Financial Inclusion in Latin America: Looking Back, then Forward
At the beginning of 2012, we blogged about our three wishes for Latin America in 2012. These focused on: 1. New regulations to facilitate greater diversity of providers in areas such as e-money; 2. Over-indebtedness and consumer lending; and 3. A leadership role for the region in global financial inclusion. 2012 has seen continued and increased efforts on financial inclusion across the region by providers and policymakers, although it was not a year without challenges around what is “healthy” or “sustainable” market development. So before we head off into the promise of 2013, we wanted to highlight three developments from our 2012 wish list that deserve particular attention.Photo Credit: Ben Depp
Launch of key mobile banking initiatives that have been in the works for past years
In past years we had seen some of the largest players in the region (both banks and MNOs) setting up partnerships and preparing the launch of large mobile banking initiatives. These initiatives primarily targeted at their outset low-income users via mobile payments products, but have a long-term vision for providing a broader range of banking services on these channels down the road. Some of these launched in 2012 in Mexico, Colombia, Argentina, while others had already been operating in the region (Paraguay, Haiti). Now that they have launched, will these services reach significant scale and will this become an alternative banking model, such as what has developed in other lower-income countries outside the region?
Increased regulatory space for non-banks in financial services
At their annual Forum on Financial Inclusion, the Brazilian Central Bank announced much-anticipated new mobile payments regulations. The regulations focused on four key principles:
- Interoperability: An open and inter-linked model for payment systems
- Inclusive: A focus on a system that can serve the unbanked
- Low cost: Differentiated costs and tariffs by operation type
- Agile and secure: Guaranteed same-day transactions
The focus on an open and interoperable system facilitates a wide range of potential players (banks, telcos, money transfer services, retail chains, etc.) to enter the market and innovate. This is an important principle to maximize the potential these channels hold for inclusion. Similar opening of the payments space can be seen in Mexico as well, where in 2012 the government issued the first ever “banco de nicho” (niche bank) license to Paga Todo. This is a special license that will facilitate the entrance of new non-bank actors into the payments space in Mexico. In 2013 we have high hopes for more good news in this space, as we await pending e-money legislation in Colombia and Peru.
Is the bubble getting bigger?
Throughout 2012 we discussed the growth in consumer lending and household debt across Latin America, and in particular within the fast-growing urban and middle class consumer segment. As more households leave poverty across the region providers are taking notice, and access is increasing. But as we know, not all access is the same, and the trend of rising consumer lending and household debt levels continues unabated in some markets. A study released in 2012 by the Autonomous University of Mexico (UNAM), found that household debt with the banking sector had risen from 8.7% in 2000 to 14.3% in 2011, and consumer loans have grown to 23% of all bank-issued credit (and 40% of all bank earnings from interest, commissions and annual fees.) Perhaps even more significant than these figures is the growth in non-bank providers offering consumer credit to low-income urban populations across Latin America. While we aren’t sounding the alarm bell yet, we have not seen any abatement of this trend in 2012, and wonder how much longer this growth can sustain itself, and if there isn’t a credit bubble at the end of this trend. So will this growth in the sector continue, or will it level out in 2013? And will we see further action by policymakers to address concerns over economic stability and household well-being consumer lending raises?
We probably have more questions than predictions at this point, so tune in again in 12 months to find out…
Rafe and Xavier will be hosting a live web chat on Tuesday, Feburary 19 to answer your questions about financial inclusion in Latin America. Submit your questions in real time or in advance.