Speech on Financial Inclusion at the Catholic University of Argentina
Excellency, family, friends, dear students, ladies and gentlemen, I am truly honored to join you here today once again, not as a student with matrícula 387/389, but as the UN Secretary-General’s Special Advocate for Inclusive Finance for Development. I’m proud to say that this University gave me the academic background for addressing this issue, which is changing conditions for millions of people around the world.
When I last spoke here at the UCA eleven years ago, the focus was mainly on microcredit—providing people with a low income with access to small loans so they can start their own businesses.
Today, we know that credit is just one vital financial tool of many. People are better able to stabilize their lives, pull themselves out of poverty, and remain there, when they can use a mix of financial services. Accessible services, such as savings, payments, insurance and credit; credit not only for micro enterprises, but also for small and medium enterprises, which happen to be the greatest generators of employment in the world. This calls for a broad range of providers, not only microfinance institutions but banks, cooperatives, payment companies, insurance companies, mobile network operators, and even tech and fintech companies.
We call this larger agenda financial inclusion, and its pursuit has become a priority for governments, businesses, and development organizations around the world. The reason for this rising interest is impact. Financial inclusion has been shown to help people climb out of poverty, improve lives, unlock opportunities, improve gender equality—thus empowering women—and foster economic growth that benefits everyone.
What would this represent for the daily lives of your fellow citizens?
For a low-income family living in the outskirts of Buenos Aires, it would mean being able to easily set aside money to add an extra room on to the house, in a low-cost account that maintains its value, safe from thieves;
For a single mother working two jobs to support her family, it would mean being able to pay bills electronically during her ride home on the bus and freeing up more time to care for her children;
For a small grocery owner, it would mean being able to get credit when she needs it so she can improve her shop, get better wholesale prices, and one day expand her business.
This past year, 193 countries at the UN adopted a new development plan called the Sustainable Development Goals. Seven of the 17 goals refer specifically to financial inclusion as a powerful tool to help achieve development progress. Today, more than 50 countries have created national financial inclusion strategies. So it’s fair to say that there is a wide global agreement on the importance of this issue.
Still, you may be wondering: why is financial inclusion valuable for a middle-income country like Argentina? The answer is that financial inclusion is a universal priority. Did you know that within the European Union 58 million people do not have a basic bank account? In the United States, 28 percent of the population, or about 88 million people, are either unbanked or underbanked. This leaves them extremely vulnerable to external shocks. Many people rely on costly alternative financial providers, such as check cashers and pawn shops, to meet some of their banking needs.
Argentina has its own specific challenges, which make financial inclusion urgent here. Economic growth remains slow. Around one-third of the population still live in poverty. Only 50 percent of adults use some kind of formal financial service—a figure that drops to 44 percent among the poor. Savings are low and credit to individuals and small businesses is notably under regional averages.
This is a huge challenge, but I know this country well and I want to stress that Argentina is in an excellent position to change this picture.
We have learned that countries with financial strategies or roadmaps make faster progress than those without. So the first thing we need, is a national financial inclusion strategy that defines goals and targets and is a means for the diverse players, such as the central bank, the ministry of finance, the ministry of social affairs, and others, to come together and push in the same direction. Each of them holds a piece of the puzzle. As important as formulating a strategy is putting in place a coordinating council, comprised of all of them and including the private sector, to implement this strategy.
What should the national strategy focus on?
A prominent issue is digital technology. From Tanzania and China to Brazil and Colombia, technology is catalyzing advances on financial inclusion by driving down costs to the level the poor can afford and making it possible to reach people in rural areas.
According to a new McKinsey report, use of digital finance could increase the GDPs of emerging economies by 6 percent and create nearly 95 million new jobs by 2025.
For technology to have this kind of impact, certain building blocks need to be in place. You’re fortunate because many of them are already here. Argentina has a national ID system, which reaches 99 percent of the population and allows people to open bank accounts. Internet connectivity is growing and almost half of all households are now online. You have a payment infrastructure, and regulatory changes have recently been made to encourage innovation. Plus, Argentina is one of the very few countries in the world that have achieved gender parity in financial access.
What’s missing is an effective way to interact with technology-based financial services everywhere, even at the village level.
Consumers need places where they can put money into the digital system, get it out, make payments and register for new services such as credit or insurance. The answer could lie with banking agents—small retail stores, gas stations, or mom-and-pop shops that are linked to banks and offer simple financial services to their communities.
A dense network of banking agents could quickly supplement the existing banking structure and reach underserved populations. It’s a model that has taken root in countries across Latin America—in Peru, Colombia, and Brazil. For example Chile, with a population of 17 million, has over 25,000 agents already, and Colombia, with a population of 48 million, has nearly 45,000, and continues growing. But in more advanced places like Tanzania, there are already 165,000 agents.
Another basic issue for the strategy is small and medium enterprises, which drive any economy, including the Netherlands. Their needs should be addressed in the national strategy as well. SMEs in Argentina account for at least 50 percent of GDP and generate about 71 percent of total employment. However, their credit level as a percentage of GDP in Argentina is 13 percent—the lowest figure in the region. Unfortunately, there is no quick fix for this. Improving overall conditions for enterprise operations is very important right now. But specifically increasing the know-how of financial service providers to serve this segment is essential.
It is also important to have good infrastructure, such as multiple credit bureaus or a movable collateral registry. But most promising is the incursion of fintechs into this line of business, using big data to reduce the costs to financial service providers of assessing their risk and maintaining their credit portfolios. All this will hopefully lead to a better supply of credit for those keen to embark on productive investment projects.
As with individuals and small and medium enterprises, this will require products that are designed around them and that meet their needs. These products, in turn, must be supported by strong consumer protection regimes. And customers should be armed with the necessary financial education to be able to confidently navigate their digital and traditional financial lives.
Development without financial inclusion is incomplete. We need financial inclusion in Argentina and all around the world to create economies in which everybody can benefit, narrowing the income gap that exists in many countries.
As I look out on this room full of students, I remember my own years within these walls. The last time I gave an exam here, few of you had mobile phones, not to mention e-mail. And that was just 20 years ago! Imagine how far we could go in the next ten years!
It is no longer important who provides these services—whether banks together with the phone companies or with NGOs, or a supermarket chain. The important thing is that customers can use the financial services they really need, sustainably, affordably and responsibly.
In this way, all Argentines will have opportunities and cease to be invisible to the economy. I want to thank Rector Fernández for his hospitality and Minister Prat-Gay for this important opportunity to come here to help. Thank you very much.