The importance of financial inclusion
There is broad consensus regarding the objective to expand the participation of economic agents in the financial system. Various studies have found that greater financial inclusion increases the population's welfare, reduces the likelihood of falling into poverty, increases productivity and generates a significant positive impact on the country's macro-economy. For all these reasons global economic policy agendas have been strongly recommending the implementation of measures to help strengthen financial inclusion in countries.
Financial inclusion can be approximated by measuring actions that help to maximize use of and access to the financial system, while minimizing the barriers that hinder this; the latter is understood as a proxy for the quality of financial services. Typical barriers that complicate the quality of the financial service – and, therefore, its use and access – are service costs, lack of trust, excessive documentation requirements and geographical aspects.
Taking these aspects, over recent years BBVA Research has been measuring progress in financial inclusion using the Multidimensional Index for Financial Inclusion (MIFI), which allows it to make a global comparison of around 140 countries, including Peru. This methodology takes account of the three above-mentioned dimensions of use, access and barriers, and measures 18 homogeneous variables for all geographical areas. The latest data shows Israel leading the overall ranking, followed by South Korea, Canada and Brazil.
Focusing on Latin America, the leaders in the region are Brazil, Chile and Colombia – in that order. The strength of the region, represented by these three countries, is seen in strong progress made in the dimension of access to financial services. Here the correspondent agents model has played a central role in allowing interaction between service outsourcing schemes, interests and inclusive technologies, such as mobile telephony, to help extend financial services to a broad part of the population. However, major limitations are seen in the barriers dimension, where these geographical regions show their greatest weaknesses, particularly regarding public perception in terms of cost and trust.
The improvements seen in Peru are largely in response to implementation of the correspondent agents model, which has allowed the access dimension to be the main pillar of its financial inclusion model. However, this strength contrasts sharply with measurements of the barriers dimension, where Peru is seen to be one of the most deficient countries in the world. This factor constitutes a signal for regulators and economic policy makers to go about adjusting future actions.Focusing on Peru, we seen that it stands at 68 in the ranking, having risen 11 places since the previous measurement in 2011. Within Latin America it stands eighth.
The case of Peru
Peru is among the countries with a medium level of financial inclusion, with 49.28 points, very close to the high financial inclusion category (50-74 points) and to the average of 50.94 points recorded for upper middle income countries. February saw the launch of the eWallet (BIM), a system expected to benefit some five million low-income people in Peru up to 2021. They now have the possibility of doing financial transactions on a mobile phone, without need of cash and saving time by not having to go to physical customer service points.
This is an important advance in financial inclusion which will have to assessed in greater detail in the future with more statistical data. However, the population not included in the financial system still perceives barriers to access and use of formal financial services. With a multidimensional approach highlighting weak points on the demand side, BBVA Research has identified a fundamental action point to reduce barriers and obstacles in the country: financial education. Expanding financial education has become a requirement for optimizing Peruvian participation in the financial system.