Financial Inclusion

Financial Inclusion Comprehensive Program To Support Financial Inclusion Strategies

About CMF The Capital Markets and Financial Institutions Division (CMF) is the operations division of the Inter-American Development Bank (IDB) responsible for offering support to member countries in the eld of productive, i n c l u s i v e , a n d e n v i r o n m e n t a l l y- s u s t a i n a b l e development. CMF's objective is to help countries to go beyond the nancing restraints that limit their productive development.

Financial Inclusion Comprehensive Program To Support Financial Inclusion Strategies

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PRODUCT

Content

Relevance

Potential Beneď&#x20AC; ts

Obstacles

New Potential

Towards Integral Strategies

The Scope of an Integral Strategy

Types of Public Interventions | Examples

IDB Program to Support Integral Financial Inclusion Strategies

Contact

Relevance

Financial Inclusion1 in Latin America and the Caribbean (LAC)  Only 39 percent of the adult population has an active account in a regulated nancial

institution, which translates into 230 million people without access to formal nancial services.  Other regions of the world with lower levels of per capita income achieve equal or higher levels

of access.  When the use of these accounts is examined, alongside access to other services such as credit

and insurance, the backwardness of nancial inclusion is even greater.

GDP Per Capita (USD) and Access to Formal Financial Services (%) 2011

Adults with an Account in a formal nancial institution (%) GDP Per Capita (Current USD)

80 70

30,000

55%

25,000

$4,700

5,000

24%

$9,000

24%

$9,600

10,000

43%

15,000

45%

20,000

39%

GDP Per Capita (Current USD)

35,000

$41,000

100

$4,600

$1,500 0

High Income

LAC

Europe and Central Asia

East Asia and Pacic

Medium Income

Sub-Saharan Africa

$600

Low Income

Adults with an Account in a formal nancial institution (%)

40,000

Groups of Countries according to Income Level and Geographical Distribution

89%

45,000

Source: Global FINDEX Survey, Authors' calculations, 2013

 However, there have been signicant advances in certain countries in the region aimed at

promoting access to nancial services for a greater number of households and businesses through, for example, the use of banking agencies or successful micronance models.

1. Financial inclusion refers to the access and use of formal and good-quality nancial services by households and enterprises, within a framework of nancial stability for both the system and its users. The nancial services include, among others, credit, savings, insurance, and payments and transfer services.

Potential Benets

Beyond facilitating and making nancial matters safer for people and businesses, a series of studies has revealed that nancial inclusion can bring signicant benets to the socioeconomic development of LAC countries.

Productivity and Business Performance Better access to productive credit enables SMEs to:  Enhance their productivity and sales, and to generate higher

employment levels.

Reduced Vulnerability Appropriate access to and use of nancial services enables vulnerable households to:  Deal with adverse circumstances and reduce the possibility of falling below the poverty line. 

Diminish their cash ow volatility, thereby allowing families to maintain minimum levels of consumption of basic goods, as well as investments in health and education.

Formalization Greater use of nancial services and products can mean: 



Reducing the size of the informal economy, by increasing the use of electronic transactions.

Creating incentives for businesses to become formalized, in order to take advantage of enhanced access to nancial services.

In order for these benets to be materialized, however, provision and use of nancial services has to function within a framework that ensures nancial stability for both the system and the users' nances, which means that it is particularly important to strengthen the capacities of individuals and businesses alike.

Obstacles

On the Demand Side of Financial Services  High prices of services and elevated costs of obtaining physical access to

them.  Low income levels and stability, which affects both the demand for and

the use of nancial services.  Need to comply with regulatory requirements that the target client nds

difcult to satisfy.  Lack of instruments suited to their needs.  Low levels of nancial education.  Cultural factors that result in self-exclusion.

On the Supply Side of Financial Services  Lack of economies of scale, which leads to high operating costs with

regard to the value of the nancial transactions, and thereby to high prices for the services.  Difculty in obtaining access to information about the target

population in order to estimate the risks of offering certain services.

New Potential

A series of recent developments offer the potential to overcome the obstacles:

The incomes in the rst quintiles of the population have been increasing, which has led to a greater demand for and use of nancial services.

The development of technological innovations and new business models means that many of the structural obstacles can be tackled, both in the demand and supply of nancial services:  New channels such as the mobile telephone and banking agency networks

enable economies of scale to be achieved and facilitate the physical access of clients to services, as well as reducing cultural obstacles.  The systematic use of new sources of information, both nancial and non-

nancial, such as psychometric testing, permit alternative credit risk assessments and other aspects of client performance to be undertaken.

Growing recognition by governments of the importance of achieving greater nancial inclusion, which has led to a series of new public interventions, such as the following:  The use of electronic payment systems for governmental transfers.  The establishment of basic or simplied accounts that make them easier to open,

as well as nancial education programs. 

Funds open to tender for promoting the implementation of innovations or for extending regional coverage.

Towards Integral Strategies

To advantage of the new potential for nancial inclusion, integral national strategies are called for that include diverse goals and multiple forms of intervention, due to the need to:

Coordinate New Actors Examples: Telecommunications enterprises Non-banking agents Niche banks

Complete Markets Segments

Generate Information and Establish Results Indicators

SMEs Rural producers Women Poor households

Additional services

Enhance the Financial Capacities of Businesses and Households

Support Innovations and New Business Models

Likewise, public institutions that have been previously not been involved should be engaged. For example:  Policymakers or regulators in the eld of communications (mobile nancial services).  Social development agencies (electronic payment of social transfers).  Ministries of education (capacity building for nancial consumers).

The above highlights the importance of creating coordinating mechanisms among all the entities involved.

The Scope of an Integral Strategy

An integral approach to ď&#x20AC; nancial inclusion implies implementing a series of measures that can be divided into three complementary levels, among which synergies must be achieved:

Levels of Intervention

1 Amendments to the legal, regulatory, and institutional framework to establish an adequate incentives environment

Complementarity

Direct interventions aimed at improving the supply of ď&#x20AC; nancial services (both in their quality and their quantity)

Synergy

3 Direct interventions to 2 stimulate effective demand

2. Understood to be the capacity of the lower-income households and small enterprises to select and to use the services in accordance with their needs, and to send the correct signals about the services to clients.

Types of Public Interventions | Examples

Legal, Regulatory, and Institutional Framework  Opening and regulation of: new channels and media (agencies, mobile,

     

electronic wallet, Internet); products (microinsurance, factoring, leasing); and service providers (telecoms, niche banks, cooperatives, commercial chains) Access to, and the scope of, nancial and non-nancial information Adaptation to the regulations regarding money-laundering and the clients' knowledge/basic accounts Payments system (low value, interoperability) Consumer guarantees regime Consumer protection Institutional coordination mechanisms

Direct Interventions to Expand the Supply of Services  Credit and guarantee programs for SMEs  Financial institutional strengthening programs  Government payments made through the nancial system or electronic media,

and related nancial products  Incentives for the provision of new products or for greater regional coverage  Investment in infrastructure for low-value payments systems and credit bureaus  Special programs for the rural sector

Direct Interventions To Increase Effective Demand  Financial education programs  Technical assistance for SMEs  Communications programs tailored to different audiences

IDB Program To Support Comprehensive Financial Inclusion Strategies

The Inter-American Development Bank offers LAC countries a support program for the design and development of their nancial inclusion strategies, according to the structure, situation, and market size in each country.

IDB Program = Comprehensive and Coordinated Approach + Full Support

Integral and Coordinated Approach

Interventions Legal, regulatory, and institutional framework Direct interventions to expand the supply of services  Direct interventions to increase effective demand  

Services

Objectives   

   

Productivity and Business Performance Formalization Reduced Vulnerability

Transfers and Payments Savings Credit Insurance

Markets  

Enterprises Household

IDB Program To Support Comprehensive Financial Inclusion Strategies

Full Support

Stages

Design

Diagnostic

Identify the problem and the opportunities for ď&#x20AC; nancial inclusion in the country, as well as suitable public interventions

Develop an integral strategy, as well as the tools necessary for its implementation

Evaluation

Implementation Carry out interventions at the legal, regulatory, and institutional framework level; expand service supply; and augment effective demand

Implement a monitoring and evaluation system with clear goals that are relevant to the reality of each country

Instruments

Diverse IDB Instruments can be Combined in one Program Instrument / Level Loans for Supporting Political Reforms or Institutional Changes (freely available resources)

Investment Loans Lines of Credit (global, multisector) and Guarantees

Technical Assistance

Legal, Regulatory and Institutional Framework

Interventions to ensure Adequate Supply of Services

Interventions to Increase Effective Demand

Contact

For more information about nancial inclusion, contact:  Fernando de Olloqui: fdeolloqui@iadb.org  S. Gabriela Andrade: sylviaa@iadb.org  Diego Herrera: diegohe@iadb.org CMF is an ally of governments in the region committed to making effective progress towards greater nancial inclusion. Our objective is to help to create and implement integral strategies that lead to enhanced wellbeing for the families and businesses of Latin America and the Caribbean.

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