Peru: financial inclusion on the rise

As Peru’s economy speeds ahead, one statistic stands out like a black eye. The country’s banking inclusion rate is among the lowest in South America.

But with banks making concerted efforts to reach the far-flung and less fortunate— high in the Andes and tucked along the Amazon River— inclusion is on the rise. The government of President Ollanta Humala, meanwhile, says it’s mulling new strategies to aggressively court millions of people who still don’t bank.

The Ministry of Development and Social Inclusion, in charge of developing the strategies, aims to deepen financial education and promote savings programs among Peru’s poorest residents, while improving their access to banking infrastructure, said Gabriel Arrisueno, the ministry official leading the initiative.

The ministry intends to launch the program officially later this year, but it has already made progress. Rural residents in the government’s cash-transfer program Juntos, for example, are now receiving payments through new savings accounts at the state-owned Banco de la Nacion. The bank has also installed Quechua-language ATMs in Andean villages where Spanish is rarely used.

“Financial inclusion is one component of increasing social inclusion and market participation,” said Arrisueño.

Banco de Credito del Peru brings a floating bank to small towns along the Amazonas. Photo: Courtesy banco de credito del peru

Peru’s banking sector has seen rapid growth over the last decade, a trend that’s likely to continue as banks increase their presence in poor, isolated regions that have traditionally lacked financial services.

The Banco de la Nacion is a prime example. Its growth strategy for the next three years aims to provide banking to 1.5 million new customers in the Amazon jungle and Andean highlands. This plan alone would boost the number of people in Peru’s banking system by 20 percent.

Low income residents in remote communities have traditionally lacked access to formal banking in Peru, along with other services. At the end of 2011, banking sector loans represented just 26 percent of the country’s gross domestic product, compared to 74 percent for Chile and 49 percent for Brazil, according to Peru’s private-sector banking association, or Asbanc.

Yet in recent years, Peru has boasted one of Latin America’s fastest growing economies, posting expansion of 6.9 percent in 2011 and 8.8 percent in 2010, thanks to strong domestic demand and private sector investments. The country’s poverty rate has also declined sharply, meaning an emergent middle class is reaching for more and more consumer goods.

The banking sector has tracked this growth. Since 2005, bank loans have expanded by an average of 17 percent per year with consumer loans and mortgages forming the fastest growing segments. Analysts say this is largely due to aggressive expansion plans to increase the number of clients from lower income brackets.

And while banking participation in Peru is still relatively low, it has increased steadily over the last decade. In 2005, Peru’s banking sector loan portfolio represented less than 20 percent of GDP.

“What we are observing in Peru is the start of a relatively fast process of increasing bank participation driven by growth and increased access to bank credit,” said Mario Guerrero, an economist at Scotiabank Peru.

Banco de Credito del Peru, the country’s biggest bank, says it sees lots of room to increase banking participation in the country. Gianfranco Ferrari, Banco de Credito’s head of retail banking, said the bank aims to open another 100 branches in the next 18 months and 400 to 500 new ATMs this year. The bank currently has 350 branches and 1,665 ATMs.

Already, Banco de Credito has almost half of Peru’s total number of agencies, at 5,300. Agencies offer basic banking services, like paying bills, transferring money from accounts and checking balances. But unlike branches, they don’t process loans, and they cost less to operate.

Ferrari said the bank intends to continue growing by adding another 1,000 agencies per year.

Analysts say agencies are the key to most of the success in reaching low income areas so far. The number of agencies has skyrocketed in recent years, from about 4,300 in December 2008 to almost 11,200 in June 2012, and many are located in Peru’s poorest areas.

In June, Banco de Credito opened up its first agency on the Peruvian Amazon. Located on a riverboat, it provides financial services to some 45,000 people in the jungle region of Loreto.

“What we wanted was to give a message of commitment to increase banking participation and to do everything we can to reach Peruvians that need financial services,” Ferrari said.

Banking infrastructure in general has also increased significantly in recent years. In 2011, Peruvian banks had about 22,300 points of contact– meaning branches, ATMs and agencies located in mom-and-pop shops, pharmacies or even clothing stores. That translates into 120 points of contact per 100,000 people, up from some 6,000 points of contact in 2006, or 35 per 100,000 people.

A new experience for small town inhabitants. Photo: Courtesy banco de credito del peru

Comparisons with other Latin American countries show room for improvement. In 2010, Peru had 17 branches and 25 ATMs per 100,000 people. Chile had 19 branches and 63 ATMs per 100,000, while Brazil had 15 branches but 121 ATMs per 100,000, according to Peru’s banking regulator.

The strategy to increase banking participation among low-income residents has also included new products and services. Banks recently began offering new clients accounts with no fees and a minimum deposit, while also launching campaigns to increase transparency and financial education.

The push correlates with the government’s goals. President Humala took office in 2011 promising to maintain Peru’s strong economic growth and decrease poverty. Since then, the government has sought to increase social programs and state services in poor communities, while decreasing Peru’s massive informal economy.

By the end of Humala’s term in 2016, Peru hopes to decrease the po-verty rate to 15 percent, from 28 percent at the end of last year.

Like private-sector banks, Banco de la Nacion has embarked on a plan to increase financial services in isolated regions. The drive includes opening 150 banking agencies in the Apurimac and Ene river valley– a mountainous, jungle region in south-central Peru. The area, called the VRAE, is known as Peru’s top producer of coca leaves, the raw material used to make cocaine, and the last stronghold of remnants of the leftist Shining Path rebels.

The banking push is part of a larger plan to increase state presence in the area. “These measures will facilitate access to financial services to thousands of people,” President Humala said.

But plans to increase banking participation don’t come without risk. Standard & Poor’s recently warned of growing consumer debt in Peru as more people enter the financial system and banks push increasingly       aggressive lending policies.

“Although credit is a useful tool to support economic expansion, increasing household debt could bring undesired risks and damage the health of Peru’s financial system,” Standard & Poor’s said.


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