Linking Conditional Cash Transfers to Savings and Insurance

1. Linking Conditional Cash Transfers to Savings and Insurance A Promising Path for Poverty Reduction and Financial Inclusion? First Experiences from Latin America Jamie M. Zimmerman Global Assets Project World Bank Finance and Private Sector Development Group November 17, 2009

2. Overview of Presentation • Making Conditional Cash Transfer Programs work for the Poor • Linking Savings and CCTs • Possible Policy Models: Options for Linkages

3. Social policy tool that provides economic assistance to qualified households based on conditional behavior. Emphasis on women, children, persons with disabilities, marginalized minorities, and other disadvantaged populations. Conditions: Human capital investment, such as education, health, nutrition, or other behaviors. Mexico’s Progresa (now Oportunidades), launched in 2002, was the first to implement conditional cash transfers; CCT programs now exist in approximately 30 countries. What are Conditional Cash Transfer (CCT) Programs?

4. CCT Programs around the World, 2008 Image from: Ariel Fiszbein and Norbert Schady, et al., Conditional Cash Transfers: Reducing Present and Future Poverty. Washington, D.C.: World Bank, 2009. As of 2009, CCT programs also exist in South Africa, Tanzania, and the United States.

5. Making CCTs Work Better for the Poor • Scaling up need not be the only priority. • Socio-economic inclusion through policies aimed at asset accumulation, asset protection, and capacity-building. • Can CCT policies have similar positive effects on economic and financial behavior, as they have for health/education behaviors? • Social protection programs • Inclusion of the poor in the formal financial system/economy • The accumulation of financial capital by the poor • Fostering productive use and investment of accumulated assets by the poor to meet economic goals • Moving the poor out of social protection networks • Providing access to other tools that will protect the poor’s assets and reduce their vulnerability to economic shocks.

6. Making CCTs Work Better for the Poor • Few efforts to date have explicitly linked saving or asset-building objectives to CCT programs. • Potential for policymakers to see greater returns on social investment policies through linking saving and asset-building objectives to CCTs. • With the advent of new technologies, savings-linked CCT policies are easy to design and deliver.

7. Linking Savings and CCTs Social policy through an assets lens: poverty alleviation vs. poverty reduction • Moving beyond income maintenance: strengthening the capacity of the poor to invest in themselves and their future. • Asset accumulation and productive use of assets opens a path toward social and economic stability. • Combining policies based on income with those aimed at asset accumulation would have multiple positive psychosocial effects.

8. Linking Savings and CCTs • Social and economic impact on the individual • Potential to influence long-term attitudes and behavior toward finance, social and economic opportunity, and the future. • Role of public policy programs to “nudge” the poor to make “healthier” decisions.

9. Linking Savings and CCTs • CCTs may already affect savings behavior • Limited evidence to date, but demonstrates the positive effects on savings and investment: • Mexico, Oportunidades: Families increased savings and investment levels (invested an average of 12% of their cash transfers in income-generating activities); increased the number of families using banking services; helped families control impulse spending. • Paraguay, Tekporã: Beneficiary families saved 20% more on average than they had prior to the program; highest savings rates occurred among the extreme poor; positive spillover effects in districts where programs were implemented.

10. Linking Savings and CCTs • Innovative CCTs are increasingly easy to design and deliver • Government-to-person (G2P) payment systems: use of prepaid smart and/or debit cards; formal financial system as potential channel. • Less than 25% of G2P beneficiaries receive payments through bank accounts, highlighting a lost opportunity for banks to capture and leverage large volumes of deposits. • Delivering cash transfers through banks means lower administrative costs for CCT programs, and economies and of scale and scope for banks and governments.

11. Possible Policy Models: Options for Linkages Simple Linkage • Basic infrastructure: Simple deposit of CCT transfers into a savings account • Positive effects of the mere presence of a savings account (Bynner and Paxton, IPPR, 2001). • Drawbacks: • Incentives for beneficiaries to use accounts beyond transfer payments is weak. • Banks may find accounts too costly and unsustainable. • Simple connection doesn’t explicitly aim to spur long-term asset creation and future orientation.

12. Possible Policy Models: Options for Linkages Personal Capitalization Account (PCA) • Matching grants deposited directly into account as a reward for saving. • Time-bound: incorporates a mechanism for beneficiaries’ socioeconomic graduate from system • Encourages and rewards beneficiaries for: • Opening individual bank savings account • Strengthening and organizing regular savings • Investing savings into an asset • Moving to a system of monetary transfers reduces operating costs and makes transactions more secure.

13. Possible Policy Models: Options for Linkages Child and Youth Accounts • Gradual accumulation of assets for educational expenses or future productive investments • Potentially valuable market segment for banks • Payments may be structured to meet specific goals • Youth-oriented CCT programs are beginning to utilize an accounts-based transfer approach • Bangladesh: Female Secondary School Assistance Program • Mexico: Jóvenes con Oportunidades • Colombia (Bogotá): Subsidio Condicionado a la Asistencia Escolar • Britain: Education Maintenance Allowance

14. Possible Policy Models: Options for Linkages Connections with Microinsurance and Other Financial Services • Poor will remain vulnerable to economic and personal shocks even with asset accumulation • Combine savings-linked CCT programs with microinsurance and the implementation of consumer protection policies and guidelines • Access to microcredit and microenterprise training and/or technical assistance

15. Thank You! For more information, visit us online at: www.GlobalAssetsProject.org Contact info: Zimmerman@newamerica.net 001-202.596.3362 www.newamerica.net