Having access to a bank account isn’t always beneficial for families in the developing world — which sounds counterintuitive. Theoretically, formal financial services — savings, insurance, credit — can make an enormous difference in the lives of those living in poverty. But it isn’t always the case. Adequate use and adoption of those financial services is the breaking point to really making a difference.
Under India’s new financial inclusion program, about 200 million new bank accounts have been opened since August 2014, but, according to Bloomberg, about one-third of those accounts are empty.
In Colombia, the percentage of adults with savings accounts rose 8 percent in the last five years, but active account usage has only risen by 3 percent.
So what gives? If families living in poverty are presented with an opportunity to more safely save for their futures and improve their financial health, why don’t they take it?
As governments, the finance industry, and NGOs are now uncovering, it takes a lot more than a bank account to build a financial system that meets these families’ needs.
The Colombian government has reported that only about 32 percent of the population is what you’d call “financially literate” – aware of and educated on financial concepts that help them use financial services to improve their lives. For these segments to be included and catered to in the formal economy, organizations need to work to provide them with the training and customized services that they need in order to actually benefit. And that’s just what Colombia is working to do.
Through the national social protection program called Más Familias en Acción (More Families in Action – or MFA), the Colombian government makes bimonthly deposits to 3 million low-income family’s bank accounts throughout the country, so long as they meet certain criteria such as keeping children in school and taking them to periodic doctor’s appointments. While the program isn’t uniquely Colombian – it exists in similar formats in more than sixty other countries – it has evolved with the opening of more than 2.5 million of bank accounts, which are being used as an opportunity to improve the transfer system, leverage the bank deposits and help make those families more financially savvy.
The idea came from Fundación Capital – an international organization that imagines, creates and tests innovative ideas that enable low-income families to grow, value and protect their financial and productive assets. It partnered with Prosperidad Social (Social Prosperity – the public department in charge of the MFA program execution) through the Proyecto Capital project to promote effective financial inclusion of their recipients, a challenging task: how to get millions of families to go beyond education and actually put those concepts into practice and change their behavior around personal finance? How to make sure that those families, many of whom had never before had savings or bank accounts, actually make use of these services?
One of the strategies designed and tested by Fundación Capital, with support from the Citi Foundation, is the use of a tablet-based app that is designed to help low-income families adopt better savings habits, reduce their informal indebtedness, learn how to interact with banks, and educate them on their options for financial transactions and planning.
This program, called the LISTA Initiative (LISTA means “ready” in Spanish, and is also an acronym for “Logrando Inclusión con Tecnología y Ahorro” or “Achieving Inclusion through Technology and Savings”), was built to address a very specific type of customer’s needs. Many of these families are not only low-income but often have low levels of education and minimal contact with technology, with very little time to learn something new. So, a fun and time-flexible tool to learn about personal finance had great potential to help them build their financial capabilities. LISTA not only teaches participants about financial concepts but also provides simulators for them to gain confidence in actually using financial services such as ATMs and mobile banking.
LISTA also came as a scalable and cost-effective answer for reaching millions of families, even in remote and rural areas. Anchoring the program in local trusted channels was a key to success and when it came time to spread the word, LISTA decided to let the families themselves do the talking – and so they came up with a process. First, the tablet is given to a leader in the community, who then rotates it within a group of families. Each family only has two days to use the app, and then passes the device to along to another family. This practice fostered dialogue amongst parents, children, neighbors, and friends about the importance of savings, and the skills they learned to better manage their finances.
So far, more than 75,000 low-income families from 30 municipalities in two of Colombia’s poorest regions have trained themselves through the app, as part of a national strategy promoted by the government. And the LISTA Initiative has spread to other countries in the region as well, where it is now being implemented in Brazil, Honduras, Mexico, and the Dominican Republic. What’s more, it seems to be working.
To follow up on LISTA’s efforts, Fundación Capital and Innovations for Poverty Action (IPA) are now partnering to test the program’s approach, measuring the impact of the program on participants’ financial skills and habits through a Randomized Control Trial (RCT) evaluation supported by the Citi IPA Financial Capability Research Fund, meaning that results will be based on a statistical comparison of a group of people that took part in the program and a group of people, statistically identical, that didn’t.
Preliminary results are very promising. Based on IPA’s current survey data, those families who got the tablet were more likely to establish savings goals and initiate savings — a big leap forward for those of us who work on mobilizing savings. Participants also tended to have written household budgets and be more trusting of their financial institutions.
IPA is now measuring the possible impact of reminders through text messages, which will complement the training on the tablet. As part of the current implementation, IPA randomly divided families into two groups: one that receives text message reminders on their cellphones to reinforce their newly acquired financial skills, and one that will not receive any follow-up.
So what makes a program like LISTA more successful than simply extending the offer to open a bank account? The gap between access and the adoption of those financial products is increasing. Tools like LISTA focus on the development of people’s financial capabilities, building trust in the formal financial system, and relaying relevant personal finance training in a simplified way, which are key steps forward to advancing real financial inclusion.