MEDIA RELEASE PR38173
CGAP-DFID Report Finds Government Payments Could Help Kick-Start Financial Services for the Poor
WASHINGTON, Feb. 3 /PRNewswire-AsiaNet/ --
More than 170 million poor people worldwide receive regular payments from their governments, but the
potential to use these payments to increase financial inclusion is largely untapped, according to "Banking the
Poor via G2P Payments," a new report by CGAP, a microfinance group based at the World Bank, and the
U.K.'s Department for International Development (DFID).
Pioneering programs in Brazil, India, Mexico, and South Africa are providing financial services, such as
savings accounts and electronic money transfers, to poor recipients of government transfers. But the report
finds that worldwide fewer than one-quarter of government-to-person (G2P) payments to the poor land in a
financially inclusive account -- i.e., one that enables recipients to store funds, make or receive payments from
other people in the financial system, and is accessible, in terms of cost and distance.
"Government-to-person payments for school tuition, food, even salaries reach over 170 million people in the
developing world. Often these transfers are made in cash or with a debit card that can only be used to
withdraw funds. By using payments on a card, cell phone or a no frills bank account, governments could
empower people with access to financial services well beyond the receipt of a government payment," said
CGAP CEO Elizabeth Littlefield.
In Brazil, for example, bank Caixa Economica is changing the way 12.4 million recipients of government
social transfer payments receive their payments. The bank has been commissioned to replace electronic
benefit cards that simply allow poor beneficiaries to collect their payments at a bank branch with a financially
inclusive account that offers them a basic set of financial services through a Visa-branded debit card that can
be used at more than 20,000 ATMs, stores that accept debit purchases, and merchants acting as agents of
the bank for bill payments, deposits, and withdrawals. The bank has converted more than 2 million recipients
to the new accounts, making a range of financial services available to them locally and far more conveniently.
"Today, tens of millions of poor people have to spend a considerable amount of time and money just
traveling to a bank branch to collect a cash payment from the government. Making these payments
electronically will not only make it much more convenient for people to access their money, but will also lower
administration costs for governments and reduce the risk of fraud and corruption," said UK Minister for Trade
and Development Gareth Thomas.
The report says that governments could make significant cost savings by switching from paying a grant in
cash over the counter at a bank teller window to delivering the payment electronically into a financially
inclusive account accessible via agents equipped with point-of-sale terminals. For a hypothetical social
transfer program that pays monthly US$40 grants to 1 million recipients, for example, a government would
save US$12.6 million over a period of five years by switching to an electronic payment channel.
Nearly half of all government payment programs launched in the past 10 years use an electronic payment
mechanism, which could be the foundation for a financially inclusive account, says the report.
Although financial institutions are often skeptical about the business case for serving poor people, the report
outlines how they can increase their chances of success in this market by using cost-effective delivery
channels, achieving scale quickly, and developing quality products that serve the needs of poor people. As a
result, branchless banking channels -- mobile phones or card-based solutions, often with merchants acting as
cash-handling agents -- are likely to play a prominent role in delivering government payments to recipients in
the future.
CGAP's Technology Program aims to improve the lives of millions of poor people. We do this by helping
financial institutions and others to expand access to financial services through the innovative application of
technology. The program is co-funded by the Bill & Melinda Gates Foundation. To read the program's mobile
About CGAP
CGAP is an independent policy and research center dedicated to advancing financial access for the world's
poor. It is supported by over 30 development agencies and private foundations who share a common mission
to alleviate poverty. Housed at the World Bank, CGAP provides market intelligence, promotes standards,
develops innovative solutions and offers advisory services to governments, microfinance providers, donors,
About DFID
The Department for International Development is the UK Government's department that manages Britain's
SOURCE: CGAP
CONTACT: Jim Rosenberg,
+1-202-473-1084,
jrosenberg@worldbank.org, or
Una Gallagher Pulizzi,
+1-202-473-8869,
upulizzi@worldbank.org,
both for CGAP
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