The informal sector is huge in Latin America and the Caribbean, and financial inclusion is extremely unequal, resulting in half of the population being ‘unbanked’. In the context of the COVID-19 pandemic, financial inclusion is seen as crucial to promote economic recovery across the region.
According to Global Microscope, a report prepared by the The Economist Intelligence Unit, the International Development Bank and The Bill and Melinda Gates Foundation, 19 countries in the region made emergency transfers to support vulnerable sectors of the population during lockdowns. Of these countries, 11 distributed assistance through financial accounts and digital wallets, which grant a safe and speedy distribution of social assistance. Those without a bank, often the most in need, missed out.
Thus, the multiplicity of problems caused by the lack of bank penetration and financial solutions among certain population sectors in the region has prompted companies and governments to rethink their strategies. Most are now focused on promoting digital financial inclusion. However, the success of these new ventures lies in their capacity to create multi-sector synergies ranging from traditional banks, fintechs, lenders and state institutions which, together, can jointly distribute and manage money in remote areas.
The Peru CEO for a global bank says the shift to digital will be permanent, “This pandemic has given us many lessons that the digital transformation is unstoppable. We are working hard to bring digital solutions to our personal and commercial banking offerings. Opening of digital saving accounts has increase seven-fold during the pandemic, it’s a huge opportunity.”
“This pandemic has given us many lessons that the digital transformation is unstoppable.”
Peru CEO, global bank
New digital infrastructure has allowed governments to identify, register and mobilise funds on an unprecedented scale. In Brazil, since April 2020, the government has provided social funds to 67 million people, one third of the population. Through public banks, the government opened digital savings accounts for the unbanked so that they could access the benefits, creating 25 million new accounts.
The former President of a Financial Intelligence Unit in Latin America commented, “Technology is enabling the inclusion of previously unbanked people into the financial system. Many people in the region do not have bank accounts but they do have smartphones so digital platforms are providing these people with financial services. Governments and regulators should embrace this as at least it gets them in the system, the hardest thing to control is what is not in the system.”
“Many people in the region do not have bank accounts but they do have smartphones so digital platforms are providing these people with financial services.”
Former President, Financial Intelligence Unit, Latin American government
The major challenges of trust and education remain significant barriers, according to a Peruvian banking executive, “Many people here are suspicious of online applications, so the biggest challenge we face is educating the user.”