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What are the financial inclusion challenges of the pandemic?

August 18, 2020

Coronavirus is urging Colombian financial firms to accelerate inclusion and banking in Colombia. This was explained by financial comparator El Mejor Trato in an analysis signed by Melisa Murialdo, which she shared with Cointelegraph in Spanish.

“”Colombia is the Latin American country that spends the most on debit and credit cards. Despite the digital boom, the pre-pandemic panorama showed that almost 90% of common monthly transactions were in food, beverages, clothing, and transportation, including housing and public services in cash (88.1% were based on the number of transactions and 87.4% by value paid in cash).. Although the results vary depending on where you live, cash accounts for 91.4% of the population in Barranquilla, and Bogotá has the lowest cash use (83.6%) and the highest debit card use (6.8%). and transfers (5.0%). However, all Colombians prefer cash, while the debit card comes second in terms of number (5.1%) and value of transactions (5.3%), “he explained to Murialdo.

What are the financial inclusion challenges of the pandemic?What are the financial inclusion challenges of the pandemic?

The main reason they attribute the use of cash is precisely that they don’t have a savings / checking account and / or credit card.

Providing a cashless means of transaction for the population without banks is only one of the goals of inclusion. According to Murialdo, a bank account must:

  • Complete the transaction and payment requirements

  • Offer the option of savings, loans and insurance.

“At the end of 2019, the indicator for access to financial products was 82.5%, which means that 29.4 million Colombian adults can run their projects, save, finance or protect themselves from risks. Of course, access does not mean usage: around 6 million Colombians who own a product have had their account inactive. More than 12 million people have entered the financial system in 10 years, 1.4 million in the last year, “added Murialdo.

According to this analyst The coronavirus made clear the importance of democratizing the process of financial inclusion so that all citizens can access financial services in the easiest possible way.

“Colombia was ranked number 1 out of 55 countries on the Economist Intelligence Unit (EIU) ranking for an environment conducive to financial inclusion over the past two years,” he said.

Nonetheless, analyst Melisa Murialdo made it clear that the country faces challenges such as:

  • Achieve that the regions can grow at the same level as the national ones

  • Better access to financial products in rural areas

  • Poverty reduction

  • Creating an advanced framework for cybersecurity

  • Promoting access to women

In this scenario, he affirmed that important differences between the different regions are occasionally observed: “While the access indicator in the departments of the Eje Cafetero and the Central Eastern Region rises to over 85%, the areas in which the region is located include the municipalities the Caribbean and Pacific are the most lagging behind on this matter, bordering near 70%. “

Likewise, the gap between urban and rural areas is large and over time: “The number of adults with at least one financial product in more urban areas reached 90.4% versus 64% in rural areas. In rural areas there is an extremely high level of exclusion due to the different access to financial instruments and coverage of services.

The departments and areas with the least connectivity are among the departments with the lowest index of financial inclusion. Financial inclusion is therefore directly related to digital inclusion. ”

“Without investing in the infrastructure, it will not be possible to advance the development of banking,” he stressed.

On the other hand, stressed that eight in ten Colombians have at least one financial product (savings or loans). Although only 66% use it effectively.

According to the analyst, one way to increase “real” inclusion could be to develop products that focus on 12.1 million that are not currently part of the system (6.3 million excluded adults and another 5.9 million, who don’t use the products they have.) as, despite advances in banking, there is also a challenge to encourage the use of financial products and services among those who have already accessed them. In terms of lending, this would be one of the worst hit indicators in 2020.

“If financial inclusion were limited to current products only, less than half of Colombia’s population (47%) would have been included last year,” he said.

The analyst said that another key challenge is increasing cybersecurity investments: “Cyber ​​attacks on mobile devices in Latin America increased by more than 70% during the pandemic. Especially those who use COVID-19 as a hook have spurred this growth. There were 45 malicious software attacks per second in Latin America. Colombia is the country in the region where most of the cyber attacks take place across Mexico, Brazil and Peru. “

In addition, he believed that the financial sector is the most vulnerable to cybercrime in the country: “Annual losses can be significant, accounting for around 9% of net bank income worldwide, according to the International Monetary Fund (IMF).”

If the path leads to digital banking, the likelihood of virtual fraud increases. Because of this, there is a need to promote the continuous development of Internet security to protect the system from attack, fraud, and cyber theft and to increase the budget for this policy.

Conclusion

Finally Murialdo considered: “Despite the progress made, the pandemic has shown that there is still enough in Colombia to regulate financial inclusion and a virus is the incentive the financial sector needs to accelerate bankization, which is the major challenge that ” new entrants ”. It is the responsibility of banks and government to provide services that meet the financial needs of the population at a cost that enables them to prefer them to cash”.

A quick clarification

Murialdo made it clear that any predictions about the impact of the coronavirus still contain a high level of uncertainty as it is not yet known how long the health crisis will last and what final consequences this would have for the global economy.

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