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 Programmes (SPPs)

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

Rural Financial Market Dynamics

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

Opportunities for Linking SP with Financial Inclusion Agenda

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

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

Source: Fundacion

Capital

FAO’s Role

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

THANK YOU FOR YOUR ATTENTION!