Government 2 People: Direct Cash Transfers Can Bank the Poor

Recently, CGAP released their latest focus note on banking the poor through G2P payments. It points out that Governments make payments to 170 million worldwide for social programs or wage payments but less than one quarter of these payments actually helps further financial inclusion. How can we make these direct cash transfers offer other products such as savings accounts, for which there is a high demand and low supply?

• Recipients of the Caixa Economica in Brazil can use easy accounts through more than 20,000 touch points available in the country, including POS-equipped merchants who handle deposits and withdrawals, ATMs and branches.
• The Opportunidades program in Mexico offers a full savings account in a state owned bank and more than 1.5 million participants have elected to use that.
• 45% of the recipients in Malawi of the Dowa Emergency Cash Transfer scheme which ended in 2007, are still using their bank accounts more than two years later.

So if technology can indeed overcome the hurdle of banking the poor, my next question is can it also overcome problems of accountability? How can we make sure that (a)the money reaches the poor for whom it is intended and (b)that it can be used for what it is intended? Take for instance, India’s flagship cash transfer, NREGA, on the strength of which the Congress party won its second term of power last year. In rural areas of states such as Bihar and Jharkhand, there are serious issues of transparency and accountability. Powerful landowners often manipulate the system to pilfer benefits for themselves, paying the farmers in kind or only half their entitlement. Some poor women farmers I met in Bihar told me that they were getting a lower daily rate than men for the same amount of hours and they had been told that was the rule.