More than half of all births in developing countries go unrecorded. The implications of this fact are complex and troubling. A person without legal identity cannot obtain essential services and as a result, are marginalized members of society. More significant is that unrecorded births are often among the poorest and when natural disasters strike, it becomes difficult to distribute water, food, and medicine to the most vulnerable for reasons of corruption, inefficient distribution, and the inability to identify recipients.
These issues highlight an area needing solutions and a simple initiative may be the answer to some of these problems. Financial Access at Birth (FAB) is developing an idea that would place a one-time $100 transfer to an electronic savings account, integrated with a birth certificate and universal ID, for every child born in the world.
Based on this idea, the $100 will act as an incentive to persuade parents to register their child’s birth and encourage asset building.
The program comes with its fair share of questions. Currently, there are 134 million children born in the world every year and assume an estimated 75 percent of families receive $100 per child, the bill comes up to $10 billion a year. How would we pay the bill? This amount equals to 1/50 of 1 percent of the world GDP. In other words, $20 would be contributed for every $100,000 in generated income. If every country contributes 1/50 of 1 percent of their GDP towards FAB accounts, then the United States, for example, would contribute less than $3 billion, India would contribute approximately $200 million, and Rwanda would contribute less than $1 million. Time will prove whether the cost of implementing FAB would yield an effective form of development assistance as government, donors, and international NGOs could view it as an instrument to overcome the dissemination challenges of aid.
Other experts in development wonder how the program would prevent fraud. There are plans to ensure that $100 would stay in the child’s account until they turn 16 so that parents do not withdraw the money. The use of biometric identification could reduce the possibility of fraud. Experts in India on biometric identification are studying the feasibility of its integration with FAB. On the other hand, some may wonder if such a system would violate privacy and enable government intrusion. This would be an issue to address with experts.
On a similar note, some wonder whether $100 would cause parents, especially in poor countries, to have too many babies. Yet the FAB program would ensure that every child would survive to their teenage years before they collect the money. Previous research suggests that increased child survival rates lead to fewer planned births.
Some ask: why do we need $100? Why not just open a plain bank account? One function of the money is to act as an incentive for parents to register a child’s birth. Naturally, $100 would be a stronger incentive for the poor than for the rich. The $100 would also incentivize banks and financial institutions to become more inclusive. Banks like stable deposit accounts and if they were to pay an account holder an interest rate equal to the inflation rate, the $100 would keep its value and the bank will earn $4 to $5 each year.
FAB may seem to be a fabulous idea but now, FAB needs a pilot program and to identify countries appropriate for testing. Countries such as Mexico would be a good candidate as it does not need international aid for initial deposits and has explored smart cards for the delivery of essential services to the poor. Rwanda or Ghana would be a good fit due to flows of foreign aid and remittances.
Regardless of country, the pilot needs to answer important questions: Is $100 enough to induce parents to register their child’s birth? How can FAB accounts become a reality and encourage additional savings and efficient transfers? How might the FAB program be adjusted for each country? What are the long-term impacts on health, education, and welfare?
Professor Dean Karlan, co-author of More Than Good Intentions, will help design the pilot impact assessment. A program as big as such would need ideas, volunteers, support, and partnerships for implementation. This is an opportunity for the world to collaborate and explore the idea of financial inclusion for all.