The proposal outlined in this paper calls for a two pronged approach to address exclusion of the rural poor from financial services. It draws on the principals of micro-finance, as well as the large government social programs already present in Peru. By seeking to combine characteristics from these seemingly opposite approaches, this method aims to harness the benefits of each, while mitigating some of the criticisms and pitfalls experienced by these economic development strategies.
The second piece of this strategy introduces mobile banking machines in an effort to alleviate the challenges presented by distance to accessing government social programs for the rural poor. These two prongs support each other to create a comprehensive strategy to smooth consumption and improve opportunities for vulnerable populations in the highlands of Peru.
Linked Cash Transfer Savings Program: The Way it Works
Our proposed program is designed to bring increased access to government social programs and financial services for the rural poor, as well as encourage their autonomy through ownership of personal financial decision making. The first aspect of this proposal is an incentivized micro-savings program where individuals or groups deposit regularly into their account. Once participants in the program have hit specified savings benchmarks, they will have the ability to withdraw their savings, with the option of taking out an additional amount in the form of a micro-loan. Should they continue to contribute to the account, they will only have access to the amount of the last benchmark reached until the next savings goal has been achieved. Built into the program is a clause that allows participants to access their savings in times of emergency, providing them with security against financial shocks and unanticipated hardships. Additionally, there will be a cap on the amount that participants can take out in a loan, so as to discourage this system being used for corrupt purposes.
The second part is the introduction of branchless banking machines in rural areas to facilitate the distribution of government cash transfers and to provide access to savings accounts. This functions through the introduction debit machines to micro and small rural enterprises from which people can withdraw money. In this way, the owners of these enterprises act as branchless banking agents, providing access to financial services previously unattainable for individuals from rural communities due to barriers associated with distance. Research suggests that in the near future these machines could also be used to deposit money into savings accounts, creating potential for mutually supportive roles for these two branches of the program.
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