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From tangible to intangible: the value of financial inclusion

Much is said about financial inclusion’s impact in people’s sustainable development: access to financial services is the gateway to an improved well-being and a necessary condition to guarantee equal opportunities, in addition to promoting growth. Institutions like the BBVA Microfinance Foundation facilitate this inclusion, something which, beyond its tangible value, empowers people to gradually enhance their financial management skills and, overtime, gain access to products and services from the formal banking system.

“Those who enter the financial system for the first time, start to build credit history which the market is able to assess”, assures the director for Research and Analysis at BBVAMF, Giovanni di Plácido. This history, or record, translates to intangible attributes that the client acquires, and this is the value of financial inclusion, which goes beyond its capacity to accumulate assets, increase sales or generate higher profits.

This value is measured by the difference between the costs borne by the client when they access informal sources of financing compared to when they do it through the formal system. “At that moment, the client gets financing at less cost and also accesses more capital in a more secure way”, shares Di Plácido. To better understand this concept, developed by the Foundation, the head of this research uses this example: “When students enter the university, they gradually acquire skills that the job market is able to measure and assess economically. If they are self-taught, there’s no way to verify these qualities. The same logic applies in the financial system: as clients interact with institutions (with a loan, a savings account or an insurance), they build a track record which the financial system studies and translates into a wider offering of services, with better terms.”

“When clients access informal sources of financing, they get financing at less cost and access more capital in a more secure way”

Constructing intangible attributes

When an entrepreneur approaches a BBVAMF institution for the first time, in either of the five Latin American countries where it is present, the information used to approve their loan request is very qualitative in nature. The Foundation’s methodology is drawn from knowing the client personally, as well as their assets and the course of their on-going activities which the microfinance officer visits to see its potential to grow. The institutions trust this talent and the entrepreneurial skills of these people, and accept the lack of information about them, given that they have no credit history.

During this first meeting, when they enter the financial system, the intangible attributes generated by the client are greater, and with each interaction, as the system compiles more information about them, the number of attributes generated diminish until it turns to zero (that is to say, the client has already developed the necessary skills to access the traditional banking system). This moment usually comes around the tenth cycle of credit, which is when a person reaches the most matured segment of the financial system. It is where more experienced users operate, having spent more time managing various products and services, thus generating new intangible attributes.

Financial inclusion is crucial to break poverty cycles and reduce inequality; achievements that can only be attained with an extended and varied usage of financial products and services, registered within the “curriculum vitae” that a person constructs through time. In the words of BBVAMF’s head of Research and Analysis, “the value of what we do in the BBVA Microfinance Foundation lies in building this track record which makes it possible for more people in Latin America to have access to the same opportunities as the rest, and to progress, advancing away from poverty.”

If you wish to learn more about intangible attributes and how it is measured, you can find more details in BBVA Microfinance Foundation’s 2019 Social Performance Report.

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