M E R 82392 U T BE N NO 05 AUGUST 2012 FINDEX The Global Findex Database NOTES Financial Inclusion in Latin America and the Caribbean In Latin America and the Caribbean 8 percent of adults have a formal loan and 39 percent have a formal account, according to new data from Asli Demirguc-Kunt the Global Financial Inclusion (Global Findex) database. The data also Leora Klapper show deep disparities across economies and individual characteristics in Douglas Randall how adults use financial services. The database can be used to track the effects of financial inclusion policies in Latin America and the Caribbean and develop a deeper and more nuanced understanding of how adults in the region save, borrow, make payments, and manage risk. WWW.WORLDBANK.ORG/GLOBALFINDEX From the early adoption and expansion of microfinance to the recent reforms in govern- ment-to-person (G2P) payment systems, Latin America and the Caribbean has often been at the forefront of efforts to expand financial access. Yet more than 250 million adults in the region remain largely outside the formal financial system. Efforts to improve the scope and quality of financial access have been hindered by the lack of systematic indi- cators on the use of different financial services—both formal and informal—in most of the region’s economies. The Global Findex database provides such indicators, measuring how people in 148 economies around the world save, borrow, make payments, and manage risk. These new indicators are constructed with survey data from interviews with more than 150,000 nationally representative and randomly selected adults age 15 and above. The survey was carried out over the 2011 calendar year by Gallup, Inc. as part of its Gallup World Poll. This note features Global Findex data based on more than 19,000 interviews across 20 economies in Latin America and the Caribbean. How Common Is the Use of E G 1 R U Use of formal financial services Formal Financial Services? FI Adults reporting activity in the past year (%) The use of products and services from 100 HIGH-INCOME ECONOMIES formal financial institutions—banks, REST OF credit unions, cooperatives, post offices, 80 DEVELOPING WORLD or microfinance institutions—is often the LATIN AMERICA benchmark by which financial inclusion 60 & CARIBBEAN is measured. Though innovations such as banking agents and mobile payments may 40 eventually redefine how adults in Latin America and the Caribbean interact with 20 the formal financial sector, traditional products such as loans and deposit and 0 BORROWING HAVING A SAVING savings accounts remain, for now, important FORMALLY FORMAL ACCOUNT FORMALLY indicators of financial inclusion.1 Source: Demirguc-Kunt and Klapper 2012. FINDEX NOTES 1 Fewer than 1 in 10 adults in Latin America E G 2 R U Account penetration in Latin America and the Caribbean by and the Caribbean report having borrowed FI individual characteristics money from a formal financial institution Adults with an account at a formal financial institution (%) in the past year: 8 percent, on par with the Gender average in the rest of the developing world FEMALE 35 (figure 1).2 A greater share report having bor- MALE 44 rowed from friends or family in the past year Age group (14 percent), though this share is relatively 15-24 26 small compared with that in the rest of the 25-64 44 65+ 43 developing world (26 percent). But credit cards are relatively common in the region: Within-economy income quintile POOREST 21 18 percent of adults in Latin America and Q2 30 the Caribbean report having a credit card, Q3 42 Q4 47 compared with 5 percent in the rest of the RICHEST 61 developing world. In Brazil and Uruguay Education level nearly 30 percent have a credit card.3 PRIMARY OR LESS 30 SECONDARY 42 Across the region, 39 percent of adults re- TERTIARY OR MORE 69 port having an account at a formal financial Residence institution, with the share ranging from 14 RURAL 35 URBAN 43 percent in El Salvador and Nicaragua to 71 percent in Jamaica (table 1). This places the regional average only slightly below that for Note: Data by rural or urban residence exclude Guatemala. Source: Demirguc-Kunt and Klapper 2012. the rest of the developing world, where 42 percent of adults have a formal account. In high-income economies 89 percent do. Despite comparable account penetration rates, adults in Latin America and the Carib- bean are significantly less likely than their counterparts in other developing regions to report having saved money at a formal financial institution in the past 12 months. While 10 percent of adults in Latin America and the Caribbean report having saved formally, 18 percent do in the rest of the developing world. The difference appears to be due mostly to differences in savings methods rather than in overall savings activity. The share of respondents in the region who report any savings activity (26 percent) is only slightly lower than that in the rest of the developing world (31 percent). But while 58 percent of savers in the rest of the developing world report having saved in the past year using a formal account, only 37 percent of savers in Latin America and the Caribbean report having done so. One possible explanation for the relatively low use of formal financial institutions to save is that accounts may be opened and used primarily to receive payments from employers or the government, and it may be difficult or even impossible to also use these accounts to accrue personal savings. Indeed, 68 percent of account holders in Latin America and the Caribbean report having used an account in the past year to receive wages or gov- ernment payments, compared with only 41 percent in the rest of the developing world. New products that target existing account holders could be used to encourage adults to save in formal financial institutions. There is sharp variation across individual characteristics in account penetration in the region (figure 2). Men are 26 percent more likely than women to have a formal account, 2 FINDEX NOTES E G 3 R U Self-reported barriers to use of formal accounts FI Non-account-holders reporting barrier as a reason for not having an account (%) 60 LATIN AMERICA & CARIBBEAN REST OF DEVELOPING WORLD 40 20 0 RELIGIOUS TOO FAR FAMILY MEMBER LACK OF LACK OF TOO NOT ENOUGH REASONS AWAY ALREADY HAS NECESSARY TRUST EXPENSIVE MONEY ACCOUNT DOCUMENTATION Source: Demirguc-Kunt and Klapper 2012. though the gender gap is statistically insignificant in several countries, including Argen- tina, Chile, the Dominican Republic, Haiti, Nicaragua, Paraguay, and Uruguay. Across the region, adults with a tertiary education are more than twice as likely to have a formal account as those with a primary education or less. Within economies, adults in the rich- est income quintile are on average almost three times as likely to have a formal account as those in the poorest. What Are the Barriers? Why do more than 250 million adults in Latin America and the Caribbean remain outside the formal financial system? As in the rest of the developing world, the most frequently cited reason for not having a formal account is lack of enough money to use one: this is the response given by 55 percent of adults in the region without a formal account, with 16 percent citing it as the only reason (multiple responses were permitted). But Latin America and the Caribbean stands out for the relatively large share of unbanked respondents who cite cost as an important barrier: about 40 percent of respondents in the region without a formal account report not having one because they are too expensive, compared with 22 percent in the rest of the developing world. And unbanked respondents in the region are more than twice as likely as those in the rest of the developing world to cite lack of trust as a barrier (figure 3). Conclusion As the first public database of indicators that consistently measure people’s use of fi- nancial products across economies and over time, the Global Findex database fills a big gap in the financial inclusion data landscape. The data set can be used to track the effects of financial inclusion policies globally and develop a deeper and more nuanced understanding of how people around the world save, borrow, make payments, and man- age risk. By enabling policy makers to identify segments of the population excluded from the formal financial sector, the data can help them prioritize reforms accordingly and, as future rounds of the data set become available, track the success of those reforms. FINDEX NOTES 3 LE TA 1 B Selected Global Findex indicators by economy in Latin America and the Caribbean Accounts and payments Saving and credit Share with an account Adults originating at a formal financial Adults using a formal account Adults saving a new loan in the institution in the past year to receive Adults in the past year past year using Payments mobile From a Adults Poorest from work Payments money in Using a formal From Adults with with an All income Ages or selling from Family the past financial family or a credit outstanding Using any formal adults quintile Women 15-24 goods government remittances year method account institution friends card mortgage (%) (%) (%) (%) (%) (%) (%) (%)a (%) (%) (%) (%) (%) (%) World 50 — 47 37 21 13 7 — 36 22 9 23 15 7 Latin America & Caribbean 39 — 35 26 20 10 4 3 26 10 8 14 18 2 Rest of developing world 42 — 37 31 14 6 6 5 31 18 8 26 5 3 High-income economies 89 — 87 76 50 42 13 — 58 45 14 12 50 24 Argentina 33 19 32 16 16 11 1 1 24 4 7 7 22 0 Bolivia 28 12 25 19 10 2 4 9 44 17 17 8 4 4 Brazil 56 33 51 36 29 20 5 1 21 10 6 16 29 1 Chile 42 19 41 39 20 6 4 2 27 12 8 9 23 4 Colombia 30 9 25 13 19 4 3 3 33 9 12 18 10 3 Costa Rica 50 30 41 45 28 13 9 0 41 20 10 7 12 3 Dominican Republic 38 19 37 28 15 7 9 8 37 16 14 15 12 2 Ecuador 37 22 33 26 16 5 4 1 30 15 11 15 10 2 El Salvador 14 1 10 10 6 3 3 1 26 13 4 6 5 2 Guatemala 22 8 16 22 10 3 4 4 25 10 14 10 7 2 Haiti 22 4 21 6 8 1 11 15 32 18 8 36 2 2 Honduras 21 15 15 17 8 2 4 3 22 9 7 11 5 2 Jamaica 71 71 67 63 14 4 15 8 51 30 8 21 7 3 Mexico 27 12 22 29 14 4 5 6 27 7 8 15 13 3 Nicaragua 14 4 13 8 5 0 2 2 26 7 8 4 2 0 Panama 25 18 23 15 10 4 5 0 35 12 10 17 11 11 Paraguay 22 4 23 15 10 1 2 7 18 10 13 15 9 1 Peru 20 6 18 14 11 3 4 4 29 9 13 14 10 1 Uruguay 24 7 24 12 12 6 1 1 17 6 15 6 27 2 Venezuela, RB 44 27 36 18 29 8 3 3 28 14 2 10 10 0 — = not available. a. Data refer to adults who report having used a mobile phone in the past year to pay bills or send or receive money. Source: Demirguc-Kunt and Klapper 2012. WWW.WORLDBANK.ORG/GLOBALFINDEX 1. Data on the use of bank agents and mobile payments are available online. 2. The regional and worldwide aggregates omit economies for which Gallup excludes more than 20 percent of the popula- tion in the sampling either because of security risks or because the population includes non-Arab expatriates. These excluded economies are Algeria, Bahrain, the Central African Republic, Madagascar, Qatar, Somalia, and the United Arab Emirates. The Islamic Republic of Iran is also excluded because the data were collected in that country using a methodology inconsistent with that used for other economies. 3. Information is collected on the ownership of credit cards but not their use. The reference citation for the Global Findex data is as follows: Demirguc-Kunt, A., and L. Klapper. 2012. “Measuring Financial Inclusion: The Global Findex Database.” Policy Research Working Paper 6025, World Bank, Washington, DC. 4 FINDEX NOTES