Can Financial Inclusion Make a Difference in Central America?

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


Buenas Noches.

I’m sorry that the rest of my speech will be in English. But this reminds me of a story that former President Jimmy Carter tells about his visit to Tokyo my own town. He began his speech with a joke, and was surprised when the audience immediately broke into big laughter. So President Carter later asked his interpreter how he could translate the joke so well into Japanese, and the interpreter said: “I told them, ‘President Carter has told a funny joke. Please laugh now.’”

I hope my interpreters will do the same for me tonight!

It is a great pleasure to be visiting Central America again for this regional conference.

I would like to thank President Morales and the Guatemalan authorities for their hospitality.

I also welcome the opportunity to listen to your views.

It is useful that this conference is taking place here in Guatemala. This country has opened a new chapter in its history by embarking upon a remarkable political transformation.

The goals of this effort are impressive—especially the fight against corruption, and improvements in governance and transparency. We hope that the adopted 2017 budget will pursue an ambitious social and structural agenda.

Also it is important to see the progress being made in some of the neighboring countries on the same issues. All of you have a great opportunity—and great responsibilities—as you seek to build strong and inclusive growth.

But many challenges lie ahead. I assure you that the IMF stands ready to assist you in this difficult task. So my remarks tonight will focus on a key element of your efforts to move forward: financial inclusion.

This topic has become an important part of Fund’s advice, research and technical assistance around the world. It also has been the subject of regional conferences that we have held in Asia and Africa over the past 18 months. So I would like to focus on what financial inclusion means for Central America by highlighting key issues and best practices.

The Role of Financial Inclusion

Let’s begin with some background.

Financial inclusion basically means providing broad access to affordable financial services. It is a way to mobilize savings and make credit available to households and businesses. It means more financing for consumption and investment. And it can bring labor and companies into the mainstream economy from the informal sector.

Of course, it also can increase government revenues.

What difference can financial inclusion make?

It can help provide a safety net and reduce 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, expanding their capabilities.

Clearly, Central America can benefit from more financial inclusion. Consider these facts:

• 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.

Central America actually has made considerable progress in recent years: about 40 % of adults have bank accounts. That is less than other Latin American countries, where 50 % or half have accounts. But Central America leads Latin America in increasing the number of individual bank accounts.

Over the past few years, in El Salvador, the share of adults with an account has nearly tripled.

In Guatemala ownership of bank accounts almost doubled. The use of mobile banking services is becoming increasingly more important in the region. However, the use of ATMs, and credit and debit cards remains low, and improvements in electronic payment systems are slow.

Another important aspect of financial inclusion involves small and medium-sized businesses, which we call SMEs. For them, access to the banking system means they can borrow and take advantage of other financial services. This can stimulate investment and create jobs.

This may also help bring companies out of the shadows of the informal sector and stimulate productivity and growth.

We have seen progress in the Dominican Republic, El Salvador and Costa Rica, where 96% of companies have bank accounts and 53%, more than half, have taken out loans. But here in Guatemala or Nicaragua and Honduras only an average of 70% of SMEs have bank accounts and 40% have taken loans. They continue to face obstacles like high documentation and collateral requirements as well as high cost of credit. This is a major constraint on business investment.

Key Lessons

So what are the lessons that can be learned from other parts of the world about financial inclusion?

In Asia, countries like China, India and Indonesia have brought millions of people into the financial mainstream. In East Africa, Kenya and other countries are demonstrating the potential of mobile banking. In Latin America, Brazil, Chile and Uruguay are regarded as the champions of household inclusion.

Let me quickly outline four key lessons from all of these efforts:

First, central banks, supervisors and other government agencies play a crucial role.

They put in place the laws and regulations that encourage financial sector development and inclusion. For example, they modify regulations for opening bank accounts or introducing mobile banking.

Plus, governments can provide important infrastructure. This could be something as simple as building roads, or as complex as payment and personal identification systems. For example, India’s introduction of a biometric identity card has reduced barriers to opening bank accounts.

Second, Latin America’s experience suggests that channeling social transfers through the financial system can increase inclusion. 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. That is one of the highest percentages in the emerging economies.

Third, private sector participation is crucial to financial inclusion. It is essential to understand how to tap demand for financial services, and to carefully examine successful business models. It is also important to develop technology that reduces transaction costs.

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.

This network offers women special accounts and training. And it provides microfinancing under a Grameen project.

Fourth, while inclusion can bring real benefits to growth, financial stability could be hurt if services expand too quickly. Extending credit too rapidly can expose both lenders and inexperienced borrowers to higher risk. Well-designed financial regulations and strong prudential oversight are crucial as more people gain access to banking services.

Policies for Central America 

With those lessons in mind, let me offer some suggestions on policies that could help foster financial inclusion in Central America.

Recent IMF research shows how strengthening regulation plays an important role. Your countries have already improved their regulatory and supervisory capacity. But government support for financial inclusion could be deepened, starting with national strategies.

El Salvador, Guatemala, and Honduras are already taking steps in this direction.

Countries also could create credit reporting systems that would broaden access to financial services and reduce costs. Consumers also would benefit from enforcement of market conduct rules and stronger frameworks to resolve disputes.

More broadly, effective policies to foster economic development will also help support financial inclusion. This would involve improving educational systems, including financial literacy, and strengthening the rule of law.

There is also a crucial need to reduce the size of the shadow economy and foster convergence to higher income levels. This will open the door for more inclusion without weakening stability.

Finally, let me point out while financial inclusion policies promote inclusive growth, it is also possible that these policies actually can increase inequality. Take the case of reducing collateral requirements. That would help growth, but may also result in benefits flowing to the rich, who are better placed to take advantage of these new opportunities. It is no guarantee that policies to increase inclusion will automatically produce the growth benefits.

So each country needs to employ a range of policy tools to both promote growth and reduce inequality.


In conclusion, let me say that the need for financial inclusion has never been more important—in this region and throughout the world. It is essential to put in place policies that can lift economic growth and reduce inequality. Financial sector development and inclusion are key to this effort.

For our part, the IMF will continue integrating financial inclusion into our work. We will continue to support your efforts with capacity development, policy advice and research.

Together, we can help more and more people to improve their lives. This effort is just beginning.

Thank you! Muchas gracias!"

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