> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities
Can government-to-person (G2P) payments to low-income beneficiaries translate into their formal financial inclusion? This might happen if those beneficiaries can gain experience in dealing with a formal financial service provider (FSP) when they pick up their payments. This is especially the case where the government pays the beneficiaries of the program through a digital channel, such as a debit card or mobile money, and the payment pick-up process gives beneficiaries the chance to interact directly with this new technology. Furthermore, given that G2P programs are often targeted at women, there is the potential for these programs to increase the inclusion of the half of the population traditionally more excluded from formal financial services.
As part of the CFI Fellows Program, Microfinance Opportunities, in partnership with the Pakistan Microfinance Network and Centro de Formación Empresarial de la Fundación de Mario Santo Domingo, looked at the relationship between G2P payments and financial inclusion. For this project we analyzed global survey data and conducted field research in Colombia and Pakistan—two countries with large, well-established G2P programs.
The focus group discussions with the beneficiaries of the Familias program in Colombia showed the potential of G2P programs to have a direct effect on enabling women to become comfortable with using digital channels to receive money. The women unanimously reported that they used their Familias debit cards to withdraw their G2P payment from an ATM without any help from anyone else. They did report that, at first, they needed help, but soon learned how to use the cards themselves without any problem.
“… I have the money today and we can withdraw it in just five minutes, right? I think it is easy.” (La Calera, Bogotá, Urban)
Nevertheless, despite the fact that women in Colombia have gained facility in withdrawing their payments from ATMs and other outlets, this has not led them to become more financially included. They withdraw all their money at once, and make little or no use of the functionalities of the accounts through which the government pays them. Furthermore, the fact that they have an account with a bank has not translated into their using any other services banks offer.
The women gave various reasons for not using their Familias accounts to manage their money, even though that account allows them to leave money in the account and deposit money into it. The reasons fall into three main categories: a lack of information, a lack of trust, and convenience.
A majority of the participants in the focus groups who received their Familias payment through Banco Agrario did not know that there was a savings account linked to their debit card or that they could save in the account.
If they had information about the account, it was often inaccurate. For example, they thought the account was limited to receiving and withdrawing Familias payments in limited amounts. In the same way, those beneficiaries who received their payment through Daviplata—a mobile money service—did not always know they had a mobile wallet, and, as a result, an account they could use to send and receive money and make deposits. Other participants who knew about the mobile wallets thought that they could only be used for the program. Furthermore, the women thought that if they were temporarily suspended or withdrew from Familias, their accounts would be closed.
In most cases, the participants reported that they withdrew all the money they received in one transaction. One reason they gave was worry that the balance might be “taken back” by the government—they do not trust the Familias accounts. Some participants reported that, in fact, when they had left a balance it shrank over time. This might have been due to the fees Banco Agrario charges for more than two transactions per month, including balance checks.
“No, because once I left $20,000 pesos and then I tried to withdraw the money and there was nothing there. I asked the Familias program and they told me that I should not have left it there.” (Codito, Bogotá, Urban)
“… Because when we received this debit card, they told us that we could save money there and nothing will happen. But, we fell into the trap and they took the money away…” (Codito, Bogotá, Urban)
The participants also reported hearing lots of stories about “lost money” that involved other beneficiaries, and those stories pointed to problems with the ATMs, hidden bank fees, and penalties imposed by the program for not withdrawing the funds, amongst others.
Not all the participants in the focus groups mistrusted the Familias accounts. Some participants noted that one advantage of the debit card attached to an account was that you could leave money in the account, whereas if you receive a payment through a giro check you cannot. As a result, a number of women reported leaving small amounts in their account:
“There are always little balances there. I hope that with the next payment I have more than $ 10,000 pesos. I always verified if these balances are there. They are increasing little by little and nobody has taken them away.” (Sabana Grande, Barranquilla, Rural)
Beyond the issue of trust, the focus group discussions made it clear that the women simply preferred to keep their money at home in a piggy-bank (“alcancía”) or in their purses as a matter of convenience—to enable them to have easy access to the cash to pay for day-to-day necessities or deal with an emergency. They did not like using banks or other types of financial service providers because they thought they had minimum deposit rules or simply because they were not accessible.
“It is safer in the house because you know you have it there…” (Codito, Bogotá, Urban)
“…we save small amounts of $1,000 pesos, $2,000 pesos [in the piggy-bank]… the bank does not accept smaller amounts.” (San Juan de Nepomuceno, Cartagena, Rural)
“The piggy-bank [is better] because when I withdraw money from ATM, it charges me a fee.” (San Juan de Nepomuceno, Cartagena, Rural)
Relationship with an FSP
There was a general perception among the participants that banks did not offer products suitable for them because of their high fees and interest rates or because they were out of reach for someone of their socio-economic status. However, some participants, despite not using their Familias account regularly, knew about and used other financial services offered by other banks and financial service providers not linked to Familias. None of the participants thought that having a Familias account in any way made it easier for them to get access to other services.
For example, there was a small group of women who had savings accounts, loans outstanding, or had borrowed in the past. In large part, these were business owners and were better educated than the other participants in the focus groups. Again, the women stated that there was no connection between their use of these services and their participation in the Familias program.
The participants in the focus groups had a generally favorable view of banks and thought they could be useful in helping finance large purchases such as for homes, land, or businesses. In their view, banks offered lower interest rates and better terms than other, informal sources of credit. Given their economic status, the women did not think they would meet the requirements of the bank today, but hoped that someday in the future they might.
The women said they preferred to borrow from family or informal lenders when they need money for a necessity or an emergency. Informal lenders had an advantage because they lend money quickly, but those lenders also charged interest and required timely repayment. Family sources might take a little longer to get the money but did not charge interest and were flexible about repayment timing. Banks require a lot of paperwork, collateral and/or guarantees, and are slow to deliver the money.
“The bank asks you some requirements… you have to earn more than a minimum wage for a loan, and at the end, you can get a loan for not more than $500,000 pesos. They analyze what expenditures you have at home, and suddenly they answer that you are not eligible for that loan. If you do not have credit rating it is impossible.” (Codito, Bogotá, Urban)
The one way in which the women did link their families more closely to the formal banking system because of Familias was through their children. Many women reported having opened a bank account for their children, and that this was encouraged by Banco Agrario and the Familias program. They liked the accounts because the bank did not charge any use fees. The data suggest that the women who had opened such accounts were generally more financially literate.
“…because I opened a savings account for my daughters in Banco Agrario and once I made a transfer from my account to their account. I took it out from the program account and I passed it to their account.” (La Calera, Bogotá, Urban)
“They told me in Banco Agrario that I could open a free account for my two minor children. That was part of the Familias program.” (Tunjaque, Bogotá, Rural)
In sum, even though the women who participated in our focus groups in Colombia were very comfortable using their Familias accounts, that comfort did not translate into their using those accounts to help them manage their money, except in a few cases. Furthermore, it was clear that they saw no benefit from being part of the program in terms of gaining access to other financial services. The one exception was the accounts they were able to open on behalf of their children. Based on these findings it is fair to say that in Colombia G2P payments to low-income people offer no easy on-ramp to formal financial inclusion. Advocates of inclusion who are seeking to make this ramp smoother and less steep, need to tackle the issues of misinformation, trust and convenience.
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