In September 2015 a presidential decree was issued formalising a national strategy for financial inclusion. The overall aim of the strategy is to develop access to financial services and employment opportunities for the country’s low-income population, particularly those living in rural and remote areas. The strategy consists of seven main objectives, including the promotion of electronic payment systems, the promotion of better investment instruments and enabling access to funding, particularly for entrepreneurs.
Signs Of Exclusion
There are various different indicators of financial inclusion (or a lack thereof). “Bankarisation” (gross loans as a proportion of GDP) is reportedly 39.2% of GDP, according to data from the BCRP, well below other countries with broadly similar levels of development. According to the World Bank, in 2014 only 29% of the Peruvian adult population aged 15 or over had an account, well below the average for the Latin American and Caribbean region of 51.4%. Across a range of other measures, Peru also tended to lag behind. Only one-fifth of the population had a debit card (compared to 40.4% for the region); 11.9% received a salary paid into an account ( compared to 18% ), 12.3% had savings in a financial institution (13.5% in the region), and 11.2% had borrowed from a financial institution (11.3% in the region). However, recent indicators point to an important evolution towards greater access, with varying degrees of success across different regions in Peru. Ratings agency Equifax has calculated that 10.7m Peruvians have access to credit from the financial system, and that around half the country’s local districts do not have a “banking presence”, defined as a bank branch, a retail outlet offering banking services for or on behalf of a bank, or an ATM. Credit penetration is reportedly lowest in the departments of Huancavelica, Apurímac, Amazonas, Ayacucho, Cajamarca, Huánuco, Pasco, Cusco, Puno and Loreto. However, industry sources say that it is also in these often-remote departments that the greatest efforts are being made to increase the presence of banks. In the poorest departments customers are also more likely to fall behind on loan repayments. According to debt collection and payments company Servex, roughly half of the bad or overdue debts it seeks to recover are in rural areas, and 80% involve credit card debt. “Increasing market penetration can be achieved once there is a firm regulatory policy that avoids over-lending to the previously unbanked portion of the population,” Jorge Gómez Robles, general manager of finance house ProEmpresa, told OBG.
Among other factors restricting greater financial inclusion are low levels of education, limited financial awareness, poor infrastructure, and a lack of effective consumer protection. “Financial education is one of the main tools used to increase financial inclusion; this is especially important in rural areas where it’s most needed,” Jorge Ramos Felices, CEO of COFIDE, told OBG. “State-owned banks and international development institutions are playing a large role in this regard.”
According to a comparative study of 21 countries carried out by the Centre for Technology Innovation at the US-based Brookings Institution, Peru was placed 17th in terms of its overall financial inclusion efforts. Kenya, South Africa and Brazil led the ranking with scores of 80-90%, while Peru achieved a score of 66%. The ranking was based on an assessment of four main areas: country commitment, mobile capacity, regulatory environment and adoption.
The government has been particularly keen to use technology to help promote financial inclusion. Attending the annual meeting of the Interamerican Development Bank (IDB) in Busan, South Korea, in March 2015, economy and finance minister Alonso Segura highlighted the importance of Peru’s billetera electrónica (electronic wallet) mobile banking project (also known as Modelo Perú). It is designed to improve access to banking services for rural and low-income households. While many mobile banking systems have been introduced around the world, Peru’s project is unique because it is a universal platform developed jointly by all the main banks and telecoms companies.
“We are a leading country in terms of microfinance, but we need to innovate and find new products in the era of mobile banking,” Segura said, adding that the universal payments platform would lower transaction costs and help bring new customers into the system. This would also help bring people out of the informal sector and into the formal economy. “The financial services market in Peru is very crowded in some segments and largely unexplored in others,” Arturo Villanueva, president of Banco del la Nacion, told OBG. “The most sustainable way to grow the industry is to increase market penetration, especially through utilising electronic platforms to deliver these services.”
As a prior requirement for the mobile banking project, in January 2013 the government had passed an e-money law regulating the provision of internet and mobile banking services. Under the terms of the law both banks and non-banks can issue electronic money. The IDB has pointed out that Peru has experienced relatively low levels of use of electronic payments, such as credit, debit and prepaid cards, in many cases creating inefficiencies.
Pagos Digitales Peruanos (PDP) – a company ultimately controlled by ASBANC – operates the Modelo Perú project. Up to 30 companies issuing electronic money – both banks and non-banks – will hold the remaining 49% share in PDP. Ericsson is providing the technical platform, while the SBS is involved managing regulatory issues. ASBANC has set an ambitious target, aiming to bring some 5m new customers into the banking system by 2019. A first difficulty is that many of these target consumers have relatively low levels of technical and financial skills. Most do not own smartphones; the national penetration rate for these more sophisticated devices is around 50%.
As a result, says Carolina Trivelli, ASBANC’s mobile payments project manager, a decision was taken to use a system that would work on simple, entry-level mobile phones using SMS texting. The project has been designed to be easy to use. An extra benefit is that the simpler process developed to allow customers to register for mobile banking will also be applied to opening an account in the traditional way at a bank branch. Trivelli noted, however, that the success of the project will depend in part on how aggressively it is marketed, as well as on progress on implementing other wider aspects of the financial inclusion strategy, particularly in areas such as financial education.
Despite challenges, the outlook for this new m-banking project remains encouraging. A 2013 study carried out by BBVA Research suggested take-up could run as high as 40% of its target markets, concluding that advancements in mobile banking could be effective for increasing financial inclusion in Peru.
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