Financial Access at Birth, an innovative social and economic model, seeks to achieve complete financial inclusion through a $100 savings account endowment to every registered birth. As a UN-sponsored initiative, funding should be collected in conjunction with developed nations, host countries, and private donors.
Approximately 2.7 billion people, half of the global population, lack access to a wide range of quality and reliable financial services. When people do not have access to formal financial services, basic tasks like saving are impossible. Moreover, informal economies have negative consequences for participants. For example, when the poor give money to informal bank entities, the poor lose almost 30% percent of potential returns through fees. A positive rate of return is critical to saving; thus, the poor need formal savings accounts. The Financial Access at Birth project is an innovative socio-economic model that seeks to achieve worldwide complete financial inclusion. Financial inclusion can be defined as the state in which all people who can use financial services indeed have access to a full range of financial services provided conveniently, at affordable rates, and with dignity for all clients. One of the main reasons the poor are still poor is because they are unable to translate their informal economic activities into formal economic activities. In Hernando de Soto’s Mystery of Capital, he discusses the tremendous informal wealth that the poor have accumulated: $9.3 trillion in dead capital—twice as much purchasing power as the total circulating U.S. money supply.
The FAB initiative would ensure that a savings account with $100 is created for each birth certificate that is filed. The idea is that the incentive of $100 would provide enough of an edge to encourage parents to create an official identity for their children, which is a first critical step to development. The purpose of the FAB initiative is to encourage individuals without access to financial services to open savings accounts at birth that are linked to each individual via a unique ID number. These accounts would have initial deposits made via cash transfer. Once the account is created and the identity of the recipient is confirmed, third party service providers can utilize the funds for service dissemination, including tuition, healthcare, food costs, and shelter costs. There are two elements to the cost of this program: the initial deposit cost and transaction costs.
The initial deposit cost will roughly average $10 billion a year. Most developed countries can jointly decide on an annual percentage of GDP that each country can afford to dedicate to the FAB initiative. Secondly, the transaction costs average 3 percent to 5 percent of the initial deposit amount, and these costs should be assumed by the banks because of the short-term sense of social responsibility and as a long-term mechanism for recruiting new customers.
The United Nations Department of Economic and Social Affairs should develop a framework through which the Financial Access at Birth initiative can be agreed upon and enforced. After multiple rounds of multi-country collaboration, the UN should draft a binding international agreement that is adopted by member countries to ensure that each country is committed to the FAB initiative. FAB calls for each country to contribute to the program based on annual gross domestic product, thus rich countries would give more than poor countries. Ultimately, this basis for contribution will become the primary mechanism of foreign assistance, as it results in a form of aid transfer from rich to poor countries.
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