A New Miracle? The Promises of Digitalization and Financial Inclusion in Latin America

Latin America and the Caribbean has made a big leap towards using digital technologies to expand financial inclusion, and there are reasons to be hopeful: Several initiatives in the region have expanded the supply of innovative digital financial products which, in theory, should untap inclusive growth by enabling millions of micro and small firms and households to integrate into modern financial markets.

But there are also reasons to be skeptical. Firms and individuals either lack trust in the financial sector or lack digital skills or savviness, limiting the adoption of digital financial technologies in larger numbers.

Solving these challenges is crucial for ensuring the development effectiveness of both private and public innovations. Without financial inclusion, governments are condemned to spend millions in disbursing social programs using costly in-person methods. Monetary policy is likely to be less effective if it can only influence those that are integrated in the financial system, and micro and small firms are unlikely to scale up their production if they can’t afford to implement new innovations.

Four studies produced by the Latin American Research Network through FINLAC—a new initiative by the IDB, IDB Lab, and IDB Invest to promote financial inclusion—reveal rigorous evidence on the hopes and challenges of leveraging digital technologies to increase financial inclusion.

Broadband Infrastructure Can Spur Financial Inclusion and Economic Growth.

A study in Peru shows how the rollout of broadband internet positively affected firms through greater financial inclusion. Firms increased their total borrowing from banks and the number of banks they borrowed from. Micro and small enterprises and those firms with less experience with formal banks (i.e., those with “thin” files in the credit bureau) benefited the most. The increase in credit coincided with higher sales and the entrance of new firms into places that recently got broadband. The expansion of broadband also generated productivity gains among firms, which achieved a higher output per worker ratio. Read more…

WiConnect is the IDB Group’s georeferenced platform that allows knowing who does what, where and how in Latin America and the Caribbean with the purpose of advancing towards the sustainable growth of the countries. If you are not yet part of this community, REGISTER your organization NOW. You will be able to access more premium content, find out about scholarships and financing opportunities, connect with potential allies for your development projects and make your organization visible.