OECD Forum on Mexico: Policies to Promote Growth and Economic Development Mexico City 3 November 2004 Ray Boshara New America Foundation Washington, DC

What is Asset Building? Public and private strategies to enable low-income persons to save and accumulate long-term assets – a home, post- secondary education, investments, a small business, and a nest-egg for retirement Public and private strategies to enable low-income persons to save and accumulate long-term assets – a home, post- secondary education, investments, a small business, and a nest-egg for retirement Includes both specific “tools” and a new “framework” Includes both specific “tools” and a new “framework” Informed by Amartya Sen (“capabilities”) and compatible with Hernando De Soto Informed by Amartya Sen (“capabilities”) and compatible with Hernando De Soto Asset Building can mean: Asset Building can mean: Social InvestmentSocial Investment New Welfare PolicyNew Welfare Policy Combating Financial ExclusionCombating Financial Exclusion Creating an Ownership or Stakeholder SocietyCreating an Ownership or Stakeholder Society

Why Assets? Assets change family balance sheets – financial security, opportunity Assets change family balance sheets – financial security, opportunity “Lack of income means you don’t get by; lack of assets means you don’t get ahead” “Lack of income means you don’t get by; lack of assets means you don’t get ahead” Assets change heads – attitudes, expectations. “Asset effects” posited and tested Assets change heads – attitudes, expectations. “Asset effects” posited and tested See Michael Sherraden, Assets and the Poor (1991)

Social Policy Evolution Income -> Work -> Assets Passive -> Active Programs -> Accounts Placed-based -> Citizen-based (portable) - Assets are well-suited to 21 st Century economy and new social contract that combines “choice and responsibility” - Challenge remains to preserve some traditional social insurance programs, where certain risks may need to be pooled.

Assets and Market Failure Financial market failure Financial market failure Huge gap between the poor and mainstream financial institutionsHuge gap between the poor and mainstream financial institutions 3%-78% “unbanked” households throughout OECD countries3%-78% “unbanked” households throughout OECD countries Institutional failure Institutional failure Asset “development” policiesAsset “development” policies Asset “denial” policiesAsset “denial” policies Contributes to wealth inequality and social exclusionContributes to wealth inequality and social exclusion Policy goal: Policy goal: Inclusion – expand institutional mechanisms/policies to everyoneInclusion – expand institutional mechanisms/policies to everyone Must have (1) public subsidies, (2) regulatory framework, and (3) targeted financial products.Must have (1) public subsidies, (2) regulatory framework, and (3) targeted financial products.

Assets Building in OECD Countries United States - Individual Development Accounts (IDAs) - At-birth “KidsAccounts” proposed United Kingdom - Child Trust Fund - Savings Gateway Canada - LearnSave - Learning Bonds Mexico - BANSEFI / microfinance / credit unions - Programa de Ahorro y Subsidios para la Vivienda Progressiva (VIVAH) - Remittances - Youngsters with Opportunities programme

Asset Building Outside the OECD Singapore - Central Provident Fund - Child Development Accounts Taiwan - Family Development Accounts South Africa - “NURCHA” savings for homeownership Uganda - “Assets Africa” matched savings accounts Peru and Columbia - Personal Capitalization Account (PCA) for rural women

Research on Savings Developed Countries 1. Can the poor save in IDAs? “Savings by the poor are modest, ranging from $18 to $38 per month in net savings…” (USA, UK, Canada, Taiwan) 2. What effect do IDAs have on savings and asset accumulation? “Access to the IDA program had a significant influence on the savings and asset accumulation of those served by the Tulsa IDA program…” (USA, experimental research) Developing Countries Stuart Rutherford, The Poor and Their Money Stuart Rutherford, The Poor and Their Money Microfinance institutions, credit unions, other kinds of savings/assets (land, livestock, etc) Microfinance institutions, credit unions, other kinds of savings/assets (land, livestock, etc) Poor save for safety, liquidity, and return Poor save for safety, liquidity, and return

Research on “Asset Effects” (Research organized and summarized by Sherraden, 2004) Research on “Asset Effects” (Research organized and summarized by Sherraden, 2004) Assets: Better labor market experience, marriages, health, health behaviors, political interest Better labor market experience, marriages, health, health behaviors, political interest Better cognitive development, physical health, and socio- emotional behavior, even among very income-poor families Better cognitive development, physical health, and socio- emotional behavior, even among very income-poor families Single mothers’ assets are positively associated with children’s educational attainment Single mothers’ assets are positively associated with children’s educational attainment IDAs (more likely to): Work or stay employed, and work more hours Work or stay employed, and work more hours Make educational plans for self and children Make educational plans for self and children Feel more economically secure Feel more economically secure Feel confident about the future Feel confident about the future Feel in control of their life Feel in control of their life Create greater future orientation Create greater future orientation See more clearly and better visualize a future See more clearly and better visualize a future More likely to save for their future More likely to save for their future

Assets as Social Investment Asset policies hold the potential to: * Transform passive welfare and states to active social investment states * Result in better economies and better citizens, thus providing a greater return on scarce public dollars * Reduce inequality and social exclusion, thus resulting in greater social cohesion

Questions Would assets be the best use of public funds? Does the evidence thus far justify multi-billion policies? Would assets be the best use of public funds? Does the evidence thus far justify multi-billion policies? What’s the appropriate balance between income support and asset building programs for the poor? Between social insurance and individual accounts? What’s the appropriate balance between income support and asset building programs for the poor? Between social insurance and individual accounts? How can asset programs be effective and affordable at scale, given the important role played thus far by community-based organizations? How can asset programs be effective and affordable at scale, given the important role played thus far by community-based organizations? How can asset policies reduce relative wealth disparities between whites and non-whites? How can asset policies reduce relative wealth disparities between whites and non-whites?

Asset Building in Mexico Accounts for all, at birth (“Citizen Accounts” proposed by Prof. Clemente Ruiz Duran) Accounts for all, at birth (“Citizen Accounts” proposed by Prof. Clemente Ruiz Duran) North American Development Accounts (NADA?) North American Development Accounts (NADA?) MFIs: MFIs: Expand BANSEFI, Credit Unions, RoSCAsExpand BANSEFI, Credit Unions, RoSCAs Matching deposits saved through BANSEFIMatching deposits saved through BANSEFI Partnerships between “Caja Solidarias” and postal service offices AND trusted institutions (commercial banks, Caja Popular Mexicana, BANSEFI)Partnerships between “Caja Solidarias” and postal service offices AND trusted institutions (commercial banks, Caja Popular Mexicana, BANSEFI) Expand homeownership: Expand homeownership: Leverage assets into capital (De Soto)Leverage assets into capital (De Soto) Develop mortgage finance market (Fannie Mae)Develop mortgage finance market (Fannie Mae) Define poverty problem in terms of assets, not just income Define poverty problem in terms of assets, not just income

Asset Building Resources LEED Programme, OECD, Paris Antonella Noya Noya +33(0) (0) Center for Social Development, Washington University in St. Louis, USA Asset Building Program, New America Foundation, USA Asset Building Clearinghouse: