Toward a new and comprehensive model of financial and housing inclusion for Latin America

Financial institutions
Financial Economics

The role assigned to financial inclusion as a tool for social and economic development is not a recent event. It has been on the public agenda since 2009, when the Group of Twenty (G-20) set the theme as one of its pillars at the Pittsburgh Summit. Later, in 2011, the Maya Declaration outlined a series of commitments at the global level to increase access to formal financial services by people previously barred from the financial system.

More recently, the United Nations published the 2030 Agenda for Sustainable Development, which places a priority on financial inclusion citing five out of 17 new objectives related to financial services [1].The growing prominence of financial inclusion initiatives demonstrates that the global perception of financial inclusion is now recognized as a fundamental factor for sustainable development.

Broadly, financial inclusion means that entrepreneurial individuals and the population broadly defined have both the access and the capacity to use financial services as needed. This definition exceeds credit, covering also access to a variety of financial services, including transfers, savings, insurance, venture capital and others, along with information about their correct use. Thus, the populations that can gain access to savings plans and credit in favorable conditions are better off in terms of their ability to plan and distribute their spending over time. Furthermore, they are better able to manage health risks and make investments, not just in business but also in education and housing.

In our opinion, there are three factors that are essential to any successful process of financial inclusion. The first factor is access to the abovementioned financial services plus general financial education such that people are enabled to use these services to their advantage. 

The second factor is the policies of incentive to formal labor. There are numerous direct and indirect consequences of informal labor, such as the risk of poor working conditions, salary, and benefits. Furthermore, informal workers often face higher interest rates and credit rationing in the traditional financial system. Consequently, remaining informally employed bars workers from full financial inclusion, particularly if they have no financial training.

The third factor, ignoring the last two decades, is the problem of the housing deficit and housing credit. Shantytowns are increasingly crowded and population segments beyond the peripheral areas without services emerge as by-products of one of the most unshakeable problems in Latin American history: the housing deficit. The precarious housing conditions in the region only serve to remind us how unfulfilled the constitutional provision for access to decent housing is. Due to the multidimensional, historical, and structural nature of the problem, it is difficult to approach reducing the housing deficit in the short and medium term. In turn, far from being limited to a sector of the population, the housing problem transcends social stratums.

Currently, as a result of irregular ownership or precarious housing, the rate of the housing deficit in Latin America is rising at an alarming rate of 37% (32% in urban areas and 60% in rural areas). Even more alarming are the findings of the recent report done by the United Nation's housing division, which shows that the magnitude of the qualitative deficit has surpassed the quantitative deficit by more than 200%, reflecting cases in which figures doubled [2].

In review, given the massive qualitative housing deficit, it is imperative to create and encourage credit services in order to repair, expand, or finish houses while improving and implementing public policy that will mitigate the real effects of the qualitative housing crisis. This will generate a virtuous cycle that bolster financial inclusion and standard of living, especially in the most disadvantaged sectors. Where there is further need for credit lending, there is also a premium on informal and irregular labor, and public credit plans have not been efficient.

It is important to note that Latin America has made important advances in the last few years. Many countries already have robust systems in place for financial inclusion. For example, the innovative platform for digital payment put forth jointly by the Superintendency of Banking and Insurance (SBS) and the Association of Banks (ASBANC) of Peru; Chile's new initiative that extends from social services payments and programs for financial education to establishing consumer protection regulations; the Ministries of Finance and Information Technology and Telecommunication in Colombia passed the Financial Inclusion Law, which provides for a regulation of electronic transactions and the creation of agencies specialized in electronic payments; and finally, the innovative new regulations created for microinsurances in Brazil and Mexico.

However, the housing aspect of credit seems to have remained relegated in the main models of financial inclusion. The respective ministries or departments of housing urban development have implemented policies that operate separately from the financial sector in an attempt to address lack of housing rather than quality. Aligning the objectives of financial inclusion and housing is not only a logical course for the future but also an urgent and necessary one.  

Published in daily Notimérica (Europa-press) - 09/06/2016. The authors are grateful to Kathleen Barrow for editorial assistance.

[1] Namely, ending poverty; end hunger; achieve gender equality; promote sustained, inclusive and sustainable economic growth; and promote inclusive and sustainable industrialization

[2] The qualitative housing deficit refers to the quality of the materials, space, and access to utilities. The quantitative housing deficit refers to the number of houses needed. In the case of Costa Rica, El Salvador or Paraguay, the qualitative deficit comes to represent 500% more than the quantitative deficit.


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