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Personal finances Updated: 26 Sep 2018

Sacristán: “Financial literacy plays a key role in responsible decision-making”

Gema Sacristán heads the Financial Markets Division at the Structured and Corporate Finance Department at the IDB, the area responsible for development and capital markets, financing foreign trade, and relations with financial intermediaries –mainly banks and mutual funds.

Photo-Socially responsible investing- Recurso

227 million adults in Latin America and the Caribbean do not have access to formal financial services, how can we fight to achieve financial inclusion?

We are currently seeing a redoubling of the efforts to increase access to financial services worldwide through a range of public and private initiatives and community support schemes, such as opening accounts for depositing payroll checks or for transferring funds to the beneficiaries of public programs; financing guarantee systems for targeted loans; creating financial intermediaries; their funding and capitalization; subsidies for acquiring physical and technological infrastructure; providing technical assistance; and –in terms of the legal framework– the creation and adaptation of specific laws to regulate the activity of non-banking financial intermediaries. In addition large-scale financial services with a business focus are being provided by the banks (downscaling) and other companies and financial intermediaries.

What are the IDB's proposals?

Recent years have seen a number of public and private initiatives aimed at generating major changes in the financial systems of Latin America and the Caribbean (LAC). These include regulatory reforms for the supply of electronic money, increased coverage of physical access points by financial intermediaries, and the use of systems for making government payments.

The IDB works in several areas to improve financial inclusion in the region. Transactions and product knowledge focus on expanding the financing frontier for the productive sector, developing capital markets and risk management instruments, and implementing and reinforcing the rules and institutions for the effective management of macro-financial risks. The aim of our beyond Banking program is to promote practices of social and environmental sustainability and corporate governance among the financial intermediaries in the region.

What should the involvement of governments be?

In spite of the advances in recent years, the governments in the region need to reinforce public policies aimed at increasing financial inclusion, and this requires more work in the areas of service supply and demand and in the institutional framework. For example, even in countries with greater regulatory advances, there is still a need for reforms to simplify the basic accounts and reduce the regulatory cost of accessing the system, to facilitate the expansion and financial viability of non-banking correspondents to lower transaction costs for users and providers, and to put in place sensible frameworks to back the regulations governing electronic money. This will ensure they are proportional to the risk assumed by the providers, and grant the necessary legal security while guaranteeing the financial stability of the system.

And how should the private sector be involved?

Financial literacy plays a key role in responsible decision-making. It offers considerable benefits both for individuals and for the economy as a whole, as it helps develop the necessary skills to assess the risks and consider the potential gains of a financial transaction; in short, it teaches people how to weigh up the positive and negative aspects of a financial alternative and reach a responsible decision.

Financial literacy also benefits individuals in all stages of their lives: children, by teaching them the value of money and saving; young people, by preparing them to exercise responsible citizenship; adults, by helping them to plan crucial economic decisions throughout their lives such as buying a home or preparing for retirement. It also helps families to adapt their savings and investment decisions to their risk profile and to their needs, which builds confidence and confers stability on the financial system. Equally, it promotes the development of new quality products and services, competition and financial innovation.

What is the position of women in terms of financial inclusion in Latin America and the Caribbean?

The proportion of women in this area who have a bank account in a formal institution rose from 35% in 2011 to 48.5% in 2014, which narrows the gap with men from 9.3 points to 5.5 points. In spite of these advances, there is still work to be done to include the region's women, as more than half (52%) still do not have a bank account. This figure continues to be higher than the average for women excluded worldwide (43%), in middle-income countries (47%), and significantly higher than in OECD countries (6%). In addition, the improvements in the regional average are largely due to specific advances in particular countries such as Brazil, Costa Rica, Jamaica, Mexico and the Dominican Republic, which saw increases in the number of women included and a narrowing of the gap. Countries like Chile, El Salvador and Uruguay considerably improved the proportion of women included, but at the same time show an increase in the gender gap, which suggests that the intensive processes of inclusion are not always equitable. However only 11.4% of women in LAC save in a financial institution; that is, less than half the world average (25%) for middle-income countries (22%), and far below the average for OECD countries (50.4%).

Are there any countries that are doing particularly well in terms of female inclusion and which could serve as an example for the rest?

Brazil, Costa Rica, Jamaica, Mexico and the Dominican Republic, which saw advances in both the number of women included and a narrowing of the gap. According to the report WEVentureScope by the FOMIN and Economist Intelligence Unit, Chile ranks first in the region for its support for women's entrepreneurial initiatives, followed by Peru, Colombia and Mexico. Chile heads the general ranking with low macroeconomic risk, particularly strong initiatives for diversity of providers and solid social services. Peru comes just below Chile thanks to its strong business networks, technical support programs for SMEs and its stable macroeconomic environment. Colombia comes in third: it has well-developed training programs for SMEs and offers ample access to university education for women.

What can be done to reduce the financial gap for women-owned SMEs in Latin America and the Caribbean?

In the future, both public programs and policies and products should be designed to adapt to women, by taking into account their specific preferences and restrictions. However, there is a systematic lack of gender-disaggregated data in the public and private sector on both the demand side (data from users of household or special surveys) and on the supply side (data from banks). This dearth of information makes it difficult to reach a satisfactory diagnosis, and to design policies and assess public interventions.

In the private sector, the business case for investing in women-owned SMEs should be promoted more intensively. Organizations such as the IDB, FOMIN and Global Banking Alliance for Women (GBA) are spearheading this effort. Academic studies have shown that providing women with access to capital, savings accounts, training in business management, professional training and employment receipts helps raise the productivity and income of self-employed women workers.

The private sector will certainly play an important role in narrowing the gap, and the IDB helps banks in Latin America and the Caribbean through its women entrepreneurship Banking initiative (weB) to implement funding models that support the growth of businesses owned by women. The aim is to incentivize banks and other financial institutions to testdrive innovative and inclusive funding products and services. Until June 2015, the IDB –through weB– has approved 14 projects, which are expected to benefit approximately 100,000 micro, small and medium-sized enterprises through to 2019.

What are the main problems facing the population in Latin America?

The slowdown in economic growth and the diminished hope of a substantial upturn pose a challenge for the LAC region, exemplified by a "new normality" featuring stagnant growth rates and less room to maneuver to bring the situation to an end. Experts and policy designers are concerned that these more limited outlooks may jeopardize the social advances of the last decade and push the Latin American economies towards the so-called middle-income trap –a situation where a country's development prospects become bogged down.

In the last ten years, Latin America has succeeded in lifting over 70 million people out of poverty; meanwhile its middle classes have expanded until they now represent over 50% of the population. Education, infrastructure, security and better quality healthcare services now form the core demands of the region's growing middle classes. While it works to meet these new expectations, the region is in turn facing the challenge of having a large part of its population living in a situation of “chronic poverty” –130 million people, according to a recent study.

The economic growth of LAC could recover slightly to 2.2% in 2015, compared to 1.3% in 2014, the lowest rate since the global financial crisis. In the words of Luis Alberto Moreno, chairman of the IDB, Latin American and Caribbean countries should prioritize reforms that ensure sustained and inclusive growth in the medium and long term. “The answer today, more than ever before, lies in internal order growth sources”, he says. “Here the overriding challenge is to increase productivity". This is the factor that explains our relative backwardness compared to other parts of the world”.