CGAP-DFID Report Finds Government Payments Could Help Kick-Start Financial Services for the Poor

By Cgap, PRNE
Monday, February 1, 2010

WASHINGTON, February 3 - 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

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 banking blog, visit

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, and investors. More

About DFID

The Department for International Development is the UK Government's
department that manages Britain's aid to poor countries and works to get rid
of extreme poverty. You can find out more at

Jim Rosenberg, +1-202-473-1084, jrosenberg at, or Una Gallagher Pulizzi, +1-202-473-8869, upulizzi at, both for CGAP

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