linking conditional cash transfers to savings and insurance a promising path for poverty reduction...

Linking Conditional Cash Transfers to Savings and Insurance A Promising Path for Poverty Reduction and Financial Inclusion? First Experiences from Latin America

World BankFinance and Private Sector Development

GroupNovember 17, 2009

Jamie M. ZimmermanGlobal Assets Project

Overview of Presentation

• Making Conditional Cash Transfer Programs work for the Poor

• Linking Savings and CCTs

• Possible Policy Models: Options for Linkages

What are Conditional Cash Transfer (CCT) Programs?

• Social policy tool that provides economic assistance to qualified households based on conditional behavior.

• Emphasis on women, children, persons with disabilities, marginalized minorities, and other disadvantaged populations.

• Conditions: Human capital investment, such as education, health, nutrition, or other behaviors.

• Mexico’s Progresa (now Oportunidades), launched in 2002, was the first to implement conditional cash transfers; CCT programs now exist in approximately 30 countries.

CCT Programs around the World, 2008

Image from: Ariel Fiszbein and Norbert Schady, et al., Conditional Cash Transfers: Reducing Present and Future Poverty. Washington, D.C.: World Bank, 2009.

As of 2009, CCT programs also exist in South Africa, Tanzania, and the United States.

Making CCTs Work Better for the Poor• Scaling up need not be the only priority.• Socio-economic inclusion through policies aimed at asset

accumulation, asset protection, and capacity-building.• Can CCT policies have similar positive effects on economic and

financial behavior, as they have for health/education behaviors?• Social protection programs

» Inclusion of the poor in the formal financial system/economy» The accumulation of financial capital by the poor» Fostering productive use and investment of accumulated assets by the

poor to meet economic goals» Moving the poor out of social protection networks» Providing access to other tools that will protect the poor’s assets and

reduce their vulnerability to economic shocks.

Making CCTs Work Better for the Poor

• Few efforts to date have explicitly linked saving or asset-building objectives to CCT programs.

• Potential for policymakers to see greater returns on social investment policies through linking saving and asset-building objectives to CCTs.

• With the advent of new technologies, savings-linked CCT policies are easy to design and deliver.

Linking Savings and CCTs

Social policy through an assets lens: poverty alleviation vs. poverty reduction» Moving beyond income maintenance:

strengthening the capacity of the poor to invest in themselves and their future.

» Asset accumulation and productive use of assets opens a path toward social and economic stability.

» Combining policies based on income with those aimed at asset accumulation would have multiple positive psychosocial effects.


• Social and economic impact on the individual» Potential to influence long-term attitudes

and behavior toward finance, social and economic opportunity, and the future.

» Role of public policy programs to “nudge” the poor to make “healthier” decisions.


• CCTs may already affect savings behavior» Limited evidence to date, but demonstrates

the positive effects on savings and investment:

Mexico, Oportunidades: Families increased savings and investment levels (invested an average of 12% of their cash transfers in income-generating activities); increased the number of families using banking services; helped families control impulse spending.

Paraguay, Tekporã: Beneficiary families saved 20% more on average than they had prior to the program; highest savings rates occurred among the extreme poor; positive spillover effects in districts where programs were implemented.


• Innovative CCTs are increasingly easy to design and deliver» Government-to-person (G2P) payment

systems: use of prepaid smart and/or debit cards; formal financial system as potential channel.

Less than 25% of G2P beneficiaries receive payments through bank accounts, highlighting a lost opportunity for banks to capture and leverage large volumes of deposits.

Delivering cash transfers through banks means lower administrative costs for CCT programs, and economies and of scale and scope for banks and governments.

Possible Policy Models: Options for Linkages

Simple Linkage» Basic infrastructure: Simple deposit of CCT

transfers into a savings account Positive effects of the mere presence of a savings account (Bynner and

Paxton, IPPR, 2001).

» Drawbacks: Incentives for beneficiaries to use accounts beyond transfer payments

is weak. Banks may find accounts too costly and unsustainable. Simple connection doesn’t explicitly aim to spur long-term asset

creation and future orientation.


Personal Capitalization Account (PCA)» Matching grants deposited directly into account

as a reward for saving. » Time-bound: incorporates a mechanism for

beneficiaries’ socioeconomic graduate from system

» Encourages and rewards beneficiaries for: Opening individual bank savings account Strengthening and organizing regular savings Investing savings into an asset

» Moving to a system of monetary transfers reduces operating costs and makes transactions more secure.


Child and Youth Accounts» Gradual accumulation of assets for educational

expenses or future productive investments» Potentially valuable market segment for banks » Payments may be structured to meet specific

goals» Youth-oriented CCT programs are beginning to

utilize an accounts-based transfer approach Bangladesh: Female Secondary School Assistance Program Mexico: Jóvenes con Oportunidades Colombia (Bogotá): Subsidio Condicionado a la Asistencia Escolar Britain: Education Maintenance Allowance


Connections with Microinsurance and Other Financial Services» Poor will remain vulnerable to economic and

personal shocks even with asset accumulation » Combine savings-linked CCT programs with

microinsurance and the implementation of consumer protection policies and guidelines

» Access to microcredit and microenterprise training and/or technical assistance

Thank You!

For more information, visit us online at: www.GlobalAssetsProject.org

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001-202.596.3362www.newamerica.net

linking conditional cash transfers to savings and insurance a promising path for poverty reduction...

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