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Banking the Poor via Government-to-Person (G2P) Payments

Banking the Poor via Government-to-Person (G2P) Payments. Government-to-person payments: Definition. G2P includes cash payments related to social programs as well as wages, pensions and other payments. Potential for financial inclusion.

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Banking the Poor via Government-to-Person (G2P) Payments

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  1. Banking the Poor via Government-to-Person (G2P) Payments

  2. Government-to-person payments: Definition G2P includes cash payments related to social programs as well as wages, pensions and other payments

  3. Potential for financial inclusion • Globally, 170 million poor people receive a regular payment from their government • BUT • fewer than 20% receive their payment into an account at a regulated financial institution through which they can • Conveniently • Affordably • Safely … • save and make electronic transactions

  4. The move from cash to electronic Cutting cost and corruption 1 Duryea and Schargrodsky (2007). 2 Consolidating several social benefits into one payment also accounts for a portion of the savings seen by Bolsa Familia. See Lindert et al. (2007).

  5. Banking poor G2P recipients: early experiences 1 Net1 SEC filings (2009), SASSA (2008), BFA (2006). 2 Ministry of Rural Development (2009); Johnson (2008). 3 Pickens et al (forthcoming).

  6. Growing cohort of G2P programs offer financially inclusive account to recipients Brazil CaixaEconomica migrating 12.1 mil recipients to card-operated bank account accessible via 20,000 agents South Africa ¼ of 9 million people receive payment into accounts at Absa (largest bank) and Net1 India 4 million NREGA recipients choose branchless banking over traditional delivery But globally… Fewer than 1 in 4 G2P recipients get payment into financially inclusive account

  7. Will financial services boost social protection? Financial inclusion can strengthen social protection for poor households • A growing body of evidence shows that access to financial services enables the poor to better withstand shocks, build assets, and link into the wider economy as fuller economic citizens.1 • “Asset effect” says that assets connect people to a more hopeful future, give cause for long-term planning, support entrepreneurial appetite, and raise owner’s standing in eyes of family and friends2 • When youth savings accounts were offered to AIDS-orphaned adolescents in Uganda: 3 • Improved expectations about the future • Increased plans for education (88% to 96%) • Improved their HIV prevention attitude scores (17.2 to 18.5) 1 See inter alia Dupas, Pascaline and Robinson (2008); Ssewamala, Alicea, Bannon and Ismayilova (2008); Littlefield, Morduch and Hashemi (2003); Chen and Snodgrass (2001); Bynner and Paxton (2001); Sherraden (1991). 2 Sherraden, M. (1991). Assets and the poor: A new American welfare policy. Armonk, NY: M.E. Sharpe. See also Bynner & Paxton, 2001. 3 Ssewamala, Fred M., Stacey Alicea, William M. Bannon, Jr., and Leyla Ismayilova, “A Novel Economic Intervention to Reduce HIV Risks Among School-Going AIDS Orphans in Rural Uganda.” Journal of Adolescent Health 42 (2008) 102-104.

  8. Will poor G2P recipients use financial services if offered? Poor G2P recipients will use financial services…if good quality if offered 1 Polis Institute (2007). 2 Gertler, Martinez and Rubio-Codina (2006).

  9. Is building financial services into G2P program expensive? Financially inclusive options may be cheaper than traditional payment arrangements Note: For a social transfer program which delivers a USD 40 grant monthly to 1 mil recipients, a card-based system with 10,000 agents equipped with card-reading point-of-sale (POS) terminals would be 10.8 percent cheaper after five years than a traditional set up paying grants over the counter in cash at a government office or branch of a state-owned bank

  10. Can financial institutions offer services profitably? The business case may be attractive for financial institutions

  11. Conclusion • Conditions need to be enabling: • Appropriate nature of G2P flows to make business case for banks • Regulatory openness to enable branchless approaches • Presence of entity with standing and appetite to spark the change, such as Ministry of Social Development in Brazil • Donors can help design experiments which include measurement of usage of financial services, impact on welfare, and understanding business case for providers

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