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Electronic social transfers a stepping stone to financial inclusion, CGAP / Governments in Brazil, Colombia, Mexico and South Africa Moving Toward Electronic Social Cash Transfers

By The World Bank

WASHINGTON, February 29, 2012/African Press Organization (APO)/ -- CGAP has released new research showing that moving from cash to electronic delivery of social transfers directly into bank accounts can reduce administration costs. Recipients find electronic transfers more convenient, and they may also open a portal to greater financial inclusion.

Social Cash Transfers and Financial Inclusion: Evidence from Four Countries hones in on four specific country experiences to answer questions about the affordability, profitability, and use of electronic payment systems. Researchers analyzed data from governments, social cash transfer recipients, and payment providers to get a clear picture of government-to-person (G2P) payment systems in Brazil, Colombia, Mexico, and South Africa, all countries where governments are moving increasingly toward the electronic delivery of social cash transfers into bank accounts.

“In the four countries, we expect that all recipients will be paid directly into their bank accounts within the next 10 years. This highlights the opportunity not just to reduce costs for the governments issuing the payments, but also to ensure that the poorest citizens get access to a formal bank account.” said Sarah Rotman of CGAP.

“Some countries are leveraging limited-purpose payment instruments rather than mainstream financial accounts for the delivery of payments,” notes Chris Bold, a co-author. “Some of these systems create a closed-loop since they can't integrate with a wider array of financial services. These systems often fail to lead to increased financial inclusion and may cost more in the long run than delivering payments directly into mainstream bank accounts.”

G2P payments reach a huge number of people. In the four countries covered in the research, social cash transfer recipients totaled about 30 million people and represented nearly one-third of the populations in Brazil and South Africa. Recipients interviewed for this research valued the greater convenience associated with electronic payments compared with the alternative of cash, and the speed and scale of the move toward electronic payments is striking. This is especially true in Colombia, where the proportion of recipients paid into bank accounts increased dramatically from 24% in 2009 to 91% by 2011.

Evidence also suggests that issuing social cash transfer payments directly into bank accounts can be a profitable endeavor for the banks. “Profitability still depends on receiving a regular fee from the government. However, as client use increases, the combination of increasing balances, more client-initiated payment transactions and cross-selling of other services may support a stronger future business case. Branchless channels are the key to reducing the costs of servicing this G2P client segment,” explained David Porteous of Bankable Frontier Associates, a co-author of the paper.

Read the complete focus note, Social Cash Transfers and Financial Inclusion: Evidence from Four Countries, on CGAP.org

About CGAP

CGAP (The Consultative Group to Assist the Poor) is the world's leading resource for the advancement of microfinance. CGAP provides the financial industry, governments and investors with objective information, expert opinion, and innovative solutions to effectively expand access to finance for poor people around the world. More information: www.cgap.org


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