Diego Vera

Switching from cash to direct deposits of recurrent government benefits into digital bank accounts reduces disbursement errors and increases access to benefits among eligible beneficiaries. Switching to direct deposits increases ownership of bank accounts, demand for formal loans, and ownership of loans from commercial banks among individuals without a financial history. Individuals without a financial history are less responsive to government encouragement to switch to direct deposits, even though adopting the technology has large potential benefits. There is no evidence of substantial or significant effects on savings, spending, trust in financial institutions, and other measures of financial well-being.

Traditional proxy-means tests approaches to selecting beneficiaries of social programs can exhibit higher levels of exclusion errors when income fluctuates. These errors can erode the social value of a safety net. Expanding the coverage of the safety net reduces exclusion errors but entails either larger budgets or substantial reduction of benefits. A dynamic targeting approach that includes updated information on labor market and other shocks can reduce targeting errors and increase the social value of the safety net at a substantially lower cost, relative to an expansion of the safety net.