Latin America is still the leading region with regard to regulations and infrastructure that support financial inclusion. How can this opportunity be exploited to achieve more ambitious results?
Last week the latest edition of the Global Microscope, produced by the Financial Intelligence Unit (FIU) of The Economist, was presented in Washington DC. The Microscope was first published in 2007. It is a reference tool that analyzes financial inclusion in developing countries to help financial institutions, investors, academics, regulators, and decision makers around the world.
This edition arrives at a hectic time for Latin America and the Caribbean (LAC), which closed 2019 with several challenging situations resulting from political and social turmoil and even the onslaught of nature. So, where does this leave the battle for financial inclusion?
Let us remember that financial inclusion means the availability and use of formal financial services at an appropriate cost and governed by suitable regulations that improve financing opportunities for everyone. An examination of the delicate Chilean case, which is still in progress, reveals that today more than ever we need sensitive tools that can clearly describe the regional scenario while keeping out well-meaning yet biased influences.
The Microscope receives financing from The Bill and Melinda Gates Foundation, the Center for Financial Inclusion Action, IDB Invest and IDB Lab. Upon being presented by Monica Ballesteros from The Economist’s FIU, she recalled this tool “was created 13 years ago and has evolved along with financial inclusion (…) At first we began by evaluating regulations with regard to microfinance issues, but since 2018 it has become a map for financial inclusion in the digital age.”
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Once tools such as the Microscope become available, what else can be done? IDB Invest believes the three pillars are: investing to create inclusive financial systems, strengthening financial institutions in Latin America and the Caribbean, and stimulating competition.
Therefore, IDB Invest works with financial intermediaries in the region and helps them to provide financial services to people that are excluded from or have limited access to banking services, including vulnerable urban communities, rural communities, women, indigenous communities, micro-, small- and medium-sized enterprises (MSMEs), refugees and migrants.
The 2019 edition includes 11 new indicators to assess government performance with respect to financial inclusion for women. The report concludes that women could open accounts with the same legal requirements as men among the 55 countries evaluated around the world, except Cameroon. Yet few governments actively collect data on financial inclusion for women, and many fail to include specific initiatives targeting women in their national strategies.
Accordingly, a working strategy has been established targeting four sectors:
- Banks are taking advantage of new distribution platforms such as agent networks and Fintech to downscale and reach under-served communities. We helped Banco Guayaquil in Ecuador to increase financing for SMEs, where 50 percent of micro-enterprises are led by women. Similarly, Bancamía in Colombia is a micro-finance bank that asked us to help it increase its financing to rural and urban micro-enterprises, mostly targeting vulnerable communities.
- Microfinance institutions are growing rapidly and becoming regulated institutions that receive financial deposits. We provided Omni Credito Financiamento E Investimento in Brazil with a R$100 million loan, to supply credit to underserved communities in Brazil. Recipients include immigrant truck drivers and micro-enterprises through mobile sales outlets.
- Financial cooperatives are expanding in rural regions. They are innovating and forming partnerships and federations, all the while implementing best corporate governance practices. The Cooperativa de Ahorro y Crédito Pacífico in Peru received a $10 million loan to support the growth strategy of Peru’s largest cooperative, which will benefit the country’s MSMEs. Fedecrédito in El Salvador benefited from a $15 million bond subscription through the DPR program, to support financial inclusion for MSMEs in El Salvador. Banco Cooperativo Sicredi’s loans increase Brazil’s financial inclusion by reaching out to rural and remote communities. IDB Invest granted a loan in Brazilian reals equivalent to $110 million, to facilitate the financing of small-scale photovoltaic solar energy systems for micro and small enterprises.
- Fintechs are enticing markets by building new platforms and ecosystems, and showing new methods to reach and serve potential customers. For example, a senior bond worth $50 million issued by the FIDC MELI Free Market Fund in Brazil was subscribed in Brazilian reals, which will increase the financing available to MSMEs in Brazil.
According to the Microscope, Latin America is still the leading region regarding regulations and infrastructure that support financial inclusion. Colombia, Peru, Uruguay and Mexico lead the ranking by having the most conducive policies, regulations and infrastructure.
Therefore, we need more tools such as the Microscope. Mayada El Zohgbi of the Center for Financial Inclusion Action put it this way: “We need to see what’s happening in the marketplace and use better monitoring tools.” Marisela Alvarenga of IDB Invest said that “we have strengthened our strategy to improve our approach to financial inclusion, by providing financial and non-financial solutions to a variety of institutions, traditional banks, cooperatives and Fintech.”
Inclusive financial systems are more efficient in allocating resources and consequently encourage investments that benefit economic development, create jobs and reduce vulnerability levels of most of the population.
Download the Global Microscope 2019 here.
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