Across several emerging economies in the world, governments have tried to boost two key trends – one is to increase financial inclusion, and another is to increase the number of government to person (G2P) transactions through non-banking methods – or to be more specific, through the use of electronic means. While these two means have not been linked together formally, ideally they combine to form a structure of financial inclusion that makes things convenient for both the government as well as the underserved (or poor) beneficiary who is to receive direct aid in terms of money.

To study this aspect, CGAP and DFID had released a paper in 2009 called “Banking the Poor via G2P Payments”. In this paper, several things were acknowledged formally – electronic transfer of funds would cost the government much lesser as compared with traditional methods of aid/grant dissemination. Secondly, electronic transfer also made things convenient for recipients as they would now no longer required being at a particular place at a particular to so as to lay claim to their grant money physically, nor will they have to suffer any intermediaries. Moreover, the paper recognized the bank account (that the recipient would own, so as to lay claim to his grant money) was very often seen as the portal into the wider world of formal financial services, such as savings, insurance, and credit and this would further the achievement of financial inclusion developmental goals for the government.

Studies further revealed that the poor generally tried to save out of their grant money – since they usually did not have formal bank accounts, they saved informally. Some earlier studies even went so far as to show that once recipients had a formal bank account, they would use it as the vehicle for their savings.

However, some key questions were left unanswered due to the lack of evidence. For example – would it be profitable for governments to push for integration of inclusive financial services into social cash transfer programmes? Or that once the recipients were given a host of the financial instruments banks thought would be popular amongst them considering their needs, would they actually adopt these? Or, will commercial financial service providers find involvement in this profitable?

Hypotheses were quoted, and only now may they be verified, using CGAP’s new study called “Social Cash Transfers and Financial Inclusion: Evidence from Four Countries”, which analyses data from Brazil, Colombia, Mexico and South Africa – all large, middle-income countries with relatively well-developed financial infrastructure in urban areas.

Read the report here.