Financial Inclusion: The missing half of Social Protection?
UNCDF Asia-Pacific Regional Office hosted last week a three-day High Level ThinkShop “How can microfinance extend Social Protection in Asian Least Developed Countries (LDCs)?”. The event brought together leading microfinance practitioners and thinkers from BRAC, SafeSave, Micro Insurance Academy, Manchester University and UNCDF to discuss how private financial arrangements and services may provide an important opportunity, albeit one of the least explored, to extend social protection in developing countries, and especially in Asian LDCs.
The purpose of the ThinkShop was to explore synergies between the financial inclusion and social protection agenda. The event was set out to establish ways forward to meaningfully extend social protection, both in terms of outreach and instruments, leveraging the opening policy space, technical expertise, and recent innovations in financial inclusion. The G20 commitments, the growing momentum of the microinsurance sector, through for example the Access to Insurance Initiative - A2II and the microinsurance network, the growth of savings services, and the rapid growth in electronic banking all constitute key spaces and advancements that make this an unprecedented favourable moment.
During the event there was a general reaffirmation of the importance and value of public policy instruments to address the goal of social protection, including minimum labour standards, cash transfers, social insurance and supportive basic services in education and health. However, there was a consensus that given fiscal and operational constraints in public budgets and systems, private responses and instruments provide important and complementary means of extending social protection. This includes standalone private responses through expanding financial inclusion, particularly in respect of savings and insurance. For example, Stuart Rutherford, author of “Portfolios of the Poor” and founder of SafeSave provided an overview of P9, a pilot savings-and-loan product for poor households, which constitutes an attempt to “help [people] build substantial savings while at the same time managing liquidity through low-cost loans”.
Additionally, unprecedented opportunities are provided by the links between financial services and social assistance, and in particular cash transfers. These present a relatively untapped potential for building inclusive financial sectors in developing economies as well as enhancing the financial resilience of the poor. A similar innovation was presented by Shameran Abed, head of BRAC’s Microfinance Programme, who provided an overview of “Challenging the Frontiers of Poverty Reduction, Targeting the Ultra Poor” (CFPR-TUP) programme, a full grant based approach for those households who simply need complete tailor made support and services to make any positive change in their livelihoods. Other examples included the work of the New Americas Foundation work on linking conditional cash transfers to savings, and UNCDF’s work in Nepal and the Pacific Islands, linking cash transfers to electronic payments and transactional bank accounts.
Participants in the event agreed that, while the potential is clear and compelling, there are limits to realising it. Some of the obstacles are related to the current business models of microfinance institutions, practitioner knowledge and regulatory environments. Although the single instruments, tools and practices reviewed in the event, are not innovative by themselves, , there is now a coming together of different debates, practices and actors that makes the prospects of transforming financial services for social protection within reach. The experiences and lessons shared during the event, will be synthesized in a forthcoming report on the proceedings, outlining key ways forward in building a common agenda.