Last month, I traveled to Mexico to attend the launch of the country’s national financial inclusion policy.
The launch was an important milestone for the country, since just 44% of adults have access to a financial account, according to Mexico’s latest national survey on financial inclusion. The policy outlines a vision of how to extend access to formal financial services to the unbanked half of the population, and provides a roadmap for how to get there.
Worldwide, there are 2 billion unbanked adults and the international development community considers financial inclusion necessary to reducing poverty and boosting shared prosperity.
Mexico accounts for 2.6% of that global number. The country is also among the 25 countries the World Bank Group and partners have prioritized in the Universal Financial Access by 2020 initiative. The goal of this initiative is to enable access to a transaction account to store money, and send and receive payments by adults who are not a part of the formal financial system.
In the last six years, more than 50 countries have made commitments to financial inclusion, and more than 30 have either launched or are developing a national strategy.
Our research at the World Bank Group indicates that when countries institute national financial inclusion strategies, they increase the pace and impact of reforms.
But as countries have accelerated efforts toward financial inclusion, it has become apparent that they face similar hurdles which impede their progress. We have grouped these hurdles into five broad challenges that countries need to tackle.
The five challenges are:
- Ensure financial access and services extend to hard-to-reach populations, including women and the rural poor
- Increase citizens’ financial literacy and capability so they understand different financial services and products
- Make sure everyone has valid identification documents
- Devise useful and relevant financial products
- Establish good financial consumer protection frameworks
Mexico’s policy aligns with these common challenges, but emphasizes its own national needs.
As I reviewed the policy, the following opportunities caught my attention of what Mexico can do to make significant inroads toward financial inclusion.
- Leverage non-banks to bring financial services to hard-to-reach populations. Mexico’s non-bank financial institutions already serve some 10 million people, while third-party-owned access points (such as bank agents and electronic access channels) already operate in remote communities. If they could reach sufficient scale, they could significantly extend the reach of the banking infrastructure and financial products.
- Ensure development banks can effectively and sustainably fulfill their role to bring financial services to financially excluded populations and underserved enterprises in rural areas. They should focus on crowding in private sector lending to foster and deepen financial inclusion. They are also critical in extending broader financial services to beneficiaries of government transfers, beyond just providing access to a transaction account, as Bansefi has started to do with the 4 million Prospera beneficiaries.
- Migrate to electronic instruments large-volume, low-value payments, such as remittances and government disbursements.In 2015, migrants transferred nearly US$25 billion in remittances to Mexico, mostly in cash. Those transactions could be moved into the regulated system through well-designed financial products. Similarly, continuing to digitize payments and other transactions can move millions more into the financial system. Mexico has made significant progress in migrating government disbursements to electronic payments, but an estimated 6.2 million unbanked adults still receive government salaries or social transfers in cash.
- Increase confidence in the formal financial sector and ensure responsible financial access. Mexico has already adopted important legislation to improve financial consumer protection. However, almost 40% of Mexico’s unbanked adults cite a lack of trust in the financial system as a major barrier to account ownership, which is much higher than Latin America’s average of 13%. Most adults also don’t understand basic financial products, according to the national survey. Higher household financial capability can help people choose relevant financial services, and raise levels of trust, access, and use of products.
At the World Bank Group, we are committed to supporting Mexico through financial, knowledge, advisory and convening services to strengthen financial sector oversight, foster credit and expand financial inclusion.
Helping Mexico achieve its financial inclusion goals will not only improve the lives of some 43 million people, but it will also bring the world a little bit closer to reaching Universal Financial Access by 2020.