SAVING, PAYMENTS AND NEW DISTRIBUTION CHANNELS
Recent data on financial inclusion show that in 2011, only 39% of adults in Latin America and the Caribbean (LAC) had a bank account at a formal financial institution. This rate of access is even lower among low-income adults (25%) and adults living in rural areas (34%).
While it is true that many countries lack sufficient coverage, particularly in remote areas where the lowest income people reside, access is not the only barrier for financial inclusion of this segment. Among the lowest-income quintile in LAC, the cost of opening an account exceeds 30% of the average income. Likewise, transaction fees associated with account usage become prohibitive for this segment.
On the other hand, financial intermediaries in the region do not tend to consider the low-income segment as potential clients, given the high cost of serving clients that conduct small and infrequent transactions. As a consequence, the region lacks an adequate and adapted product and service offer and has not been able to penetrate this segment fully.
Savings is an essential tool that contributes to exiting poverty and prevents a retreat to poverty. Among low-income people savings has been proven to fulfill two well-defined purposes 1) accumulation of capital for future needs and 2) short-term liquidity management, for convenience and security. Experiences with savings groups and other methodologies have demonstrated that low-income people do save, but do so in small amounts and, lacking adequate and affordable products, do so informally.
In many LAC countries, remittances are main source of income. Each year migrants send over US$61 billion to over 20 million families, through an estimated 250 million transfers – most of which are unbaked. For instance, in the year 2012 a total of US$4 billion in remittances were sent to Colombia, yet only 23% of these resources were deposited into a basic or savings account.
Technology has become an important instrument for financial inclusion, given its potential to expedite and reduce the cost of conducting financial transactions. Currently there are several tools that promise to exceed the reach of traditional channels. Latin America is the third largest mobile market in the world, with over 650 million connections, reaching a mobile penetration of over 100% in several countries. Likewise in recent years, we have developed several bank agent models acting as branchless banking channels that have grown exponentially in countries like Brazil and Colombia.
The experience of the MIF in areas of financial inclusion in the region have demonstrated that with an adequate business strategy, product design, and incentives, previously underserved populations can successfully become clients of financial products and services.
Therefore, through its regional projects and programs, the MIF is committed to increasing the availability of formal savings and payment products and services, and alternative distribution channels that, besides being profitable to financial institutions, facilitate access and adapt to the needs of the region’s low-income population.