any relationship with a bank. Many have no financial identity at all.

Siphundule's story, and the millions of others like it around the world, reveals to me that, increasingly, the lack of a financial identity (a bank account) will result is even deeper social and economic exclusion. The institutions put in place to provide economic opportunity and social protection shouldn't be leaving behind those who need both so desperately.