Saving money in a bank account – the basis of all financial services and a tool for civic inclusion – enables low-income people, especially women, to even out levels of consumption; facilitate productive investment; increase their negotiating power, self-esteem, social influence and political participation; and better protect themselves against family and business risks. It can also reduce operating costs and increase the impact of existing Conditional Cash Transfers (CCT). This project therefore proposes incorporating an instrument for access to formal financial services, especially savings, into various social protection programs.
We offer ten reasons why a CCT program should promote the inclusion of its beneficiaries in the financial system. That process begins with the opening of savings accounts for paying CCTs and mobilizing savings, as a tool for financial education and savings incentives.
CCT and financial inclusion programs pursue the same goal
Providing traditionally excluded populations with resources and instruments that facilitate their exit from poverty. CCT programs are social protection programs aimed at combating poverty among vulnerable groups by providing subsidies that are subject to compliance with certain conditions designed mainly to increase the beneficiary households’ human capital. Financial inclusion seeks to give people who are traditionally excluded from the financial system access to a wide array of services provided by formal financial institutions (deposits, credit, transfers, micro-insurance, etc.), because these tools help households manage their resources better over time and cope with the risks to which they are exposed. CCT and financial inclusion programs essentially pursue the same objective: reducing the vulnerability of the poorest people and fostering efficient use (consumption) and investment of their limited resources.
Providing tools that facilitate the graduation of families receiving CCTs
Most CCT programs seek to reduce poverty by increasing the human capital of future generations; nevertheless, they lack graduation mechanisms aimed at ensuring that the current generation (CCT recipients) creates sources of income that help it move out of poverty. Providing a safe, low-cost (ideally no-cost) mechanism for saving will facilitate accumulation. Access to micro-insurance, efficient transfer systems and credit services will also give households the financial tools they need to better deal with adversity. The goal is to offer more and better financial tools to groups that already use these or similar products informally.
Helping beneficiary families even out consumption
A financial inclusion program that focuses on mobilizing savings does not contradict CCT programs, which seek greater and better levels of consumption in recipient households. Because poor households – and, therefore, the families that benefit from CCTs – already save in traditional ways (hiding money in the house or keeping animals, jewelry, seeds, etc.), opening a savings account merely expands the range of savings tools available to them, providing a more efficient way to accumulate resources. Saving in general, and financial saving in particular, because it is more secure, plays a decisive role in enabling low-income families to even out their consumption by allowing better income and cash flow management, facilitating management of seasonal fluctuations, and offering a source of resources for emergencies. Recent studies show that most CCT beneficiaries save part of their transfers informally.
Reducing operating costs of CCT programs
Payment of subsidies through deposits in a savings account can significantly reduce the costs of making that payment, including costs associated with verifying the beneficiaries’ identity (the account requires just one verification when it is opened), costs resulting from fraud that may occur if someone impersonates a beneficiary, and illegal commissions charged when cash is delivered, or the costs associated with the transportation of cash when the government takes on that task. Making transfers via deposits in a savings account also increases transparency, reinforcing the legitimacy of CCT programs.
Taking advantage of the installed capacity created by CCT programs
CCT programs have created a solid, highly decentralized institutional infrastructure in which the recipients of the subsidies often participate. This pyramidal structure provides a single platform for promoting a massive financial inclusion program in which financial education is an essential tool. CCTs are often the only programs that effectively reach the poorest, most excluded groups in the region, with a logistical capacity that other programs have not achieved.
Ensuring that financial inclusion is massive and targeted
CCT programs, by nature, are massive and target the poor. An overwhelming proportion of this population must resort to informal financial instruments, such as usurious money lenders, saving at home in the form of money or animals, transfers by illegal transportation services, etc. Such instruments not only have a higher cost, but they are also riskier than financial services provided by formal entities. Facilitating access to formal financial services, beginning with the opening of savings accounts as a means of paying subsidies, can lead in a relatively short time to massive financial inclusion that targets the poor.
Providing CCT recipients the opportunity to save safely
When CCTs are paid by deposit to a savings account in a financial institution, the recipient must go to the institution to withdraw their transfer. If recipients want to use the savings account, they may do so, but they are also free to withdraw the entire CCT amount. One great advantage of the savings account is that the users assume no risk in using it, and they can decide for themselves when and how much of the CCT they would like to keep in the account.
Stimulating an appropriate supply of financial products for CCT beneficiaries
The beginning of financial inclusion through the opening of savings accounts for payment of subsidies opens the door to the financial system for people who have been excluded from it. More importantly, it can unleash a potential demand for financial services that, because of its size, represents an opportunity for financial institutions to provide ongoing services to this segment of the population.
Creating incentives for financial institutions increase their financial depth
Because of the number of beneficiaries, financial inclusion through the mobilization of savings gives financial institutions access to a significant source of funding at low financial cost. It also represents an opportunity for financial institutions to continue penetrating the base of the pyramid sustainably, through cross-selling and creation of economies of scale.
Taking advantage of a unique opportunity
Poverty is basically a problem of lack of access (to markets, information, education, health, water, basic sanitation, etc.). Access to formal financial services, especially deposit services, can be crucial for helping households reduce their vulnerability and accumulate resources for productive initiatives. Stimulating massive demand for this type of financial service requires financial institutions to take seriously the challenge of bringing the poorest people into the banking system. Many efforts have been made to accomplish this, but the limited scale has always been a significant obstacle. Because of their scope, organization and negotiating power, CCT programs offer a great opportunity to catalyze successful financial inclusion. Not to do so would be to squander a golden opportunity on the road to a more inclusive society.
- The most common conditions include regular school attendance for children in the household, prenatal care for pregnant women, and periodic checkups for newborns.
- For example, a bad harvest, the death of a family member, an accident, theft, etc.
- The case of farmers is a good example of how rural households can deal with the difficulty of receiving a significant amount of money from harvest income and distributing it over time.