The greater the financial inclusion in a country, the more useful banking data is to track the impact of COVID-19 and policies to mitigate its effects.

Note: This blog is part of Lustig, N. & Tommasi, M. (2020). El COVID-19 y la protección social de los grupos pobres y vulnerables. UNDP. (Forthcoming)

 

The coronavirus crisis is weakening the global economy. To address and overcome this crisis, several governments are implementing policies to directly transfer money to households and small and medium-sized enterprises (SMEs). Financial inclusion and the development of payment systems are very important to making this money available to households and businesses in need.

Several Latin American countries already pay funds from their social programmes directly into bank accounts. However, simply paying into a bank account may not be enough, since families will still have to travel to the bank (which may be far away). For example, in a study in Mexico, we found that even in urban areas poor families who received benefits from the Progresa/Oportunidades/Prospera programme directly into a bank account had to travel five kilometres to access their savings. This would not be healthy or safe during a pandemic and lockdown. One solution is to provide debit cards so these families can access their money at any ATM or use them directly to make purchases in stores (or even to make purchases online). In fact, in another study, I found that in areas where the government distributed debit cards, more businesses began to adopt financial technology to accept card payments.

In sum, governments that already pay funds from their social programmes directly into bank accounts linked to payment methods such as debit cards have a quick and efficient way to transfer money to the families most affected by this crisis. Other governments should consider whether there is a way to quickly incorporate unbanked families into the banking system to facilitate transferring money to cope with the crisis. For example, they could offer accounts like Chile’s CuentaRUT: easy-to-open bank accounts without a minimum balance requirements or fees (preferably with the possibility of opening them online).

Financial inclusion also makes it easier to track the economic and financial impact of COVID-19 and of the policies to mitigate its impact. A major threat to economic recovery is the profitability and survival of SMEs, which employ a large part of the global workforce. Many economic transactions—especially in SMEs—are recorded through banks (e.g. deposits or cash withdrawals, wage payments, card transactions, and loan applications and approvals). Banking data therefore constitutes the only detailed source of real-time, high-frequency information on businesses’ economic activities during the crisis. The greater the financial inclusion in a country, the more useful banking data is to track the impact of COVID-19 and policies to mitigate its effects. I am collaborating with financial institutions in a number of countries to establish these tracking systems using banking data.

 

Banks and governments interested in collaborating with the initiative should contact me at sean.higgins@kellogg.northwestern.edu

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