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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

cmoyafranco@hotmail.com

Web Sites www.fundacioncapital.org

www.bancadelasoportunidades.gov.co

www.dps.gov.co

www.anspe.gov.co