Hannah Siedek

When thinking of Peru, there are many things that come to mind: amazing ceviche at the beach, beautiful landscape in the mountains, and definitely also the mystic Machu Picchu attracting around 40,000 tourists each year. There are rumors that it will soon be possible to take direct flights from Germany to Cuzco without having to travel via Lima, the nation’s capital. Each year around US$40m is generated through this tourist attraction.

But it is not only tourism that has been booming over the last years. The stock exchange grew 140% in 2006, Starbucks coffee shops are springing up, and people start shopping at international clothing stores. Microfinance representing around 5% of the financial sector (and around 30-40% in terms of borrowers) has also experienced positive developments and attracted many of the commercial banks. What has previously be a sector primarily targeted by the 25 “cajas” and 14 NGOs, is now a competitive market in which banks like Banco de Credito de Peru, Scotiabank, MiBanco, Banco de Trabajo aggressively go out to bank low-income clients. Great news? Yes, definitely, but there are still more than 78% percent of the population without access to finance, and 54 percent live below the poverty line.
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We’re at a banking conference in Sao Paulo, where I had a chance to present on agents and our work in Colombia. In terms of using banking agents to reach remote areas and poor clients, the Brazilian financial system represents probably the future of many Latin American markets. Whereas countries like Colombia are just starting to develop such outlets, in Brazil they already make up 56% of all financial system points of sale are, reaching all municipalities.

Since our last visit in June 2006, the atmosphere has changed a lot. Whereas last year, banks were still experimenting with different approaches and were not yet convinced that banking agents were viable, today everybody we asked during our last week in Sao Paulo, considered banking agents a profitable channel. Banking agents move clients which are high cost for the bank (small ticket size, often only limited usage of products) to the low-cost agent channel, and free space in branches for clients which generate more revenue for the bank. Before branches were full of people just paying their bills. Read the rest of this page »

CGAP’s Technology Program is interested in technology solutions which deliver a wide range of financial services, including credit. In many of our projects, technology helps us to automate decision making and transfer transaction data over long distances. Making credit decisions remotely using a credit score application for people without credit history, and automating the disbursement of funds is still a challenge for many financial institutions. Therefore, the CGAP’s Technology Program seeks to experiment with ways on how to extend credit to very poor unbanked clients without involving a credit officer. Read the rest of this page »

The CGAP Technology Program plans to partner with Credibanco Visa to find ways to increase access to financial services. The proposed project would focus on three banks, which would roll out a network of banking agents.

“No, I don’t want a bank account. How do I know they’re not stealing my money? And it costs too much in any case,” says Juan, a cab driver in Bogota. In Colombia, as few as one in three people have access to financial services. Reasons for this include taxation on withdrawals, stringent account-opening requirements, and high costs to open and maintain a bank account. This is not uncommon in Latin America. According to figures from the International Monetary Fund, in Sao Paulo fewer than 40% of households have access to financial services. In Mexico City, that number drops to just one in four. The Inter-American Development Bank says that only 14.4 percent of the low-income population in Latin America has access to a savings account, and only 6.4 percent of them have obtained a loan.

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This paper explores the extent to which formal, regulated financial institutions such as banks have been able to partner with correspondents, commercial entities whose primary objective and business is other than the provision of financial services. The paper illustrates the case of Brazil, where banks have recently developed extensive networks of such correspondents. It shows that such arrangements result in lower costs and shared risks for participating financial institutions, making these arrangements an attractive vehicle for outreach to the underserved especially for certain financial services such as payments and transactions. Correspondent banking required a supporting enabling environment to emerge, and poses some regulatory challenges and some increase in risk. The example from Brazil may be replicable elsewhere if appropriate regulatory adjustments are undertaken.

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