Cash Transfers and Financial Inclusion: Natural Bedfellows?
September 12, 2012 in Center for Financial Inclusion, Expert Exchange
Blog Series, Financial Inclusion 2020 | Tags: Expert Exchange Blog
Series, Financial Inclusion
Posted by Vishnu Sridharan, Program Associate, New America Foundation
This post is part of the Center for Financial Inclusion's Expert
Exchange: Building A Movement Toward Financial Inclusion by 2020,
cultivating conversation around the goal of reaching full financial
inclusion by 2020. For further questions about this series, write to
Sonja E. Kelly, Fellow, Center for Financial Inclusion at Accion.
Since the launch of Mexico's first conditional cash transfer program in
1997, governments from Nicaragua to Nigeria have adopted similar
approaches to mitigate the worst effects of poverty. In fact, the New
America Foundation's Global Savings and Social Protection Database–which
currently focuses on Latin America, Africa, and Asia–has identified over
90 cash transfer programs in 45 countries in the developing world, with
over half a billion beneficiaries. In the past 3 years alone, as the map
below shows, 15 cash transfer programs have been started, expanded or
redefined, which gives us some indication of these programs
effectiveness and feasibility.
The rapid expansion and development of cash transfer programs spells
good news for financial inclusion proponents, our recent research
suggests. At root, this is because regular cash transfers between
governments and individuals (G2P payments) are, at least on face, a
natural springboard to financial inclusion.
Although the trends are far from uniform, three independent movements
within cash transfer programs are leading to the expansion of access to
formal financial services by low-income households.
1. Shift Away from Cash: It is argued that multi-lateral donors,
governments, and individuals benefit when money is transferred
electronically to a bank account, onto a card, or into a mobile wallet.
Arguments for the benefits of dumping physical currency include
increased transparency in payments, greater safety for recipients, and
more innovation in the private sector. This is a positive development
for financial inclusion because electronic transfers are easier to bank
than cash. The shift away from physical currencies to electronic
payments has been helpful to financial inclusion efforts from Colombia
to Fiji, and will be important moving forward for countries such as India.
2. Promoting Long-Term Resiliency: Cash transfers may catalyze long-term
resiliency as opposed to simply enabling short-term consumption. First,
in emergency and fragile situations, the observation that it is
important not simply to rebuild broken homes but also guard against
future emergencies is leading many programs to have longer time
horizons, as happened in Ethiopia with its Productive Safety Net Program
and in Haiti with the country's first conditional cash transfer program,
Ti Manman Cheri. Second, in countries that have established cash
transfer programs, for example in Peru and Chile, there is a growing
emphasis on helping beneficiaries 'graduate' from poverty, These
movements toward helping individuals build assets is a boon for those
promoting financial inclusion, as it is hard to imagine one taking place
without the other.
3. Policy Advocacy: As a result of the awareness-raising efforts of
countless financial institutions, foundations, and individuals,
financial inclusion has found a place to stay on the policy agendas of
governments and multi-laterals that are implementing cash transfers the
world over. Evidence of this abounds on the global scale — see the
recent G20's work on financial inclusion — and on the national scale —
see (inter alia) recent pushes for financial inclusion in Colombia,
Fiji, Peru and Kenya. These policy efforts gain all the more credence as
evidence accrues with respect to the drawbacks of cash and the
importance of long-term resiliency.
While these trends are likely to continue, we still must ensure that
financial inclusion actually has a positive social impact. On this
point, multiple concerns persist, including the low usage of bank
accounts among cash transfer beneficiaries and the growing consensus
that, for the poorest of the poor, access to financial services by
themselves serves little purpose. For these populations, more robust
interventions such as BRAC's Challenging the Frontiers of Poverty
Reduction: Targeting the Ultra Poor (CFRP TUP) program, a model that is
currently being piloted in 10 countries around the world by CGAP and the
Ford Foundation, seem more appropriate.
Given the rapid shift away from cash payments and our increasing
understanding of the importance of asset building, a future of full
financial inclusion is not all that difficult to imagine. What seems
more challenging, however, is making sure that financial inclusion is
meaningful for everyone, including the marginalized, socially excluded,
and chronic poor.
Vishnu Sridharan is a program associate with the Global Assets Project.
Before joining New America, Vishnu worked with the Global Network for
Public Interest Law in New York and Beijing, as well as with Deutsche
Gesellschaft für Internationale Zusammenarbeit (GIZ). He was also a
Peace Corps Volunteer in El Salvador from 2004-2006, where he focused on
government transparency, citizen participation and community-initiated
development.
He holds a J.D. from Stanford Law School and a B.A. from Columbia Colleg
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