Access to financial services is a decisive factor for promoting development in the region

(Lima, September 14, 2011). Access to financial services is a decisive factor for promoting economic development and the well-being of society, according to the Report on Economy and Development (RED after its initials in Spanish) entitled Financial Services for Development: Promoting Access in Latin America, a study presented today by CAF –Latin American development bank-, in which experts analyze the decisive role played by finances in the Latin American development process.

The publication was presented by Luis Miguel Castilla, minister of economy and finance, Eleonora Silva, CAF’s director in Peru, Leonardo Villar, CAF’s vice-president of development strategies and public policy, and Pablo Sanguinetti, CAF’s director of socioeconomic research.

After thanking CAF for providing the opportunity to reflect on issues of substance for the development of the country, Castilla maintained that, given the important times that Peru is currently experiencing, these reports propose options for the design of public policies. He stressed that the issues chosen for RED 2011 are of transcendent importance, as they focus precisely on the government’s objective of maintaining growth above 6% and consolidating progress made thus far on the economic front with greater social inclusion. Consequently, “financial inclusion could be a very effective channel for achieving that social inclusion.”

“CAF’s reports do not pontificate or give only one recipe, rather they offer policy guidelines. That has been the success of these publications, which, with no kind of dogma or ideology but with considerable pragmatism, offer options and explain what works and what doesn’t. Sometimes it is necessary to focus on what doesn’t work precisely in order to not commit others’ mistakes,” he said.

CAF’s vice-president of development strategies and public policies, Leonardo Villar, explained that the report provides new information on different aspects of the use of those services based on a survey conducted by CAF in 17 cities in the region.

“The results confirm prior estimates that suggest a low level of access to financial services in Latin America. For example, on average, 51.3% of families in a sample taken in 17 cities of the region have an account at some type of financial institution. Access to credit is even scarcer: only 12.3% of the families have applied for and currently have a loan at one of those institutions. These problems of access are present in nearly all countries and affect a broad segment of the population, although they are particularly acute for the poorest sectors,” explained Villar.

CAF’s director of socioeconomic research, Pablo Sanguinetti, highlighted the important contribution that micro financial institutions (MFIs) have made to bringing financial services closer to sizeable segments of the population and micro enterprises in the region. MFIs combine elements of traditional banks with informal financial mechanisms and, to some extent, are a market response to the immense demand that is not being catered to by the traditional financial system.

“The Latin American microfinance model has permitted MFIs to achieve high rates of financial growth and self-sustainability, although this has not prevented them from making progress in maintaining sizeable loan quotas aimed at poorer customers. Their flexibility, proximity to the customer, and capacity for innovation give them the advantage compared to traditional banks, demonstrating that they can be a lucrative segment. The Latin American microfinance model, with its “pro-market” and less altruistic tendency compared to the Asian model, has made progress in maintaining sizeable quotas of very small loans, presumably aimed at poorer customers,” he added.

On this same issue, Sanguinetti stressed that “the microcredit revolution” is based on the designing of innovations to turn historically excluded individuals into good credit risks and is a change in paradigm in the financial services business.

“In the case of some countries such as Bolivia and Peru, the expansion of these micro financial institutions has been a highly positive factor that has made financial services available to sizeable segments of the population and the business sector. Microfinance has progressed in the region in part because it has been able to solve some of the failings from which the financial markets suffer,” he added.

Sanguinetti pointed out, however, that, despite the progress made by microfinance, the scant use of formal sources of credit by micro businessmen continues to be a fact of life in the region, where only 14% of micro-entrepreneurial families have a loan with a formal bank.

CAF’s director in Peru, Eleonora Silva, highlighted that working on the issue of financial inclusion implies promoting social inclusion, and for that reason CAF grants lines of credit not only to banks but also to municipal funds, Edpymes, and other financial institutions specializing in microfinance and has also promoted loans and savings cooperatives, in alliance with COFIDE, besides supporting initiatives having to do with micro insurance.

After emphasizing that CAF’s mission is to promote the sustainable development of its shareholder countries, Silva maintained that this seventh Report on Economy and Development aspires to make a contribution to the debate on the function performed by finances and, in particular, by access to financial services in economic development.

“Promoting in-depth knowledge of the region, studying the problems that affect our countries in depth, and offering possible solutions are an important contribution that CAF makes to the development processes in Latin America. This study focuses on the different aspects of the use of financial services in the region, bearing in mind that access to credit is a decisive factor for promoting economic development and the well-being of society,” she concluded.