Closing the gaps? The National Financial Inclusion Strategies in Latin America and the Caribbean

Transcription

1 Closing the gaps? The National Financial Inclusion Strategies in Latin America and the Caribbean (Summary, full document in Spanish can be downloaded at: Carolina Trivelli Ávila 1 Elena María Caballero Calle Institute of Peruvian Studies May 2018 Financial inclusion, misnamed banking, has recently emerged as an important goal within government plans regarding diverse medium and low income economies in the world. Its development is based on its relationship with sustainable and resilient economic growth (Cihak et al, 2016; McKinsey Global Institute 2016), as well as with a reduction in inequality in the economies that promote it (Dabla-Norriset al, 2015; Maldonado et al, 2011; Pearce, 2014). However, even when a promising stage is present, it is difficult to identify the regulating modifications and the specific role that the public and private sectors must play in the process of promoting greater financial inclusion. There are no single nor ideal formulas for the promotion of this process, and each country must necessarily respond to the specific levels of progress and needs with which it finds itself. The challenge to identify the best way to promote financial inclusion has been assumed through multiple international debates and collaborating compromises, from which the Latin America and the Caribbean (ALC) region has not remained isolated. After the Sub-Saharan Africa region, the ALC region has the greatest number of institutional compromises encompassed in the UFA2020 initiative oriented to achieving, by the year 2020, the access to accounts in the formal financial system of one billion people around the world and in the Maya Declaration, which is closely related to the emergence of the National Financial Inclusion Strategies (NFIS), the central matter of the present study. The National Financial Inclusion Strategies (NFIS) are national arenas of coordination and multisectorial collaboration, oriented towards the promotion of access to and use of financial services within the most vulnerable and unattended sectors of the population. An example of its great popularity is that eleven countries in the region today count with a law of financial inclusion or an NFIS, and another eight are in the process of creating one. Considering that the ALC region counts with vast experience in the promotion of processes of financial inclusion especially since the promotion and scaling of the micro-financing sector and a constant regulating adaptation, the NFIS have been inserted in a current of developing initiatives for financial inclusion, although with a fundamental difference. These manifest an explicit concern for the inclusion of the most excluded sectors of the population, which quickly followed the 1 trivelli@iep.org.pe 1

2 successful proposal of the Bank of Opportunities of Colombia (in 2006), as a proposal for intersectional work which is based on the political and mediating compromise of the actors which integrate each Strategy. Within the current of National Strategies, the Alliance for Financial Inclusion (AFI) identifies the Law of Promotion and Regulation of Micro-financing in Nicaragua in 2011 as the oldest strategy, and identifies the National Strategy of Financial Inclusion of Jamaica as the most recent, having been made public in March However, there are relevant antecedents in the region over which the NFIS are built, and within which the creation of the Bank of Opportunities in Colombia, the process of regulation of the micro-financing sector in Peru, the proposals of simplified financial products driven by the Brazilian Central Bank, among others, stand out. Each of the NFIS counts with its own emblematic goal, but they agree upon the pointing out of the promotion for access and use of financial services within the most excluded as the main objective an objective which is possible through the design of improvement and innovation strategies for relevant, quality products, and through the creation of spaces for the financial education of the population. To achieve this, these NFIS count with an average of 3.9 years of work, the longest period being in Peru with six years and the shortest periods being in Brazil and Mexico with two years. Chart 1. National Financial Inclusion Strategies in ALC Country Type of Initiative Year of Publication Emblematic Goal Goal Year Brazil Financial Inclusion Strengthen the institutional framework to activate a more effective 2012 Action Plan financial inclusion in Brazil Promote and implement financial education, as well as access and Colombia NFIS 2014 use of financial services for the entire population, particularly the segments previously excluded rural sectors and SMEs Expand the access to financial services for intermediary financial Ecuador Public Policy for institutions of the Popular and Solidary Economy, through the 2012 Financial Inclusion improvement and innovation of products, to serve the most vulnerable and excluded segments of the population. - Ensure greater access to savings, credit, and other financial Haiti NFIS 2014 products and services with the purpose of reducing poverty and inequality of returns in order to foster a more economically 2019 inclusive financial society. Jamaica NFIS 2017 Create the conditions within which citizens, particularly those who were previously sub-served by the financial system, can safely and resiliently to financial shocks save, and within which firms can 2020 invest, grow, and generate greater levels of wealth. Honduras NFIS 2015 Achieve that excluded people get access to a wide range of financial products and services, provided under favourable conditions and according to their necessities, as well as that the general population counts with a financial education that allows them to optimize their access and use of financial products and services with the purpose to better their living standards and thus 2020 Mexico Nicaragua National Financial Inclusion Policy Promotion and Regulation of Microfinance Law reducing their poverty levels. Achieve that all Mexicans are participants of the benefits that the financial system creates, through concrete and adequately coordinated strategies between the different actors of the public and private sectors, in a framework that procures the solidity and stability of the financial system. Promote and regulate micro-financing activities, in order to stimulate economic development within the low-income sectors of the country. Paraguay ENIF 2014 Obtain accessible, quality financial services for all who want them through a diverse and competitive market Peru ENIF 2015 Promote the responsible access to and use of integrated financial

3 Uruguay Financial Inclusion Law 2014 services that are trustworthy, efficient, innovative, and adequate to the necessities of the diverse segments of the population. Allow the access to and use of financial services by the whole of the population and firms, particularly low-income homes and micro and small businesses. Elaborated by author. After a detailed analysis of the proposals made by each Strategy and its contrary with statistical information about the progress made regarding access to and use of financial services, this study concludes that the results have been generally positive, and that the NFIS of the region are moving in the right direction: generating consensus, positioning their relevance and establishing milestones for subsequent processes of financial inclusion in each country. However, information related to certain kicks regarding the reduction of inequality also suggest that the NIFS still require more refined work, oriented towards the definitive bridging of cleavages for the access to and the use of financial services within the most vulnerable sectors. This task is presented as particularly challenging considering the limited presence of strategies bound to the needs of the most excluded and the same limitations that the National Strategies face public policy tools. To begin with, the NFIS build consensus; they place the topics of financial inclusion in the political and public interest agendas of each country. In the first place, these have been successful in generating a shared diagnostic for public and private instances; diagnostics that are identified as a common and initial starting point for the work of diverse entities involved in the process of promoting greater financial inclusion. These, moreover, also favour the development of political and operational commitments at the highest level of governance, with five of eleven initiatives presented by the President of the Republic during international ceremonies or forums. 2 Consequently, it is common for the public, private, and civil society to agree on the benefits of greater financial inclusion in economic and social terms, as well as on the elements necessary to guarantee their promotion (i.e. quality, proximity, information, etc.). The contribution of the NFIS in the incorporation of components of inclusion and financial education in the public policies is added to the positioning of financial inclusion. These include the linking of accounts to all payments made by the Government, and the inclusion of a financial education module in the school curriculum. Additionally, the contribution to the generation of laws and regulations in favour of the emergence of instruments to modernize payment systems, particularly through the use of e-money (electronic money) and digital media, is added to this positioning as well. These last modifications are proposed in nine of eleven National Strategies analysed 3, along with efforts to expand access networks to the financial system and improve the quality of services. It is on the new scenario that these initiatives raise that the subsequent strategies for the promotion of a greater financial inclusion within each country will move, which is why they represent an important milestone and a point of no return within each economy. - 2 Haiti, Honduras, Paraguay, Peru, and Mexico. 3 Ecuador, Brazil, Colombia, Haiti, Honduras, Paraguay, Mexico, Jamaica, Peru, Uruguay. 3

4 One final but equally significant contribution is represented by the creation of tools (i.e. data, periodic reports, etc.) to monitor progress in terms of access to and use of financial services. National Strategies are powerful tools for data generation that allows to know and meet the national and regional scene. Nine of the eleven Strategies mention to have been or be in the process of developing an assessment plan 4, and seven detail the sub-goals to which the strategy has been designed to reach once its period ends (i.e. the percentage of people with accounts, the implementation of specific policies, etc.). In that sense, NFIS have proven to be interesting tools for the generation of information that allows monitoring their progress and eventually pose routes of collaboration between countries that have similar characteristics of access to and use of financial services. Thanks to the reforms undertaken, the region now has more people accessing quality products, and is moving towards meeting the commitments assumed. Five of the eleven Strategies specify their goal as achieving (greater if not full) access to accounts by the period ; goal that, in every case, set an ambitious and stimulating horizon. Honduras, for example, reports a target of 51% by 2020, where only 21% of the population had an account in If the pace undertaken since 2015 year of the publication of their NFIS is maintained, it is possible that the country will soon find the target achieved; the country finds itself at less than 10 points from achieving its objective, with three more years of work ahead. A little more distanced from their goal but going in the right direction are Haiti and Paraguay, both of which are less than 20 percentage points away from their target, with two more years of work within their National Strategies. Graph 1. Progress in the percentage of people with accounts in the Financial System, in terms of the set targets by the NFIS 6 4 Brazil, Colombia, Haiti, Jamaica, Honduras, Mexico, Nicaragua, Paraguay, and Peru. 5 Peru, Haiti, Honduras, Jamaica, Paraguay. 6 The chart combines Findex data with actualizations from each country about its state of progress, to the year This is the case of Peru and Honduras. For the rest, this was elaborated only with the countries that have Findex data for 2011 and 2014, and for those who report targets of reach within their NFIS. Uruguay is included, and although it doesn t establish as its achievement horizon, it does specify as its Law of Financial Inclusion goal to reach all citizens in the country. 4

5 Source: FINDEX 2011, 2014, National Financial Inclusion Strategies of Peru, Haiti, Honduras, Jamaica, and Uruguay. The dotted line represents what is missing to meet the targets proposed in each NFIS. Elaborated by author. Interestingly, much of this trend has been led by the entry of groups, traditionally excluded from the formal financial system, through accounts associated with government payments. While much of these payments correspond to Conditional Cash Transfer Programs, it is common that new accounts have been concentrated in traditionally less favoured group (i.e. women, the poor, population residing in rural areas). In this sense, it can be affirmed that the NFIS not only contribute to more people accessing accounts, but also help precisely those who constitute the most excluded segments to get effectively closer to the formal financial system. However, even with all of its contributions, we also find that the NFIS fail in detail, and currently face setbacks in terms of closing the gaps in access to and use of financial services. Although they favour and promote the implementation of measures at great scales and fast progress (i.e. linking government payments to financial services), these neglect the development of systematic efforts to design attractive services, and/or the active promotion of innovative existing products in the region, such as those related to mobile banking and e- money. In fact, only two of the revised NFIS specify actions oriented exclusive towards women s financial inclusion 7, and none of them have targets or indicators that allow for the monitoring of this specific segment s progress. None, moreover, manifests as one of its goals the reduction of gender, income level, or residency zone gaps, evidencing a method of work rather universal and less sensitive to the differences between the traditionally excluded sectors. After seven years of the implementation of the first NFIS in ALC, we are already beginning to see some of the consequences of not designing initiatives more focused on meeting the needs that the most excluded sectors face as a priority. The bulk of the NFIS is committed to a general expansion in access that will also result in greater access for vulnerable groups and that will be followed by an increase in the use of these services by all who access them. As we can see, 7 Paraguay and Peru. 5

6 however, greater access does not reduce the gap, nor does it ensure the increase in use. The difference in access to accounts between people of more and less income, which in 2011 was of 26 percentage points, was reduced to 18 points in 2014, but increases again to 20 percentage points in Something similar happens with the difference in access to accounts according to sex, which in 2011 was 9 percentage points, and in 2014 and 2017 remained around 6. The outlook is even more worrisome in the case of account differences by age, which increased progressively since 2011, to the detriment of the youngest. It can be affirmed, then, that today the region confronts a major setback in much of the progress generated in the reduction of inequality in access to the financial system, and is at almost the same starting point from eight years ago, before the implementation of the first NFIS in the region. Graph 2. Access to accounts according to interest groups, Elaboration by author. Additional to the setback in inequality, there are the permanent challenge of moving from the mere access to accounts to the effective use of financial system, as well as the question of how to achieve processes that induce supply to keep innovating in terms of quality and sensitivity to the different needs of the most excluded. The 17% of people with accounts in ALC do not use it for a period of at least one year; 6 percentage points above that of 2014, and 13 points more OECD countries. The proportion increases even more in those emblematic countries (i.e. Bolivia, Ecuador), where the access to accounts has been important and accelerated, but the levels of non-use remain above 20 percentage points. What we see then is that despite now counting with accounts, the newly included still perceive financial products as tools that do not adjust to their needs and/or characteristics, and thus they do not incorporate these new tools in the management of their resources. Graph 3. People with accounts inside or outside the financial system and their use 6

7 Chile Venezuela, RB Brazil Costa Rica Uruguay Dominican Rep. Bolivia Ecuador Argentina Colombia Panama Honduras Guatemala Peru Mexico Haiti Nicaragua El Salvador No deposits nor withdrawals were made from accounts Deposits and/or withdrawals were made from accounts Source: FINDEX Elaboration by author From this work, some explanations are anticipated for the difficulty that the NFIS have encountered in the efforts to promote financial inclusion effectively oriented towards working with the most underserved segments of the population. To begin with, the intersectoral component of the Strategies, initially identified as the main element for an integral and effective collaboration, represents an important challenge, even more difficult in contexts where leadership is not defined and there is little clarity about the budgets assigned the current scenario in great part of the revised NFIS. Many of these initiatives, when resting on inter-institutional and recent organizational structures, work on consolidated work scenarios through merely declarative compromised and without clearly assigned resources. Added to this limitation is the tension between the interests to find goal targets on a large scale which is attended with massive actions in favour of the segments most easily financially included and fine work, sensitive to the differences and particularities of the users who face the greatest exclusions. This limitation, which is complemented with the difficulty to work over bounded time horizons, which ends up prioritizing short-term actions, is oriented to sectors with which the financial system is already familiar (i.e. micro-enterprises, opening accounts to users of social programs). The most excluded sectors require sustained and complex efforts and interventions, which even involve articulations with sectors outside the scope of the NFIS. That is, efforts that otherwise add less in absolute numbers to the goals than the more integrated groups, but that contribute more to the reduction in inequalities. Given this need, it is difficult to imagine more complex work scenarios when the time horizons of the NFIS are on average 4 yours, and in some cases only 2. 7

8 In conclusion, we can affirm that the NFIS have generated interesting advances: more and better information on the subject, and more evidence about the barriers that this process faces. Furthermore, the necessary political commitment has been established and the issue is now recognized as important between public policy makers and the private sector itself; dialogue has been opened between actors that should coordinate efforts to advance in financial inclusion, and agreed upon and monitorable plans of action have been developed. With operational difficulties, high expectations and little time for implementation, however, it is possible that the decision to work with large-scale initiatives is imposed over the willingness to work in greater detail with the traditionally underserved sectors. It remains, in that sense, the challenge to ensure a comprehensive and sensitive to inequalities financial system. It is necessary, moreover, to think about a financial inclusion that goes beyond access to accounts, and to bet on the use of tools that contribute to the effective reduction of vulnerability among the most excluded. There have been many advances, but even regarding them it is possible to affirm that the agenda of financial inclusion is still far from having been overcome in the region. 8