financial services

Angelenos to the Financial Mainstream

Hosai Ehsan — Fri, 22 May 2009 20:33:00 -0400

Today the city of Los Angeles made its second attempt to bring under-banked and unbanked Angelenos to the financial mainstream. Two months after Mayor Villaraigosa launched Bank on LA, City Councilmember Richard Alarcón launched the Banking Development Districts (BDDs) Initiative. Los Angeles has recognized the need for placing affordable financial services at the hands of its people and is taking major steps toward eliminating dependency on fringe financial institutions.

While 1.5 million households are unbanked state-wide, Los Angeles has the third highest percentage of unbanked households nation-wide. For the Angelenos who do not have a simple checking or savings account, BBDs are a promising way to gain access to the appropriate financial services and products necessary to get connected to savings and asset building. Research shows that a full time worker conducting business with non-traditional financial institutions can pay tens of thousands of dollars in fees in a life time. This is a chunk of money large enough to start a small business, send a child to college, build a retirement or put a down-payment on a house.

BDDs are a strong step in the direction of helping low-income households hold onto their hard earned dollars. Modeled after New York State's successful program, state and local deposits will be used to encourage banks to locate in underserved neighborhoods (identified as BDDs) and provide products appropriate to the needs of the people. In Los Angeles this means thousands of unbanked households will soon have the opportunity to conduct affordable financial business, safely set aside savings, and begin building assets to secure a nest egg or off-set future financial trauma.

PODCAST: The Promise of Savings-Linked Conditional Cash Transfers

Jamie Zimmerman — Tue, 12 May 2009 16:09:00 -0400

On April 29^th, the Global Assets Project hosted an event to launch its newest policy brief, "Savings-Linked Conditional Cash Transfers: A New Policy Approach to Global Poverty Reduction," at the New America Foundation. By request, we have created a 10 minute Podcast summarizing the paper and key points from the event, for those unable to attend the two-hour event or watch or listen to it in its entirety on our website or YouTube.

The event, which attracted almost 900 participants in house and (mostly) via webcast, explored the opportunities for linkages between CCTs and savings accounts, the potential impact on financial inclusion and economic empowerment as well as the possible challenges of such a proposal. While the concept of financial inclusion and economic empowerment through CCTs is still in its infancy, participants agreed that it is already building incredible momentum in both social policy and financial services fields.

The podcast , narrated by Jamie M. Zimmerman, includes highlighted remarks from the policy brief co-author Yves Moury (Proyecto Capital) and panelists Michelle Adato (IFPRI), Mark Pickens (CGAP), Marguerite Robinson, and Luis Tejerina (IADB). Please visit our website or contact us for additional information about the policy brief or the event.

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.*

E-mail, Mobile Phones-- and Microfinance?

Leila Seradj — Wed, 18 Feb 2009 16:43:00 -0500

E-mail, the internet, mobile phones, and microfinance. At first glance, you might think I'm playing Sesame Street's "Three of these things belong together" game. But I assure you that, despite my love for the Cookie Monster, I'm not. It turns out that these four innovations, along with 26 others, have been named the Top 30 Innovations of the Last 30 Years by PBS's Nightly Business Report.

To some, lumping microfinance-- a relatively new concept to much of the world's inhabitants, especially after Muhammed Yunus and his Grameen Bank won the Nobel Peace Prize in 2006-- with such staples of our modern life might seem puzzling.

But it's heartening to see that more are sitting up and taking notice that innovations in poverty alleviation are, in fact, a very modern thing. If we could start seeing the the world's financially disadvantaged beyond the sad faces flickering on the nightly news, and instead as protagonists of their own development through such innovations as microfinance, we might be on to a more sustainable means toward bringing about prosperity for all, in all senses of the word. Leveling the playing field, I'd venture to assert, is one of the key elements of modernity in a world where it's becoming increasingly obvious that the disadvantage of the part is to the detriment of the whole.

"Leveling the playing field," therefore, includes extending access to financial services to all. While microfinance has popularly become synonymous with giving out small loans, in more recent years, it's come to encompass providing all types of financial services for the poor. This includes access to a bank account, to a safe place to save, financial education, and other services that many of us take for granted. And in light of the recent global financial crisis, these services are now more crucial than ever.

There are some exciting developments with regards to using technology to facilitate access to financial services (see my recent post for news on the new DFID-funded three-year project in Africa and Asia, FAST). In a world where more individuals in the developing world have access to a cell phone than to a bank account, mobile banking is one promising way to link technology with innovations in poverty alleviation.

So it looks like the Nightly Business Report has hit the nail on its head this time. And here's to hoping that in thirty years, microfinance and financial services for the poor will seem as novel as color television and sliced bread.

(Photo courtesy of the World Bank Photo Collection)