Finance and development: what is the situation in Latin America?

Montevideo, August 16, 2011.- CAF - Latin American development bank - presented the seventh edition of its Report on Economy and Development (RED) with the theme "Financial Services for development: promoting access in Latin America" in an international seminar held in Montevideo, Uruguay, with the participation of government officials, international experts and representatives of the public and private financial sector from all the region.

The aim of the international event was to share the results of the study with key actors from the Latin American financial sector, raise the level of awareness of the subject and reflect on the role of finance in development processes, providing new information from a wide ranging survey taken in Latin American cities.

"Promoting deeper knowledge of the region, especially the problems affecting our countries and offering possible solutions is one of CAF’s important contributions to development processes in Latin America," CAF President & CEO Enrique García said.

"In this edition of RED, we have focused on various dimensions of the use of financial services in Latin American countries, given that access to credit is a crucial factor for stimulating the economic development and wellbeing of society," the CAF chief added.

The report finds that 51.3% of respondents have a bank account. This result suggests a significant lag in the level of access to financial services in relation to other regions and reveals that although this problem is particularly acute in poorest sector it is not exclusive to them.

While almost 100% of families in the United States with monthly incomes of US$1,000 have bank accounts, the percentage in Latin America is only 60%.

According to the publication, the development of microfinance institutions (MFIs) is a "market" response to the financial exclusion which the microenterprise productive segment - typically a one-man production unit with a high propensity to informality - has historically suffered

However despite progress with microfinance, the lack of formal sources of credit for microenterprises is still a reality in the region where only 14% of micro-entrepreneur families have a credit agreement with a formal entity .

Developing the financial system stimulates economic growth by raising funds from household savings, which are then allocated through credit to finance investment projects and working capital.

The report devotes a chapter to the role of the State, especially the role played by public banks. It discusses some very successful experiences using public banks as a mechanism for extending financial services to certain segments of the population, but also mentions that these banks have problems of governance and political economy. For this reason, it stresses the importance of providing them with good corporate governance schemes.

The CAF report concludes that the region faces the major challenge of expanding access to financial services, which would help raise the levels of growth of the countries of Latin America.

RED 2011