Policy Innovation toward Financial Inclusion: Colombian Government Links CCTs to Savings
Just days before the New America Foundation released its Global Assets Project policy brief, "Savings-Linked Conditional Cash Transfers: A New Approach to Global Poverty Reduction," the Colombian announces a major effort to do just that - link the beneficiaries of its nationwide CCT program with savings accounts. This major policy development in Colombia has emerged in part as a result of the efforts of the policy brief's co-author Yves Moury (Executive Director of Fundación Capital), and his project, Proyecto Capital. Our brief, released today, advocates using the (typically) massive CCT infrastructure to formally bank the largely unbanked poor populations in developing countries. But we also advocate going one step further: use the power of CCTs to encourage saving and asset accumulation of the poor. This approach can be viewed as a two-pronged poverty reduction strategy of building income and assets while increasing the effective financial inclusion of an entire poor population.
Back in September 2008, the Proyecto Capital signed a cooperation agreement with the Government of Colombia to mobilize, in bank accounts, the savings of millions of beneficiary families of Familias en Acción (Families in Action), promoting their financial inclusion and facilitate their socioeconomic graduation from the program. Proyecto Capital's role in the agreement includes assessing possibilities (and possible bottlenecks) for these families to participate in a program that would encourage them to save part of the conditional cash transfers they receive from the CCT programs in a savings account.
Late last week, the administrators of the Familias en Accion, announced the official launch of this massive financial inclusion effort. The plan is to open no-minimum balance savings accounts for up to 3 million beneficiary families in a partnership with Colombia Bank, Banco Agrario. Beneficiaries will also receive debit cards for the accounts.
The administrators are calling it "the largest financial inclusion plan in the history of Colombia." Not only will all beneficiaries of the CCT program have access to savings accounts and debit cards, but those who comply with the requirement of the program (based on proper education and nutrition of poor families, in particular children), will receive their conditional nutrition and education subsidies on their debit cards, without the use of intermediaries. The Colombian government stated that it believes this effort will reduce the vulnerability of the poor to costly informal financial services, such as payday lenders and other informal loans to help them smoother consumption.
The Government of Colombia should be congratulated for their bold effort to provide their poorest and most vulnerable citizens with formal financial access, in particular access to savings account that will help them smooth consumption, prepare for their futures, invest in themselves and (hopefully) move out of poverty. I hope the financial inclusion field watches this effort with keen interest to observe if and how it achieves its ambitious goals.
*Please Note: We will discuss this innovation along with a number of other policy ideas for linking CCTs and Savings at an upcoming event at the New America Foundation on April 29th. For more information, click here.*