## Can Financial Inclusion Make a Difference in Central America?

_IMF News, November 17, 2016_

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## Bibliographic details
- Published: November 17, 2016

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### Introduction
- Speech delivered by IMF Deputy Managing Director Mitsuhiro Furusawa at the Central America Regional Conference, Antigua, Guatemala, November 17, 2016.
- Emphasis: financial inclusion as a key element to build strong and inclusive growth amid efforts to fight corruption, improve governance and transparency, and pursue an ambitious social and structural agenda in the region.
- IMF commitment: stand ready to assist with capacity development, policy advice and research.

### The Role of Financial Inclusion
- Definition and functions:
  - "Financial inclusion basically means providing broad access to affordable financial services."
  - Mobilizes savings and makes credit available to households and businesses.
  - Brings labor and companies into the mainstream economy from the informal sector.
  - Can increase government revenues.
- Potential benefits:
  - Provides a safety net and reduces poverty and inequality.
  - A savings account can protect against a medical emergency or unemployment and open doors to education.
  - Access to loans can help households and the self-employed manage large expenses and permit access to health and education.
- Regional context and statistics:
  - "37 % of the population lives in poverty;"
  - "Inequality is high, while savings and investment are low;"
  - "60 % of the work force, 60% is in the informal economy;"
  - "And growth over the past decade has been just around 2½ %, a year."
  - "About 40 % of adults have bank accounts" in Central America.
  - Comparative: "other Latin American countries, where 50 % or half have accounts."
  - Trends: "Central America leads Latin America in increasing the number of individual bank accounts."
  - Country examples: "In El Salvador, the share of adults with an account has nearly tripled." "In Guatemala ownership of bank accounts almost doubled."
  - Payment and usage gaps: "the use of ATMs, and credit and debit cards remains low, and improvements in electronic payment systems are slow."
- SMEs and access to finance:
  - Importance: access to banking enables borrowing, other financial services, investment and job creation; can reduce informality and boost productivity and growth.
  - Country comparisons:
    - "Dominican Republic, El Salvador and Costa Rica, where 96% of companies have bank accounts and 53%, more than half, have taken out loans."
    - "Guatemala or Nicaragua and Honduras only an average of 70% of SMEs have bank accounts and 40% have taken loans."
  - Constraints: high documentation and collateral requirements and high cost of credit.

### Key Lessons from Other Regions
- Four lessons summarized:
  1. Role of public sector frameworks and infrastructure:
     - "Central banks, supervisors and other government agencies play a crucial role."
     - Governments modify regulations for opening bank accounts or introducing mobile banking.
     - Governments can provide infrastructure such as roads, payment and personal identification systems.
     - Example: "India’s introduction of a biometric identity card has reduced barriers to opening bank accounts."
  2. Channeling social transfers through financial systems:
     - Example: "In Brazil, the program Bolsa Familia encourages families to receive payments through simple bank accounts. So 20 percent of Brazil’s adults got their transfers this way in 2014."
  3. Private sector participation:
     - Importance of tapping demand, examining business models, and developing technology to reduce transaction costs.
     - Example: "Here in Guatemala, the network called Banrural is a useful model. It offers services geared toward the poor, including ATMs that speak Mayan languages to help illiterate customers."
     - Banrural specifics: offers women special accounts and training; provides microfinancing under a Grameen project.
  4. Risks to financial stability from rapid expansion:
     - "Extending credit too rapidly can expose both lenders and inexperienced borrowers to higher risk."
     - Need for well-designed financial regulations and strong prudential oversight as inclusion expands.

### Policies for Central America
- Strengthen regulation and supervision:
  - Recent IMF research shows strengthening regulation plays an important role.
  - Countries have improved regulatory and supervisory capacity; government support could be deepened, starting with national strategies.
  - "El Salvador, Guatemala, and Honduras are already taking steps in this direction."
- Credit reporting and market conduct:
  - Create credit reporting systems to broaden access and reduce costs.
  - Enforce market conduct rules and strengthen frameworks to resolve disputes.
- Complementary development policies:
  - Improve educational systems, including financial literacy.
  - Strengthen the rule of law.
  - Reduce the size of the shadow economy and foster convergence to higher income levels to enable more inclusion without weakening stability.
- Distributional caution:
  - Policies that promote inclusion can sometimes increase inequality; example: reducing collateral requirements may benefit the rich more.
  - "It is no guarantee that policies to increase inclusion will automatically produce the growth benefits."
  - Recommendation: employ a range of policy tools to both promote growth and reduce inequality.

### Conclusion
- Financial inclusion is essential to lift economic growth and reduce inequality in Central America.
- Financial sector development and inclusion should be integrated into IMF work through capacity development, policy advice and research.
- Closing call: "Together, we can help more and more people to improve their lives. This effort is just beginning."

*IMF Deputy Managing Director Mitsuhiro Furusawa, Central America Regional Conference, Antigua, Guatemala, November 17, 2016.*

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## References

- [Mitsuhiro Furusawa](http://www.imf.org/external/np/omd/bios/mf.htm)
- [Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)
- [El Salvador and the IMF](http://www.imf.org/external/country/SLV/index.htm)
- [Guatemala and the IMF](http://www.imf.org/external/country/GTM/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/11/17/sp111716-can-financial-inclusion-make-a-difference-in-central-america_