Financial Inclusion for Stronger Communities

In his book, “Banker to the Poor: Micro-Lending and the Battle Against World Poverty,” Muhammad Yunus writes:

“If you go out into the real world, you cannot miss seeing that the poor are poor not because they are untrained or illiterate but because they cannot retain the returns of their labor. They have no control over capital, and it is the ability to control capital that gives people the power to rise out of poverty.”

How can access to the formal financial system empower low-income individuals, families and communities to advance their well-being and prosperity?

To start, access to financial services such as bank accounts, credit and savings products helps families and individuals prepare for the future and the things most meaningful to them, like their children’s education, their health or starting a small business. People who lack access to these services rely solely upon informal practices to save at home, and often depend on friends and family, stores or private informal lenders to borrow money.

Access to these and other services, such as payment mechanisms, has been shown to increase savings and empower women, as well as contributing to improved income and mental health. Beyond the benefits for individuals, as the World Bank’s 2014 Global Financial Inclusion (Findex) Database states, “financial inclusion has been broadly recognized as critical in reducing poverty and achieving inclusive economic growth.”

The issues of access, use and quality of financial services are closely related to the financial regulatory environment that countries create. According to a 2014 Multilateral Investment Fund report, five Latin American countries are among the top 10 countries globally to have developed enabling conditions for expanding access to financial services for the poor: Peru, Colombia, Chile, Mexico and Bolivia.

While progress has been made, current opportunities to strengthen financial inclusion in Latin America include increasing financial literacy, building the institutional capacity of microfinance institutions, expanding the range of financial services available to the poor, and leveraging new technologies such as mobile banking.

Non-governmentaFinancial Inclusion_2l organizations (NGOs) have had a significant impact on promoting financial inclusion in Latin America and the Caribbean. Various TRF local partners work to continuously strengthen their organizational practices and reach in order to fill the gaps left by formal financial institutions and governments.

In Colombia, TRF local partner Interactuar not only generates and promotes sustainable employment opportunities in rural communities in Antioquia, but also provides individual support through financial inclusion services, business training and technical assistance in marketing and sales. Interactuar helps low-income families develop micro-businesses and maximize their income through a comprehensive set of services.

Meanwhile, in the Dominican Republic, TRF local partner Asociación DomADOPEM1inicana para el Desarollo de la Mujer (ADOPEM) promotes the full participation of women in the formal economic sector and credit system. The strength of ADOPEM’s services lies in its efforts to provide vocational and administrative training on topics such as cash flow, accounting, cost control and credit management, allowing women and youth to create or strengthen their businesses and improve their quality of life.

United Nations Secretary-General Ban Ki-moon affirms, “Broad partnerships are the key to solving broad challenges. When governments, the United Nations, businesses, philanthropies and civil society work hand-in-hand, we can achieve great things.”

Developing effective solutions to increase the reach of financial services to underserved populations depends on a collaborative effort between governments, banks, educational institutions, the private sector and NGOs. To explore how you can partner with TRF to foster financial inclusion in Latin America, visit our Interactive Map feature or contact us today.

 

By Juliana Lopez, TRF Intern