Everyone agrees that financial inclusion offers a way out of poverty for those at the bottom of society. So why is it proving so difficult to achieve?
Latin America is the continent with the most inequality in the world, according to the UN’s development programme. But could having access to financial services, such as a bank account, credit and budgeting advice, help empower those at the bottom of the pyramid?
Sixty million people have gained access to such services in Latin America in the past four years, according to the World Bank’s recent Findex paper, but 200 million people remain unbanked, making the bank’s target of universal access to financial services by 2020 rather ambitious.
Cecilia Toscana Rodriguez, corporate sustainability coordinator from Cemaco, a chain of department stores, said the retail sector’s interest in financial inclusion is growing as shops look to offer 21st century services. But potential customers are left behind as they can’t pay online unless they have a debit or credit card. She said that Guatemalan workers in the US are often concerned about what happens to the remittance money they send home. For her, US company Xoom’s remittance model, which allows workers to use their money to pay for their families’ bills back home, is ideal. The money goes where it’s meant to go – not on alcohol.
Another area of concern that has a huge bearing on people’s ability to gain access to financial services is the lack of people with proper ID. Fernando Alguera, director of Mexico’s social development ministry, pointed out that undocumented people are unable to register at banks, leaving them financially reliant on family or loan sharks.
Julio Estrada, executive director, Anadie, said there are economic incentives for policymakers in Guatemala to take an interest in financial inclusion, as its large informal economy encourages corruption and makes it hard for the government to collect taxes. He said the country should follow the example of Mexico, which put a tax on cash in 2007 to dissuade people from depositing amounts of money greater than $15,000 pesos. “Digitising money should interest all governments because it gives them more control, helps taxation, and reduces the informal economy,” he said.
Carla Prieto, strategic planning and finance director for Grupo GH7, which manages the mobile banking platform tPago in the Dominican Republic, said a problem for banks is how to get people to use their accounts for more than just receiving money, which offers no business value for financial service providers. “We need to give people a solution to more problems,” she said.
Tax deductions for digital payments have proved successful in getting people to make the switch away from cash, said Bernardo Guillamon, the Inter-American Development Bank’s office of outreach and partnerships manager, citing Peru and Uruguay as both good examples.
María Luisa Martínez Dibarboure, assistant to the CEO at mobile bank $ero, said that Uruguay’s success in this area was down to the government bringing in a financial inclusion law last August, which meant that everyone had to have a full bank account or mobile account.
Peñate said SAB Miller’s move into microcredit for mom and pop shops had been led by their customers’ feedback. But when it approached the banks to partner it in what was, for the company, uncharted territory, not one bank would take on the risk associated with its customers. The company was later able to pair up with a financial NGO because of data proving its customers paid – meaning it could front 100% of the risk in the first few years until the NGO agreed to take it all. Only then were the banks interested.
BT had a better experience working with banks, according to Bas Burger, president of the Americas for BT, helping Bank Caixa reach 17,000 locations in Brazil – from boats on the Amazon, to trucks in the forest – bringing the bank closer to rural communities.
Implementation was identified as a key issue. Martínez Dibarboure said that those on the edges of the financial system are distrustful of banks, which was holding back usage in Uruguay. Luz Ramírez Chávez, country manager for Visa Mexico, also found its work as a large multinational was much better received when local partners Grupo Bimbo and Mexico’s Chamber of Commerce did the implementation. “It’s important to have someone who can follow up on the different stores’ progress,” she said.
But Elaine Smith, founder of #ProgressoSocial Brasil Network, stressed that building trust is not enough. Any new affordable financial service offered to low-income families must come with the right financial education, and the product or programme’s consequences anticipated. “It’s been almost two decades since the Brazilian government tried to implement a government subsidies scheme,” she said.