NAF: Including banking in social programs fosters self-sufficiency

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Governments around the world have used social program payments to foster self-sufficiency by making banking infrastructure and technology a part of the programs, a report from the New American Foundation says.

Among the key factors are a shift from cash payments to electronic methods and advances in branchless banking.

The Washington, D.C.-based think tank says that linking banking services to social program payments can be a "win-win-win" scenario. Governments lower their administrative costs and increase transparency when they rely less on cash, financial institutions gain new clients and capital, and beneficiaries are more able to store their money securely and save.

In 1997, Mexico launched a program where beneficiaries receive payments if their children attended school and get health checkups regularly. It was the world's first known conditional cash transfer program, the report (.pdf) says, and the idea has since caught on around the world.

Over time, some programs have evolved so they're more likely to build self-sufficiency instead of dependency. For beneficiaries, an important step in that direction is access to banks.

Technology has made that access increasingly possible. Mobile phones and ATMs can suffice in places that lack physical bank branches, though governments may need to invest in ATMs, mobile networks and electric grids. People without banking experience may also need to learn to use and trust them, the report notes.

But a shift is already taking place--the report says that since 2009, the amount of government-to-person payments made electronically increased from 25 percent to 61 percent.

Just because people have a greater ability to save does not mean they necessarily will, though. Governments have also experimented with ways to encourage saving, such as matched savings and financial literacy education. Tests of other "nudges" are ongoing, the report says.

For more:
- download the report, "From Protection to Investment: Understanding the Global Shift to Financially-Inclusive Social Protection Payment Systems" (.pdf)

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