No. 0409 Social Protection Discussion Paper Series Transferring Cash Benefits Through the Banking Sector in Colombia by Maria Teresa Lafaurie and Claudia A. Velasquez Leiva May 2004 Social Protection Unit Human Development Network The World Bank Social Protection Discussion Papers are not formal publications of the World Bank. They present preliminary and unpolished results of analysis that are circulated to encourage discussion and comment; citation and the use of such a paper should take account of its provisional character. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. For free copies of this paper, please contact the Social Protection Advisory Service, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433 USA. Telephone: (202) 458-5267, Fax: (202) 614-0471, E-mail: [email protected]. Or visit the Social Protection website at http://www.worldbank.org/sp. Social Safety Net Primer Series Transferring Cash Benefits Through the Banking Sector in Colombia MARIA TERESA LAFAURIE V. CLAUDIA A. VELASQUEZ LEIVA May 2004 The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Social Safety Net Primer Series The World Bank Social Safety Nets Primer is intended to provide a practical resource for those engaged in the design and implementation of safety net programs around the world. Readers will find information on good practices for a variety of types of interventions, country contexts, themes and target groups, as well as current thinking of specialists and practitioners on the role of social safety nets in the broader development agenda. Primer papers are designed to reflect a high standard of quality as well as a degree of consensus among the World Bank safety nets team and general practitioners on good practice and policy. Primer topics are initially reviewed by a steering committee composed of both World Bank and outside specialists, and draft papers are subject to peer review for quality control. Yet the format of the series is flexible enough to reflect important developments in the field in a timely fashion. The primer series contributes to the teaching materials covered in the annual Social Safety Nets course offered in Washingt on DC as well as various other Bank-sponsored courses. The Social Safety Nets Primer and the annual course are jointly supported by the Social Protection unit of the Human Development Network and by the World Bank Institute. The World Bank Institute also offers customized regional courses through Distance Learning on a regular basis. For more information on the primer paper series and papers on other safety nets topics, please contact the Social Protection Advisory Service; telephone (202) 458-5267; fax (202) 614-0471; email: [email protected]. Copies of related safety nets papers, including the Social Safety Nets Primer series, are available in electronic form at www.worldbank.org/safetynets. The website also contains translated versions of the papers as they become available. An ambitious translation plan is underway (especially for Spanish and French, some in Russian). For more information about WBI courses on social safety nets, please visit the website www.worldbank.org/wbi/socialsafetynets. Recent and Forthcoming Papers in the Safety Nets Primer as of August 20021 Theme Author Program Interventions Cash transfers Tabor Food related programs Rogers and Coates Price and tax subsidies Alderman Fee waivers in health Bitran and Giedion Fee waivers in housing Katsura and Romanik Public works Subbarao Micro credit and informal insurance Sharma and Morduch Cross-cutting Issues Institutions de Neubourg Targeting Coady, Grosh and Hoddinott Evaluation Blomquist Political Economy Graham Gender Ezemenari, Chaudhury and Owens Community Based Targeting Conning and Kevane Country Setting/Target Group Very Low Income Countries Smith and Subbarao Transition Economies Fox Non-contributory pensions Grosh and Schwarz 1. Papers may be added or deleted from the series from time to time. - 2 - GLOSSARY OF TERMS OMO: Open Market Operations GDP: Gross Domestic Product IMF: International Monetary Fund IBRD: The World Bank IDB : Inter-American Development Bank FOREC: Fund for the Reconstruction and Social Development of the Coffee Cluster - (Fondo para la Reconstrucción y Desarrollo Social del eje Cafetero.) PAC: Annual Fund Plan - (Plan Anual de Caja) DNP: National Planning Department - Departamento Nacional del Planeación DAPR : Administrative Department of the Presidency of the Republic (Departamento Administrativo de la Presidencia de la Republica) FIP : Peace Investment Fund - (Fondo de Inversiones para la Paz) SISBEN: Beneficiary Identification System (Sistema de Identificación de Beneficiarios) IPS: Health Care Provider (Institución prestadora de salud ). POS: Point of Sale . ATM : Automatic Teller Machine PIN : Personal Identification Number CARDHOLDER: Holder of a Debit or Credit Card. CDT: Fixed Term Deposit Certificate - (Certificado de Depósito a Término). - 3 - PREFACE This report has been prepared by the consultants following the Terms of Reference (refer to Annex 1) provided by the World Bank. Such document requested an analysis of the practical aspects and the relative costs required to transfer cash benefits through the Banking Sector. The consultants were in charge of the implementation and commissioning of the Colombian Cash Transfer Program titled Familias en Acción (Families in Action). For two years, María Teresa Lafaurie acted as the National Coordinator of the Government’s Social Safety Net, whose main component was the Conditional Transfer Program. She began her participation in the National Planning Department during the Program’s final design phase, and was subsequently appointed as General Strategy Coordinator during the overall commissioning and stabilization process. Claudia Velasquez was initially in charge of the payments division in the process design, definition and commissioning phases, and was subsequently appointed to the Program’s Management Information System as the party responsible for all the processes defined for Program operation. - 4 - TABLE OF CONTENTS EXECUTIVE SUMMARY.............................................................................................I I. INTRODUCTION .................................................................................................. 1 A. BRIEF HISTORY AND DETAILS OF THE PROJECT.......................................1 B. BRIEF HISTORY OF THE BANKING SYSTEM ................................................2 C. ORGANIZATION OF THE REPORT ...................................................................3 II. CURRENT SYSTEM AND D EVELOPMENT ............................................... 4 A. OPTIONS CONSIDERED: TRUST COMPANIES VS BANKS ..........................4 1. Background ....................................................................................................... 4 2. Savings Made in the Colombian Cash Transfer Program................................ 9 3. Agreements with Multilateral Banks.............................................................. 11 B. BANK SELECTION PROCESS AND SYSTEM STRUCTURING FOR THE COLOMBIAN PROGRAM ........................................................................................12 4. Advantages of Using the Banks for this Type of Program.............................. 13 5. Disadvantages of Using the Banks for this Type of Program. ....................... 14 6. Analysis of the Selection Process of the Banks that are Involved in the Program.................................................................................................................. 14 7. Rate Negotiations............................................................................................ 17 C. RELEVANT ASPECTS OF THE CURRENT SYSTEM ....................................19 1. The Impact of the Banking Payment Mechanism on the Complaints Made by Beneficiaries ........................................................................................................... 19 2. The Opinions of Poor Colombian Households about the Payment System. ... 22 3. Security Issues Related to the Payments Made through the Banking System. 24 4. Additional Cost Issues for Households........................................................... 25 D. MAIN CHALLENGES AND LESSONS LEARNED FROM THE IMPLEMENTATION PROCESS ...............................................................................27 1. Program Structure .......................................................................................... 27 2. Definition of the Program’s Implementation Stages ...................................... 28 3. Lessons Learnt from the Implementation ....................................................... 29 III. OTHER PAYMENT ALTERNATIVES ........................................................... 30 A. JUSTIFICATION .................................................................................................30 B. DESCRIPTION OF THE PROCESS TO ASSESS OTHER PAYMENT OPTIONS CONSIDERED ..........................................................................................31