Updated: Oct 7
Latin America encompasses several countries in the world. According to the United Nations, there are 33 countries in Latin America and the Caribbean today with a population of over 44 million people across the region. It is unfortunate then that with regards to financial inclusion, there is low and unequal access to the formal financial system by both households and small and medium-sized enterprises (SMEs). In Latin America, economic growth is modest, poverty and inequality remain high while savings and investments are low.
The overall state of financial inclusion in the region could improve by reducing borrowing costs for low-income households; continuing the support for mobile banking technologies, since 55 percent of adults own a mobile phone and have access to the internet anyway; investing more in financial education to reach the wider population; protecting the efficiency and stability of the current financial system; and strengthening the regulatory environment with regards to formal financial systems.
Despite its shortcomings, there have been measures to push financial inclusion among the population. While all of the above would help Latin America boost financial inclusion, here are strategies already accomplished in the region:
Financial Inclusion Initiative for Latin America and the Caribbean (FILAC)
FILAC’s objective is to enhance policies and regulations in both Latin America and the Caribbean to scale up financial inclusion solutions for vulnerable groups in the region. Some of the activities they have been preoccupied with concern the improvement of digital banking services, financial inclusion data, financial literacy, and closing the gender gap. FILAC’s vision is to promote inclusive and sustainable growth and to reduce poverty by generating more knowledge about financial inclusion and supporting financial inclusion policies.
Correspondent Banking Arrangements
Correspondent Banking Arrangements are a partnership between banks and nonbanks such as convenience store, drugstores, and supermarkets to distribute financial services in areas without a brick-and-mortar bank branch. This arrangement allows banks to extend their reach to remote areas and to make their presence known in numerous areas. This furthers financial inclusion by allowing banks to serve customers in low-density areas with only a select number of transaction services — all without the high operational cost of a fully functioning bank branch.
One of the latest trends in banking is the Mobile Branch. These are offices of a bank that can be moved around to different locations at different schedules that are predetermined. Similar to Correspondent Banking Arrangements, this allows banks to extend their services to rural areas at a much lower cost compared to a brick-and-mortar bank set up. Aside from this, another positive thing about Mobile Branches is that they reduce the costs of access to financial services for banking customers because they reduce the distance between bank and customer. Mobile Branching is more common among the seven largest Latin American economies compared to other countries in the world.
Digital Expansion of Latin American Banks
According to a study by Temenos, Latin American banks are driving digital expansion. This will enable them to boost financial inclusion in the region all the while cutting down costs on servicing. Because of these two positive outcomes to digital expansion, Latin American banks are investing in this and 35% of retail bankers named this a top priority for 2020. Through digital banking technology, transactions are made swifter and easier to access for banking customers.
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