financial inclusion

I subscribe to Charles Klingman's Unbanked News listserve, and, since I work with the Global Assets Project, one of today's emails naturally caught my eye.

It was about Monday's launch in Nairobi of the Alliance for Financial Inclusion, a coalition of financial policymakers and central banks from over 60 developing countries.

Its press release emphasizes that savings, investments, and building assets are a crucial instrument to raising national income and increasing financial stability.  Yet an estimated 2.5 billion people don't have access to savings accounts and other financial services.

 They may take their tea with milk and pronounce "tomato" wrong, but here's something on which we can agree with our friends across the pond.

Yesterday, the UK's International Development Secretary Douglas Alexander announced DFID's ₤1.4 million, three-year project: Facilitating Access to Financial Services through Technology (FAST).  Working with CGAP and GTZ, FAST's aim is to "lay the foundations for financial services to be made available through new and emerging technology across Africa and Asia."

As it stands now, 2 billion people in the developing world lack access to financial services, because of distance or affordability constraints.  With that in mind, FAST aims to explore the possibilities and extend the reach of "branchless banking" using new technologies and innovative methods.

Its three-pronged strategy is to:

At yesterday's launch of the World Bank Policy Research Report, Conditional Cash Transfers: Reducing Present and Future Poverty, New York Times contributing writer Tina Rosenberg recounted her article pitch to her editors at the Times.  Asking her why she was so intent on going to Mexico to cover Oportunidades, the conditional cash transfer program that started it all, she answered: Because it's a social policy program that actually works. 

From Latin America, to Africa, to even the United States, conditional cash transfer (CCT) programs are sprouting everywhere and garnering an increasing amount of attention.  As the packed auditorium demonstrated yesterday, the buzz has long since reached Washington.  And as Justin Lin, Chief Economist for Development Economics, noted, the World Bank will be extending CCT projects to six additional countries this year.

In the scramble of eager participants that shot their hands up breathlessly to seize their chance to ask their multi-part queries to the pre-eminent experts on CCTs, I didn't have the chance to ask the question in the back of my mind: How can CCTs be used to incentivize and change savings and asset-building behavior?

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"):

In the United States and many developed nations, banks offering savings to children as a means of social and economic inclusion and empowerment may seem tired tradition of the thrift era that has long passed.  Gone are the days of widespread school banking programs once so common in the US. And in the very few developed nations where efforts to provide children social and/or economic opportunity through financial inclusion exist, they typically come in the form of social policy (UK's Child Trust Fund, Singapore's Baby Bonus, USA's ASPIRE Act).  In developing nations, however, we're witnessing a wholly different phenomenon: financial institutions are, out of their own volition and with no push from the government, choosing to target the child market segment.   

Last month, I argued that USAID inaptly named a three-day virtual conference on savings as "The Forgotten Half of Microfinance." Instead, I posited:

"As someone working on asset building and financial inclusion for the poor (and/or their cross-fertilization in the development field), I would contend that the hosts got it wrong when chose the title for this event. Indeed, "savings" is not "forgotten" at all. Though perhaps traditionally underemphasized, I would argue that, on the contrary, savings is the in fact the "next big thing" in financial interventions."

Looks like I got this one right.