GLOBUS
Management & Advisory Services
MICROFINANCE AND FINANCIAL
INCLUSION
Importance and Perspectives
Luis Gárate
Microfinance SpecialistArequipa, 01 April 2015

Agenda
 Importance
 What Financial Inclusion means?
 How is going on in Peru?
 Financial System
 Microfinance Institutions
 What else to do?

IMPORTANCE …
 Financial inclusion is a key factor to improve the life
quality and the economic development
 In turn, the microfinance industry is demonstrating to be
an efficient mechanism to reach the financial inclusion
vision
Poor Population
2.5 Billions
Microcredit’s
clients
150 millions
Rate
6%
World Poor Population
12 millions
Microcredit’s
clients
4.4 millones
Rate
36.7%
Peru

… IMPORTANCE
The society is increasingly concerned about
the relevance of the Financial Inclusion. As
result, the gap between people with and
without access to financial services is being
progressively reduced.
However,
Does not exist consensus about its definition

What Financial Inclusion means?
So far, several terminology has been used when
referring to financial inclusion:
 Bank the unbanked,
 Democratization of financial services,
 Decentralization of financial services,
 Banking penetration,
 Financial deepening,
 Access to Finance, etc.
Include the Excluded

Concepts
 The poverty is determined by an diversity
of exclusions / absences of basics goods
and services necessary to enable quality-
of-life.
 As opposite, inclusion allows the access to
goods and services to alleviate those
exclusions.

Proposed Definitions
Center for Financial Inclusion (*)
“Full financial inclusion is a state in which all
people who can use them have access to a full
suite of quality financial services, provided at
affordable prices, in a convenient manner, and with
dignity for the clients … including disabled, poor,
rural, and other excluded populations”.
_________________________
(*) Center for Financial Inclusion at Accion International, Financial Inclusion: What’s the
Vision?, page 1.

Proposed Definitions
United Nations(*)
“… a continuum of financial institutions that, together, offer appropriate
products and services to all segments of the population. This would be
characterized by:
a) access at a reasonable cost of all households and enterprises;
b) sound institutions, guided by appropriate internal management
systems, industry performance standards, and performance
monitoring by the market, as well as by sound prudential
regulation where required;
c) financial and institutional sustainability; and
d) multiple providers of financial services, wherever feasible, so as to
bring cost-effective and a wide variety of alternatives to customers.
____________________________
(*) United Nations 2004, Building Inclusive Financial Sectors for Development, Page 17.

Proposed Definitions
Superintendencia de Banca y Seguros (Peru)
“financial inclusion is the access and
sustainable use of a range of financial
products and services, including credits,
savings accounts, insurance, retirement
pension and payment’s services, among
others”.

Four dimensions of financial inclusion (*)
 What is provided?
A full range of services, including savings, credit, insurance, and payments.
 How it is provided?
With quality—e.g., convenience, affordability, safety, and dignity of treatment—
and with client protections operating.
 Who receives?
Everyone who can use the services, including the poor, rural, informal, and
groups often discriminated against (women, ethnic minorities, disabled).
 Who provides?
A range of providers led by mainstream financial institutions, but also including
organizations from the private, social, and government sectors.
_____________________________
(*) Center for Financial Inclusion at Accion International, Financial Inclusion: What’s the Vision?

How is going on in Peru?
Expanding levels of financial intermediation, as result of the
increasing volume of loans and deposits.
However, the size of the Peruvian financial system is still
relatively small.
Fuente: SBS, Perú Indicadores de Inclusión Financiera, Junio 2014, Pág. 8

Banking Channels
 Offices: Branches, outlets
 ATMs
 Correspondent Agents (Correspondent cashiers)
 POS
 Internet banking
 Mobile banking

Access to Financial Services
The expansion strategy is based on increasing use of
correspondent cashiers and less use of traditional banking offices.
Fuente: SBS, Perú Indicadores de Inclusión Financiera, Junio 2014, Pág. 9

Increasing banking services coverage
Créditos Ahorros
The new modalities of banking attention allow that
millions of persons located in distant places may access
to services provided by the Banks.
. But . . . .
Fuente: SBS, Perú Indicadores de Inclusión Financiera, Junio 2014, Pág. 14

Coverage at Districts level
… the financial system reaches a fragment of the population only.
The 49% of the districts at national level do not count with the
presence of the financial system.
Fuente: SBS, Perú Indicadores de Inclusión Financiera, Junio 2014, Pág. 12

Transactions performed on banking offices are being swapped by
transactions performed on alternative channels, especially on
banking agents.
Changes on Behavioural patterns
of banking users

Banking Agents
 Peruvian Banks have created wider networks of retailer
entrepreneurs operating outside of the traditional
banking branches or outlets. There are around 10,000
banking agents (pharmacies, groceries, and other
retailer shops).
 Banks are using technology to ensure efficient and safe
interaction between the bank and their clients throughout
banking agents.
 The expansion of point of services, both physical and
non-physical is vital step in benefit of the market
segments that so far have not access to products and
services offered by the banks.

THE MICROFINANCE
INDUSTRY

Rather than the banks, the MFIs have more
presence in the poorest regions
Fuente: SBS, Perú Indicadores de Inclusión Financiera, Junio 2014, Pág. 20

Peru: Microfinance World’s Leader
During seventh consecutive years Peru
have been ranked as the country with
more favourable conditions for the
microfinance industry, according to the
world ranking conducted by the GLOBAL
Microscope, that included 55 countries.
“Peru is a leader in developing innovative and co-ordinated strategies
to support financial inclusion across various objectives, ranging from
increasing banking penetration, to improving financial literacy, to
reducing transaction costs and encouraging the use of technology”.
(Global Microscope, 2014, pag. 56)

Main Characteristics of the
Microfinance Sector in Peru
The Peruvian microfinance sector is one of the
most developed in the region attributable to:
 The effective supervision capability of the SBS.
 The favourable legal framework for regulated and non-
regulated MFIs.
 The authorities are committed to use the microfinance
as vehicle to expand the financial inclusion.
 Adequate balance between easy access to the
marked and prudent credit risk management.
 The absence of subsidised competitions from the
public sector.

Highlights of the Microfinance
Sector in Peru …
Is a dynamic sector
 Significant competition growth in the last years
 Continuous operational development and
expansion of point of services

… Highlights of the Microfinance
Sector in Peru
• “CMACs” and “Financieras” are leading in volume and number of credits.
• The credit average differs significantly among the types of entities.
• “EDPYMEs” and “Financieras” show healthier levels of portfolio quality.
Source: COPEME, Reporte Financiero de Instituciones de Microfinanzas, September 2014.

… Highlights of the Microfinance
Sector in Peru
High accounting standards and transparency for
regulated MFIs
 Strict requirements for external auditory, financial
statements reports and effective interest rates.
 Different standards among the MFIs, where the
financial information availability is generally
acceptable and consolidated by the MFI’s
networks.
 Transparency in calculating and publishing interest
rates.

What else to do?
Despite the significant microfinance sector
growth, still enormous challenges in
relation to rural financial inclusion.

What else to do?
Financial Institutions
 Better understanding of the demand (financial needs)
and appropriated services design for excluded segments.
 Understand the reasons why the poor clients do not look
for - or not get- more Access to formal financial services.
 The innovative capability of the financial institutions and
MFIs joined with the technological developments could
be key to offer profitable financial services to the
excluded segment or underserved. Doing it, the
microfinance operations will impulse even more their
services to underserved markets.

What else to do?
Framework Regulations
 Regulations about transparency (related to rates/fees charged
by agents, claim channels and processes accessible to users)
 Use of agents to expand the Access to banking accounts (this
is possible with adequate financial education)
 Improve the customer protection

What else to do?
Financial Education
 Financial education programs (secondary schools, teachers
training), that at the end would improve the customers
decisions, which is beneficial to the financial inclusion process
 The knowledge of the regulation is key to for innovative
microfinance products development oriented to satisfy their
client’s needs. In this sense, is convenient to deliver
disseminating activities related to those regulations.
 Banking Agents training in order to offer consistent, reliable
and quality services.

Opportunities
Mobile Banking
 Mobile phones / Inhabitants 95%
 Debtors / Inhabitants 26%
 There are above 29 millions of active mobile phone accounts (it
means a density of 95%). The mobile phone penetration differs
significantly between urban and rural zones as well as between
regions with higher or lower income levels.
 In Peru, the coverage of mobile networks in rural zones with higher
poverty levels is relatively low. This fact limits the potential to
implement mobile banking services in that regions.

Opportunities
 The MFIs transaction's capacity is limited and they
are not yet prepared to operate with huge quantity
of transactions in real time.
Electronic Money – Mobile Money
 The recent legislative initiative (Law Nº 29985)
intends to promote the financial inclusion with
electronic money and mobile money.
 However, protocols for claim’s processing have not
been foreseen. Utmost administrative instance
could be the SBS, OSIPTEL or INDECOPI,
depending on the case.

Opportunities
Non-Banking Cashiers (Agents)
 The figure of non-banking cashiers is defined in
the Peruvian legislation stipulating solvency,
safety, risk control and due information.
 The regulation about basic accounts promote the
deepening of financial services, allowing the
non-banking cashiers to open that kind of
accounts oriented to the less income population
segment (SBS resolution Nº 2108- 2011).

Final Notes: Thoughts
 The mobile money combined with banking agents
or cash correspondents are cost-efficient as
increase the offer of financial services with a lower
cost in comparison with other more costly
channels like the banking offices (branches).
 This scheme could contribute to reduce the cost of
the financial services as well as lower
transactional cost for both clients and financial
institutions.

Final Notes: Thoughts
 Not all MFIs count with the dimension and resources
(financial, staff and technology) to implement mobile
money services. Therefore, it would be convenient
that institutions counting with such resources, could
supply their computerized platform to the MFIs.
Doing it, the MFIs could offer those services.
For instance:
 Banco de la Nacion >>> informatics Platform
 Mobile operators >>> mobile platform
 Networks (Asomif, FEPCMAC, Copeme) >>> Training

Thanks