The impact of COVID-19 on Latin America financial inclusion

July 2, 2020
Posted in Blog
July 2, 2020 Inswitch

Digital transactions are experiencing significant growth due to the COVID-19 pandemic, social distancing and other measures adopted as a consequence.

However, this situation has shown that not everyone has access to digital channels and, thus, demonstrated how important it is to universalize financial inclusion.

A recent analysis performed by Melisa Murialdo (writer and editor of El Mejor Trato), and shared by Cointelegraph, yields a series of data underpinning said statement.

The cited work estimates that 2.5 billion adults are outside the financial system worldwide, which amounts to 40% of the global population. In Latin America, this number rises to 61%. However, the region continues to lead the regulation and infrastructure for financial inclusion. As a matter of fact, Colombia, Peru, Uruguay and Mexico top the list of countries with a favorable environment for financial inclusion, according to The Economist Intelligence Unit.

Although the region is a leader, there are still several issues that must be overcome, such as: investing in infrastructure that improves connectivity (giving access to all non-urban areas), decreasing poverty, reducing the regional financial gap and simplifying the use of digital banking (enhancing security and the public’s trust).

Another issue to consider is that over 60% of Latin Americans do not save money. In this context, for Murialdo, poverty and the lack of opportunities to access a dignified life are the biggest obstacle. Without a job or an income, people do not save.

Within the framework of the economic crisis caused by COVID-19, can financial inclusion be a solution?

The social distancing measure adopted by most of the countries to curb the spread of the virus has enhanced the electronic means of payment and reduced the use of cash. This increase in the use of cashless means of payment can become a habit for consumers and society as a whole. As explained by Murialdo in her analysis, these are “situations that, to be viable, demand to accelerate the process of democratization of financial inclusion.”

Financial institutions and governments should know how to maximize this unique opportunity, in order to increase the number of people included by the financial system.

The author stated that “in order for them to compete with cash, the electronic forms of payment that inclusion offers must not only be safe to avoid cyber fraud but also accessible to the entire population, quick and simple […]”

Additionally, we ought to understand that this change becomes insufficient without properly training users on its advantages and benefits. A lot of people are not used to or do not feel confident with- this type of systems, largely due to generational habits. For that reason, it is crucial to provide them with appropriate information and support.

The pandemic caused by COVID-19 has exposed the importance of moving towards financial inclusion and a digital economy.  The success of this process shall also depend on coping with existing obstacles  as well as with social and educational factors at stake.

As mentioned by Murialdo in the conclusion of her work, financial inclusion policies are more effective if complemented with fiscal and labor social policies, as otherwise “the indicators may rise in the short term and show misleading results”, which shall not be sustainable.

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