Improving Access to Financial Services in Latin America: What Works and What Doesn’t?

Event Title: Improving Access to Financial Services in Latin America: What Works and What Doesn’t?
Sponsors: The Center for Global Development and The Latin American Shadow Financial Regulatory Committee
Location: The Center for Global Development
Date: Tuesday, September 12, 2006
Time: 10:00 AM – 11:30 AM
Approximate Number of Attendees: 50
Intern Attending: Madeleine Beebe

Speakers: Roque Fernandez (Former Minister of Finance, Argentina), Pedro Carvalho de Mello (Former Commissioner for Comissao de Valores Mobiliarios, Brazil), Roberto Zahler (Former President, Central Bank of Chile), Guillermo Chapman (Former Minister of Planning and Economic Policy, Panama), Liliana Rojas-Suarez (President, LASFRC; Senior Fellow, Center for Global Development; Former Chief Economist, Latin America, Deutsche Bank), Ernesto Talvi (Former Chief Economist, Central Bank of Uruguay), Harald A. Benink (Chairman of the European Shadow Financial Regulatory Committee; Professor at Erasmus University Rotterdam).

The Latin American Shadow Financial Regulatory Committee (LASFRC) exists “to identify and analyze trends and ongoing events that affect the appropriate functioning of financial markets in Latin America.” The committee members all come from Latin America and are recognized experts on Latin American financial issues and markets. The committee regularly presents its findings in the form of papers that include analysis and recommendations. Today they presented and discussed Statement No. 15, “Enhancing Access to Financial Services in Latin America”.

Committee President Liliana Rojas-Suarez began by identifying three factors that make the question of access to financial institutions an especially challenging one for Latin America: (a) low density rural population; (b) the history of macroeconomic instability and high volatility; (c) high poverty levels and extremely uneven income distribution. Mrs. Rojas went on to say that the guiding principles of the Committee’s recommendations are “to deepen, broaden, improve, and create banking services in an environment of macroeconomic stability, sound regulation and effective competition”. The Committees recommendations fell into three broad categories: market-creating initiatives; initiatives to expand supply of financial services; initiatives to expand demand of financial services.

With regard to the first category, market-creating initiatives, Mrs. Rojas highlighted the importance of macroeconomic stability and low inflation and encouraged the use of counter-cyclical policies as one way to maintain both. The committee also discussed the practical need for proper legal structures, without which property rights and contracts are unenforceable. The committee recommended improving legal systems while modernizing registries. Such measures would facilitate the use of collateral, making it that much easier for people in impoverished rural areas to receive credit.

Mrs. Rojas went on to make recommendations for increasing the supply of financial services, including the expansion of “non-bank correspondents” in un-served areas. These include ATM’s, cell phone-enabled bank transfers, and other technologies. The committee also recommended eliminating interest rate ceilings which discriminate against small borrowers who tend to have poorer, or no, credit. On the demand side, the Committee emphasized the need for financial education at the primary school level, as well as the gradual elimination of financial transactions taxes.

The full statement issued by the LASFRC will soon be available on their website at <http://www.claaf.org/index.html>.