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The pandemic leads millions of Latin Americans to join the financial system

A man walks outside the Banco de Occidente in Bogotá, Colombia.Luisa González / Reuters

In some Latin American countries, the coronavirus pandemic achieved what campaigns and initiatives for years could not: that millions of people opened their first bank account. In Brazil, Colombia, Chile and Costa Rica, citizens who want to receive financial support from the Government during confinement require an account to receive the transfer. According to various experts, this greater financial inclusion could be advantageous in the economic recovery.

The most impressive advance so far has been seen in Colombia. According to the Colombian Banking and Financial Entities Association (Asobancaria) in the months of the health emergency, 1.5 million people joined the financial system for the first time. This raises the country’s bankarization rate to 85.6%. In Brazil, with a 70% bankarization rate, about two and a half million people opened their first bank account in order to receive government support, according to data from the World Economic Forum. Chile also reported progress. In a presentation in early July, the central bank reported that in the months of March to May the number of checking accounts in the country increased between 30% and 40% compared to the previous year. Its bankarization rate is 74.3%. In Costa Rica, a country with a population of just five million people, 180,000 people became bankrolled in a month and a half, according to José Manuel Salazar Xirinachs, a former official of the International Labor Organization (ILO) who is part of a group of experts who advise the Government of the Central American country. “It’s impressive,” says Salazar Xirinachs. “Most of them are informal and self-employed, for example, domestic workers. In Costa Rica there were basically 125,000, of which a great majority were suspended.”

“The thing here was not to put obstacles, to make it very simple and very direct. If the person had a mobile and a telephone, then that is practically 100% of the people who have it, right? That’s wonderful, ”says the economist. Costa Rica, like Colombia, allied with commercial banks so that the opening of a bank account did not require the physical presence of the client and could be done via the Government portal. “The pandemic has created all this migration towards digital transformation and this is a great example of a good digital transformation.”

Economic health

“Access to a phone, a bank account and a digital ID is increasingly central to economic health and, in some cases, a matter of survival,” says a United Nations report published on August 26. “However, one or more parts of this digital survival kit are not yet available to nearly half of the adult population, disproportionately women, in most developing countries.” Among its most important findings, the UN points out that banking services online is cheaper and that the main beneficiaries should be the lower economic strata, who depend, in many cases, on remittances from abroad, for example.

The World Bank assures that some 2.5 billion people in the world do not use formal financial services. 75% of those living in poverty do not have a bank account. Both the institution and the United Nations, among other international organizations, assure that inclusion is key to reducing poverty and promoting development. Internet penetration, on the other hand, is just as important and in Latin America it is higher than bankarization. The bank reports that more than half of adults in the region have a cell phone, a higher percentage than the average for emerging economies.

In El Salvador, the low banking status of the population led to a risky situation in April. When it was announced that direct transfers would be offered to those most in need, hundreds of citizens flocked to bank branches to open an account and receive support, exposing themselves to contagion. In Brazil, the process for delivering government aid had to be adapted, since at first it could only be withdrawn with a bank card. In weeks, the system allowed the creation of more functional accounts that required little documentation.

More savings

The economic development of a country depends, to some extent, on medium and small companies having access to loans that allow them to grow their businesses. And, without the savings of the inhabitants kept in the bank, they have less capacity to lend, explains Sebastián Nieto, head of the Organization for Economic Cooperation and Development for Latin America.

“This is good news,” says the specialist on the phone from Paris. The crisis has taught countries an important lesson, as well as a digital infrastructure that could be used for other financial aid programs. “The big question now is to what extent can they become, in one way or another, permanent?”

“And that leads to the fact that although you can have this help from the State, they are still reduced amounts and depending on how financial inclusion is linked, they are deposits that you are going to have, but they are not permanent savings, which is what I would like for financial development in Latin America ”, affirmed Nieto.