SEGUNDO FORO REGIONAL“SISTEMAS DE INNOVACIÓN PARA EL DESARROLLO RURAL SOSTENIBLE”
Santiago de ChileOct 19-21, 2016
A’kos SzebeniRural Finance TeamFAO Rome
Linking Social Protection with Financial InclusionInnovations to Promote Sustainable Rural Development
Recent Trends in Social Protection Programmes (SPPs)
Recent Trends in Rural Financial Markets
Opportunities and Challenges in linking SPPs with the Financial Inclusion Agenda
Operational Models of Linkages
Examples of Existing Initiatives
Key Takeaways
Content
Trends in Social Protection Programming
• Growing interest and resource commitments to social protection programming globally and in LAC region, based on evidence of positive livelihood impact across various indicators:• poverty, food security; • education, health and nutrition;• economic and productive impacts
• Notwithstanding its proven effectiveness, social protection alone cannot sustainably move people out of hunger and poverty and transform their livelihoods.
Major Advances in Social Protection
Programmes (SPPs) in LAC and Globally
Trends in Social Protection Programming Paradigm Shift in Approach to Social Protection
Programming
• Paradigm shift towards increased attention to the complementary role of social protection, financial inclusion and other market development programmes
• This paradigm shift emerged in light of an evolving evidence base that demonstrates how SP produces synergies with other policy interventions in order to build human capital; strengthen livelihoods engagement; reinforce social inclusion, and enhance local economy multiplier effects
• Unprecedented levels of coordination to achieve these synergies and consequent elevated levels of expectation on magnitude and sustainability of developmental impact of SPPs
Challenge and opportunity is to optimize the policy intervention mix to promote long-term,
sustainable transformation in livelihoods for rural households
Source: FAOSTAT
Africa
Cereals
Fruits and vegetables
MeatsTotal production of different commodities in Asia, LAC and Africa (in thousands of MT)
Sustained increase in supply across the world motivated by robust demand growth
Agricultural markets have been able to efficiently respond to
growing global demand
Source: Fuglie, K.O. 2012, “Productivity Growth and Technology Capital in the Global Agricultural Economy”, in Fuglie, K.O., S.L. Wang,
and V.E. Ball (eds.) (2012), Productivity Growth in Agriculture: An International Perspective, CAB International, Oxfordshire, UK.
Productivity gains have been the main source of output growthSources of agricultural output growth rate globally
A critical determinant of productivity has been long-term investment in agriculture across regions
Source: FAOSTAT
Agricultural capital stock in Asia, LAC and Africa (in millions of 2005 USD)
Who is financing these investments?
Continued dominance of domestic private investments in total agricultural capital stock
Source, ODI, 2012
Financial Sector not adequately catering to economic importance of ag. sector
Agricultural credit as a portion of total credit versus agricultural GDP as a portion of total GDP in select LAC countries in 2010
Source: Centro de Estudios Peruanos, 2011
The dominant role of informal financial services in rural areas in Latin America and Caribbean
Rural and agricultural HHs are dynamic and already availing a range of financial services from
informal sources, often at a higher cost and with less flexibility
RURAL CREDIT
MARKET
RURAL SAVINGS
MARKET
Sources of Financial Services in Rural Areas
Rural Financial Market Dynamics
• Rural and agricultural HHs are considered too risky by FIs due to low asset base; inadequate risk mitigation mechanisms; lack of stable and diversified income; and vulnerability to economic, environmental and social shocks
• FIs lack domain expertise; internal operational processes and understanding of broader value chains in which producers operate; FIs do not understand the problems and needs of low-income rural HH, and how to evaluate their creditworthiness
• Information asymmetries form a core bottleneck for the advancement of financial inclusion
Key Challenges in Financing Agricultural
Households
• Growing body of empirical evidence produces consistent narrative: financial inclusion reduces rural poverty and promotes sustainable livelihoods of rural populations
• Rural financial market dynamics reveal sizeable opportunities for profitable expansion of demand-driven, inclusive financial products and services for rural and agricultural HH
• Pioneering FIs are demonstrating that the delivery of financial services to rural and agricultural households is possible and profitable
Key Opportunities in Financial Inclusion Rural Financial Market Dynamics
Linking Social Protection with Financial Inclusion
• Evidence suggests wide-spread opportunities to strategically link social protection programmes with financial inclusion interventions to (1) promote synergies; (2) optimize economic multiplier effects; and (3) institutionalize durability of development impact
• Strategic coordination, sharing of data and experiences between SP and FI can alleviate key constraints in the advancement of both agendas and mutually reinforce outcomes; wealth of HH level information generated by SPPs can help mitigate the information asymmetries that cause financial exclusion
• Operationalizing linkages requires complex coordination, public and private buy-in, awareness raising, and technical assistance
• FIs have to undergo a process of transformation to develop requisite domain expertise; tailored financial products and services; supporting internal information, IT and delivery systems
• Increase income and stabilization effect: incentive led to an increase of 18% in HH income, a reduction in volatility and increased food security (Sadoulet et al. 2001)
• Higher liquidity resulted in greater multiplier effect: the multiplier effect increasedfrom 0.24 to 2.77 with added credit and TA elements (Yúnez et al. 2014; Sadoulet et al. 2001)
• Incentive programmes increase demand in credit: increase in HH income and reduction in volatility increased the expected return on credit more than thesubstitution effect in increased liquidity. Probability of availing credit increased by15-25% (Hernández, et al. 2012; Winters et al. 2009).
PROAGRO Productivo
MexicoLinking Social Protection with Financial Inclusion
Critical for FI: rural HH transition to “bankability”
Linking Social Protection with Financial Inclusion
Three simplified models of linking SP with
financial products and services
Financial inclusion
limited to using
financial product as a
tool for delivery of SPP
SPPs accompanied by
specific financial
products and services to
reinforce the benefits of
social protection
Integrated financial
inclusion and SP
programming through
complex and mutually
reinforcing frameworks
to promote sustainable
rural livelihoods
Potential Synergies
Co
mp
lexity
Examples of Existing Practices
• Electronic payment mechanism (i.e. mobile, payment cards) facilitates delivery of social transfers that is more successful in reaching the poor, in particular in remote rural areas and in areas with incomplete infrastructure
• Accessing transfers through unique identifiers ensures that transfers are disbursed to the right person (important in targeting vulnerable sub-groups)
• Cost-effective alternative for delivery that maximizes outreach and safety while reducing fraud - i.e. Brazil Bolsa Familia programme – after introduction of electronic delivery, administrative cost of delivering millions of grants reduced from 14.7% to 2.6% of total grant value disbursed (Lindert et al. 2007)
• In and of itself, electronic delivery does not advance financial inclusion; may create opportunities for deepening relationship with payment services provider (FI)
Government-to-Person (G2P) transactions
facilitated by mobile payments
Examples of Existing Practices
• “Jóvenes con Oportunidades” is a youth savings component added in 2003 to Mexican national social protection programme “Oportunidades”
• Connect CCTs with savings mobilization; Government deposits regular quantitates of cash to the saving accounts of high school students from beneficiary HH
• After finishing their studies, young adults can use money to invest in further education, health insurance, and/or income generating activities
• Can also continue using it as a personal savings account linking them to the formal financial market and potentially deepening their relationship with FI
“Jóvenes con Oportunidades”
Mexico
Examples of Existing PracticesBRAC Graduation Model
CGAP/Ford Foundation
Implementation
Carefully targeted and sequenced intervention with integrated and mutually reinforcing components:
• Social Protection benefits (CT and other asset transfer)
• Livelihood and skills training
• Financial services• Community
mobilizationSource: IADB
Rural Finance Team Approach
Policy Support and Programme Design
Assisting public and private stakeholders in
formulating strategies, policies and interventions
that aim to enhance access to finance for farmers
and rural HH with broader interventions striving to
fight rural poverty and promote sustainable food
security
Supply & Demand Side Capacity Building
Research and Global Experiences
03
01
02RURAL
FINANCE
TEAM
Providing training, financial literacy and mentoring
to beneficiaries on the demand side; providing
technical assistance to FIs for gauging markets,
designing financial products and services tailored
to the needs of recipients
Wealth of experience in R&D of agricultural
finance and investments; and global portfolio
allows for mainstreaming best practices and
innovative methodologies throughout project
programming
Growing interest and resource commitments to social protection programming globally and in LAC region, based on evidence of positive livelihood impact
Paradigm shift towards increased attention to the complementary role of social protection, financial inclusion and other market development programmes and a and a recognition that coordinated efforts are needed to facilitate the graduation of poor rural HHs
Rural financial market dynamics offer sizeable opportunities for profitable expansion of demand-driven, inclusive financial products and services
Opportunities to strategically link social protection programmes with financial inclusion interventions to (1) promote synergies; (2) optimize economic multiplier effects; and (3) institutionalize durability of development impact
Strategic coordination, sharing of data and experiences between SP and FI can alleviate key constraints in the advancement of both agendas
Operationalizing linkages requires complex coordination, awareness raising, and technical assistance on both supply and demand side
Key Takeaways
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