Vulnerability and risk management: the importance of financial inclusion for beneficiaries of conditional transfers in Colombia

Abstract This paper studies effects of savings, credit and insurance on the vulnerability of households to idiosyncratic income shocks. This approach is made through matching methods using data from around 650 households that have been beneficiaries of the Colombian conditional cash-transfer programme Familias en Acción. Results indicate that access to savings and credits, both formal and informal, have significant and differentiated effects on the vulnerability of families. These results focus attention on promoting financial inclusion for a population group that has generally been excluded from the formal financial system.

Résumé Cette étude examine les effets des épargnes, de crédit et de l'assurance sur la vulnérabilité des foyers aux chocs idiosyncrasiques de revenus. Cette approche est faite en jumelant des méthodes utilisant les données d'à peu près 650 foyers qui ont bénéficié du programme de transfert conditionnel de fonds Familias en Acción. Les résultats indiquent que l'accès aux épargnes et crédits, à la fois formels et informels, a des effets importants et différenciés sur la vulnérabilité des familles. Ces résultats mettent l'accent sur la promotion de l'inclusion financière pour une section de la population qui a généralement été exclue jusqu'à présent d'un système formel financier.

Keywords:

• financial services
• impact evaluation
• income smoothing
• consumption smoothing
• conditional cash transfers

Acknowledgements

We are grateful to the Inter-American Development Bank (IDB), which financed the development of the Survey of Banking for the beneficiaries of Familias en Acción as part of the Project RG-K1048 and allowed us to use the information from the survey for this research. The banking survey was conducted by Center of Economic Development Studies (CEDE, Centro de Estudios de Desarrollo Económico) during September, November and December 2009 in six major cities in Colombia. The main results of this survey were published in Maldonado and Urrea (2010). We thank all of the beneficiaries of the of Familias en Acción programme who answered the survey for their patience and involvement. We also want to express our gratitude to the anonymous reviewer whose careful comments improved the manuscript. Any remaining errors are our responsibility.

Notes

This survey, funded by Inter-American Development Bank, was conducted by the Center of Economic Development Studies (CEDE, Centro de Estudios de Desarrollo Económico) and led by the authors of the present article. Details and main results of the survey can be found in Maldonado and Urrea (2010).