Banking the Unbanked via

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Banking the Unbanked via Government-to-Person
(G2P) Payments Sarah Rotman, CGAP September 16,
2009
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Government-to-person payments Definition
G2P includes cash payments related to social
programs as well as wages, pensions and other
payments
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Potential for financial inclusion

• Globally, 155 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

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Access to finance bolsters social protection
Financial inclusion can help strengthen
social safety nets

• 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 owners 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.
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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).
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The move from cash to electronic
Going electronic enables branchless channels to
provide financial services to poor G2P recipients
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
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Making the business case for banks
Figure G2P Flows Suitable for Pairing with Basic Banking Figure G2P Flows Suitable for Pairing with Basic Banking
Feature Rationale
Large number of recipients Scale needed to attract and retain interest of banks
Large payments, relative to recipient income Greater potential for sizeable float revenue
Frequent schedule of payments, not scheduled to end in short term Recurring stream of payments generates dependable fee income for banks Promise of future payments encourages recipients to utilize and become familiar with operating the account.
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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).
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Banking poor G2P recipients early experiences
Customer Willingness
1 Polis Institute (2007). 2 Gertler, Martinez and
Rubio-Codina (2006).
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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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