Transcript Slide 1

Social Cash Transfers and Financial Inclusion:
Evidence from Four Countries
November 2012
CGAP: an independent policy and research center
CGAP is an independent policy and research center dedicated to
advancing financial access for the world's poor.
It is supported by 34 development agencies and private foundations who
share a common mission to alleviate poverty.
Housed at the World Bank, CGAP provides market intelligence, promotes
standards, develops innovative solutions and offers advisory services to
governments, service providers, donors, and investors.
At a glance:
•
8 locations: offices in Washington DC and Paris, with 6 regional
representatives based in Abidjan, Dhaka, Moscow, Nairobi, Beirut and
Singapore
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~50 staff
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150,000+ copies of CGAP publications distributed annually
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Sought to address key questions
1. For government: Is building inclusive financial services into social
transfer programs affordable for the social program?
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COST
2. For recipients: Will poor recipients use financial services if these are
offered to them?
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USAGE
3. For providers: Can financial institutions offer financially inclusive
services to G2P payment recipients on a profitable basis?
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BUSINESS CASE
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Social Cash Transfers and Financial Inclusion:
Evidence from Four Countries
South Africa’s Social
Security Agency
Mexico’s
Oportunidades
Colombia’s Familias en
Accion
Brazil’s Bolsa Familia
• Various unconditional transfers reaching 9 million recipients
(30% of population)
• Various payments methods: prepaid smart cards and magstripe cards
linked to account
• CCT program started in 1997 reaching 6 million households
(20% of population)
• Bansefi has various payment mechanisms, including cash, magstripe
cards linked to accounts, smart cards
• CCT program reaching 2.4 million families (11% of population)
• 1.8 million interest-bearing savings accounts opened by Banco Agrario
• CCT program reaching 12.9 million families (30% of population)
• 2 million recipients receive grants into simplified current account
accessible via magstripe card
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Updated Payments Categorization
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Government Costs
BRAZIL
COLOMBIA
MEXICO
SOUTH AFRICA
Average grant per recipient
$71.0
$55.1
$118.2
$144.7
Average cost per payment
$0.84
$6.24
$2.52
$3.50
As % of average grant
1.2%
11.3%
2.1%
2.4%
N/A
$5.20a
$2.35
N/A
Limited purpose payment
$0.88
$6.24
N/A
$4.46
Mainstream financial account
$0.60
N/A
$2.84
$2.03 or $0.10b
1.62 BRL
1784.5 COP
12.4 MXN
7.2 ZAR
Cash payment
Rate used in conversion:
1 USD= (15 August 2011)
a. Under previous contract; included for comparison only since current contract has no cash payment as defined.
b. $0.10 is the fee paid by SASSA to make a bulk electronic transfer into client bank accounts via the Automated Clearing Bureau; the
recipient then pays any costs associated with using the account directly.
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Government Costs: per country
Brazil
•MDS pays Caixa a fee that is 31% lower ($0.88 compared to $0.60) for a recipient with a
mainstream Caixa Facil account than for a limited-purpose Social Card
•MDS saves 5.8% of cost of payments by having 15% of banked recipients. If all payments
shifted to Caixa Facil, MDS would save 31.5%.
South Africa
•SASSA also pays a fee that is 54% lower ($4.46 compared to $2.03) for a recipient with a
mainstream financial account
•Payments made into bank account of recipient’s choice, bulk electronic transfer costs 10c.
•If SASSA receives reports for reconciliation, benchmark is $2.03.
Colombia
•Electronic payments are not cheaper than cash
•Fee paid to sole bidder Banco Agrario is $6.24 USD, a substantial increase from previous
cash payment fee of $5.20.
•High price reflected the short term nature of the initial contract and bank’s need to upgrade
its system, issue millions of debit cards, capture biometric information and build a new
merchant network.
Mexico
•Payments into mainstream financial accounts are slightly more expensive than cash
payments ($2.84 compared to $2.35).
•Gov. set norms for distance recipients should have to travel to collect payments, resulting in
higher costs across thinly populated areas.
•In 2010, President directed all G2P disbursements to electronic means by end of 2012.
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Government Costs: main takeaways
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Case of Brazil & South Africa:
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Evidence shows that move from cash to electronic payments can be
less expensive for the programs
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Evidence shows that it may be cheaper to use mainstream financial
accounts from the start, rather than get stuck in limited purpose,
closed loop systems
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Case of Colombia & Mexico: Evidence shows that cost per payment
increases if upfront development of new distribution network is included
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Case of Colombia: Limited purpose instruments should be implemented in
a way that makes it possible to easily transition to mainstream financial
accounts later
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Recipient Usage
Evidence from
research
• Recipients welcome convenience of electronic
payments over cash.
• Tejerina and Maldonado (2010) report that recipients
in Colombia saved only 9 minutes on average after
transition to bank accounts, but saved 15% of travel
costs and cut the waiting time from 5 hours on
average to 30 minutes.
• Few recipients automatically use new bank account
to save or for much else beyond withdrawing
benefits.
• Causes of low customer use beyond withdrawal
may be:
o Beneficiaries don’t know about account
functions
o Beneficiaries may fear losing their entitlement
if they leave a balance
o Beneficiaries perceive that unpredictable fees
reduce account balances. Free balance enquiries
may be important to build trust.
o The accounts may be poorly designed or
inconvenient
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Business Case for Providers
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Business Case for Providers: average balance needed
Illustrative Financial Model: informed from 4 country experiences
Revenue
Average balance
Interest recognized
$246
5%
Transaction fees
Rare
= $10-$15
Average balance needs
to be $246 to make
account profitable
without government
fees. Typical balances
are $10-$15.
Fixed costs
Opening cost
$10
Monthly maintenance
$0.75
Dormancy rate
20-40%
Variable costs
Transaction pattern
1 withdrawal; 2 balance inquiries
Unitary cost of each transaction
$0.25-$3
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Business Case for Providers: average balance needed
Illustrative Financial Model: informed from 4 country experiences
Revenue
Average balance
$10-15
Interest recognized
5%
Transaction fees
Rare
Fee income of $0.97 per
month is needed for
bank to break even on
account.
Fixed costs
Opening cost
$10
Monthly maintenance
$0.75
Dormancy rate
20-40%
Variable costs
Transaction pattern
1 withdrawal; 2 balance inquiries
Unitary cost of each transaction
$0.25-$3
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Business Case for Providers: main takeaways
• Business case depends on receiving a regular fee from government. If this fee
is at an adequate level, the business case can be attractive.
• Without fee, business case is challenging. Governments cannot assume that
banks get sufficient revenue from interest on float or from cross-selling.
• In time, a combination of increasing balances, more customer-initiated payment
transactions and cross-selling may support a stronger business case.
• An efficient widespread agent distribution network is key factor in reducing cost of
opening accounts and servicing client transactions.
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1. Link G2P to the General Retail Payments Ecosystem
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2. Design payments framework based on country context
1. Where is the country starting from in terms of available
infrastructure, available providers with necessary expertise and a
government willing to innovate?
2. Benefits will look very different to governments, recipients,
providers in different countries.
3. Understand the correct sequence from cash-heavy to cash-lite,
even in different parts of the country at different speeds
4. Design payment arrangements to integrate with other payment
channels - path most likely to reduce cost and improve efficiency
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3. Smart and appropriate tendering is critical
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Case of Colombia: Limited purpose instruments should be
implemented in a way that makes it possible to easily transition to
mainstream financial accounts later
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This is not a straightforward procurement of a standard good or
service e.g. car, computer, or cleaning contract
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Objective of TOR is to clearly define a ‘problem’ and encourage a
variety of possible ‘solutions’ from potential bidders
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Messy procurement process in South Africa
State
slammed
over
social
grant
costs
A number of problems have arisen
around the ability of the South African
Social Security Agency to manage its
social grant distribution programme.
By INet Bridge, I-Net Bridge, Updated: 2010/07/07
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A number of problems have arisen around the ability of the South African Social Security
Agency (Sassa) to manage its R84 billion social grant distribution programme.
The problems relate to internal crime and corruption, inefficiency and high costs.
Key solutions will be to implement a single tender process - Sassa has not awarded a new tender
for three years - and to reduce the high cost of distribution, reported to be as much as 10%.
Government wants a move to 80% card and 20% cash split for the social grant distributions - to
reduce costs for them, but many clients have trust concerns around a card and still want cash.
At the moment, it costs government nearly double to distribute cash via agents that it does for
card distribution.
A problem is that government has not provided tenders for three years, and banks say they
need to build sustainable businesses via longer tenders.
Source: Bankable Frontier Associates
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Messy procurement process in South Africa
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Source: http://www.iol.co.za/news/crime-courts/awarding-of-social-grants-tender-illegal-invalid-1.1371727#.UEJDImthiSM 18
4. Financial inclusion is a key added benefit of payment
Enhance impact of cash transfers
Reduce vulnerability to shocks
Smoothing consumption
Save for future consumption, asset purchase
Benefits to non beneficiaries
Graduation from grant dependence
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Resource
Bold. Chris, David Porteous, and Sarah
Rotman. 2012. “Social Cash Transfers
and Financial Inclusion: Evidence from
Four Countries.” Focus Note 77.
Washington, D.C.: CGAP, February.
Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org