Three Wishes for Latin America in 2012

2011 was not a good year to be in the headlines in microfinance. So for Latin America flying under the radar last year was probably more good luck than bad publicity. However, in 2012 with the focus shifting away from “hot-spots” and yes/no debates on microfinance, and hopefully towards greater product diversity and complete financial ecosystems, Latin America is poised to assume a leadership role. Over the next year we hope to see three key developments within the region in financial inclusion.

A seat at the table for the non-banks
Latin America’s well-developed infrastructure, growing consumer base, and urban populations set a promising scenario for new financial services and products. And with millions of citizens leaving poverty en masse in countries like Brazil, Peru, and Mexico, the time is ripe for fresh innovations. Interesting and promising advances in markets such as Colombia, Peru, and Brazil showcase products that may reach the poor with new financial services. However, the financial sector in Latin America remains bank-heavy, and banks for the most part still find it hard to justify a move to serving mass markets, which has resulted in a slow start for most markets throughout the region.

For fuller financial sector development in Latin America, more actors such as telecommunications companies, retail chains, and other businesses who know well the tendencies and needs at the base of the pyramid, will need more room to move. These actors are already making their mark on the region, but they are still challenged in many cases by regulations that limit their roles or the types of partnerships they can take to deliver innovative financial products to market. We hope that in 2012 we will see sticking points such as e-money regulations in many countries open up so that we have a more diverse set of actors and products competing to serve the millions of citizens leaving poverty and in need of new financial products.

Getting our heads around over-indebtedness
At the same time that Latin America is experiencing poor demand for new products and providers, there is also growing concern that over-indebtedness may be a developing problem in several markets in the region. As consumer credit has expanded alongside economic growth and consumption spending, some inexperienced consumers may be getting in over their heads. Credit bubbles have had macroeconomic repercussions in countries as diverse as the U.S. and Nicaragua in recent years, and so a growing risk of over-indebtedness should not be ignored. Fortunately there is evidence of greater interest by governments, researchers, and some providers to understand the more structural causes of over-indebtedness, how to measure it, and what the options are for corrective measures. We hope that in 2012 this work gains further traction in Latin America, so that we can identify the most at-risk countries, consumers, and product types, and design effective measures to reduce over-indebtedness before any more bubbles burst.

Leaders in global financial inclusion
The recent global push for financial inclusion policy—including engagement from global economic and policy leaders such as the G20, OECD, and Basel Committee—calls for strong national-level leadership to distill this global vision for implementation within countries and regions. With economies that weathered the financial crisis as well as any, and several large, emerging markets, Latin America has a great opportunity to become a leading region for global financial inclusion policy. Several countries in Latin America have launched their own financial inclusion strategies, and are building links between financial services and government programs such as welfare payments and education. With Mexico chairing the G20 this year—and its Global Partnership for Financial Inclusion—Latin America is poised to both lead by example and by appointment in financial inclusion for 2012.