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Cash Transfers and Financial Inclusion
Programs to promote Financial Inclusion in Colombia
Carlos Alberto Moya Franco
Cash Transfers and Financial Inclusion: Colombia's experience
1. Introduction
2. Familias en Acción (CCT Program) payment mechanisms
3. Promoting Savings for CCT recipients
4. Complementary financial products for CCT recipients
Colombia
Area: 1.2m km2
Population: 46m
Rural Population: 25.7%
GDP growth:
Colombia: 5.9%
Latin America: 4.3%
GDP per capita:
Colombia: US$10,000
Adult population without access
to financial services:
2006: 53%
2012: 34%
Population living in poverty: 2008: 46.0%
2011: 34.1%
Population living in extreme poverty:
2008: 17.8%
2011: 10.6%
CCT program of Colombia created in 2000 (G2P)
National outreach
2.5 million families of beneficiaries
Subsidies conditioned on nutrition and education indicators for families with children under 18 years old
Average payment of US$90 every two months (6 payments per year)
Colombia’s CCT Program: Familias en Acción
Cash Transfers and Financial Inclusion: Colombia's experience
1. Introduction
2. Familias en Acción (CCT Program) payment mechanisms
3. Promoting Savings for CCT recipients
4. Complementary financial products for CCT recipients
S 2000 – 2007: Cash Transfers
Evolution of CCT Payment Mechanisms
Year Mechanism Challenges
2000 –
2005
Cash transfers, paid at
bank branches
•Travel time and cost for mothers to collect
payment
•Long lines
•Demand for liquidity surpasses branches’
capacity
2005 –
2007
“Extended cashiers”
introduced to pay at some
municipalities without bank
presence
Transport cash in helicopters to recipients
in rural municipalities
2007 Prepaid cards in 7 main
cities
Beneficiaries could withdraw cash at ATMs,
but the network collapsed because it
reached maximum transaction level
2009 - 2011 Savings accounts In some cases, agents lacked liquidity on
payment days because of huge demand for
cash out
Since late
2011
M-banking solutions Interoperability problems, cash in and out
network, lack of familiarity of the recipients
with new tech.
Determinant factors:
Financial presence in almost ALL municipalities of the country: Bank agents are essential
Design and development of Electronic Savings Accounts (Basic accounts): No frills & full fledged account only for lowest income population
Simplified procedure to open low-balance savings accounts: Fewer Know Your Client requirements
Payments through Savings Accounts
Outcomes:
2.5 million beneficiaries already banked: with a savings account and debit card for withdrawals
Almost US $1 billion paid yearly through savings accounts
Convenience for beneficiaries to withdraw their savings: No long lines, no displacements to other municipalities, ability to withdraw anytime
Payments through Savings Accounts
Number of cell phones in Colombia > population and full mobile signal outreach
Advances in Colombia to create adequate business climate for M-banking
Banks starting to implement M-banking models, both to reach the unbanked and operate savings accounts
Opportunity to use M-banking for CCT payments: Lower costs, more efficiency, security and comfort
Currently: M-banking
Evolving towards M-banking
At the beginning Then Now
Cash Transfers and Financial Inclusion: Colombia's experience
1. Introduction
2. Familias en Acción (CCT Program) payment mechanisms
3. Promoting Savings for CCT recipients
4. Complementary financial products for CCT recipients
Linkage between CCT program and savings
account: Financial inclusion for the poorest
Savings account as an entry gate to other financial services which allow graduation.
Importance of the USAGE of Savings Accounts
Having a savings account opened is an important starting point, yet it does not necessarily implies that people actually save in them.
So, how can we promote that CCT recipients actually USE their savings accounts as so, instead of only using it as a transactional mechanism?
Promotion of savings culture: for CCT
beneficiaries who opened accounts
(Fundación Capital and Ford Foundation)
Objectives
Transform part of informal savings into formal financial savings
Increase savings and, in the long term, accumulation of liquid assets
Facilitate financial transactions through secure and efficient means
Tools
Financial Education (Aims to change financial
behavior)
Monetary Incentive to promote
formal savings
Joint Intervention: Financial
Education + Monetary
Incentive
Measuring impact of increasing savings on improving families’ wellbeing Evaluate the relative importance of Monetary Incentive vs. Financial Education to motivate savings
Project Evaluation
“I learned to be entrepreneurial to create my own business, I learned that savings is the most adequate way to achieve goals and life projects and to improve my wellbeing”
“I’m doing savings plans to be able to finish my house” “It is important to know how to manage the money borrowed to
avoid (negative) consequences” “I learned that it is important to make a good analysis of credits
and conditions to avoid future failures” “Because I learned here a lot about why it is important to save for
our future and unforeseen needs” “Because in the courses we learn that it is important to save for
the future”. “We learn to save and to assure a future for our families”
THEY ANSWERED AS “VERY LIKELY” WHEN ASKED ABOUT THE POSSIBILITY OF LEAVING PART OF THE SUBSIDY RECEIVED FROM CCT -
FAMILIAS EN ACCION AT THE BANK ACCOUNT.
CCT beneficiaries opinion about the program
CCT beneficiaries still fear to leave money in their accounts as savings for different reasons (based on disinformation), with myths like: If I leave too much money in the account the Government might
think I don’t need the money of the subsidy, or I’m no longer poor and thus fear to be excluded from the CCT progam
I have to take all the money from the subsidy inmediately or otherwise I will lose it (as used to happened with the former cash trasnfers mechanism)
The accounts opened to recieve the subsidy are only for this purpose (not for additional / voluntary deposits)
Fear and bad image of banks: They charge for everything and
“steal”the money, feel safer to keep money at home. Some beneficiaries are still not familiar with new technologies and
need to ask for help to use debit cards, withdraw cash and use the cell phones.
Challenges
Banca de las Oportunidades is currently carrying out an impact evaluation on the “Savings culture promotion” program and preliminary results show that: Beneficiaries in the “Savings culture promotion” program
save more than the control group The “joint intervention” of monetary incentive and financial
education programs has a stronger impact than either one of the individual interventions
Though the increase in savings is statistically significant (compared with the control group), the savings account balances of the beneficiaries are still very low (average of balance is below US $50)
Preliminary results
Cash Transfers and Financial Inclusion: Colombia's experience
1. Introduction
2. Familias en Acción (CCT Program) payment mechanisms
3. Promoting Savings for CCT recipients
4. Complementary financial products for CCT recipients
Design of an adequate microinsurance
product for the CCT recipients.
Pilot project to give life and funerary microinsurances to 50.000 families in extreme poverty: Currently under implementation, with perspective to expand to 1.5 million beneficiaries, based on results.
Development of specialized
microinsurance products: crops, property and against disasters
Microinsurance
Promotion of the development and use of adequate instruments to
mitigate the adverse effect of economic shocks, natural disasters
and emergencies, for the lowest income population.
Contact Information
Web Sites www.fundacioncapital.org
www.bancadelasoportunidades.gov.co
www.dps.gov.co
www.anspe.gov.co