Financial Inclusion in the Caribbean

These obstacles hinder people from saving, accessing credits or insurance and ultimately, reduces poverty and inequality, drives economic growth and empowers individuals.

Yet, in the Caribbean financial inclusion is developing at a lower rate, and there are countries, such as Guinea, where the banked percentage of the population is less than 7%. The following are the latest indicators of financial inclusion in the region, according to the latest Global Findex Report (2017):

• 58% of adults have a financial institution.
• Women are still 6% less likely to have their own bank account than men, 3% less than the global average.
• Approximately 45% of adults are currently making and receiving digital payments.
• Digital payment has exponentially grown in recent years in some countries of the Caribbean, as is the case of Haiti (17%).
• Despite the fact that there is still a great percentage of unbanked individuals, more than 50% of adults have mobile phones and Internet access, 15% higher than the average of developing countries in the world, key factors to expand financial inclusion.
• Financial inequality has not improved in the last few years: individuals living the wealthiest 60% of households are 13% more likely to have a bank account than those living in the poorest 40% of households.

Most of the Caribbean’s countries are considered Type I markets, where financial service providers are hardest to reach through traditional banking models, and banking branches are not at all cost-effective, particularly in rural areas. However, 58% of the population in these countries have access to mobile phones, making them ideal candidates for mobile financial services and simple value chains.

In rural areas, the low percentage of banked population is due mainly to a high level of mistrust of the banking system, financial illiteracy and high costs. By attending to the needs of these individuals, financial institutions can increase their profits, restore trust, drive growth and inclusivity.

How Can Financial Institutions Help Accelerate Financial Inclusion?

The challenges financial institutions are facing today when dealing with financial institutions are mainly lack of financial education, no valid form of identification, geographic limits, no credit history and expensive financial products. Although these barriers are of significance, technology provides the means to overcome them.

In order for banks and credit unions to accelerate financial inclusion in low banked percentage countries, they should:

1. Customize Products and Services and Expand Their Reach

To come into contact with a larger audience, financial institutions need to simply their products to meet the needs of their customers at a cost they can actually afford. To achieve this, institutions must understand what their customers’ needs and provide attractive value. By finding the correct balance of innovative products and services, they can gain the people’s trust and increase their profit.

2. Create Innovative Channels to Reach More People at a Lower Cost

Digital channels are key to help institutions overcome infrastructure and geographical barriers in developing countries, since they offer the least amount of operational costs. By combining this with physical branches that build trust and correspondent agents, it is possible to efficiently operate.

3. Find Creative Ways to Reduce the Risk of not Having Credit Histories

Due to the fact that a high percentage of individuals in developing countries have never had a bank account, they do not have any kind of credit history or even valid identification, two facts that can act as deterrents for financial institutions, since they cannot measure the risk such individuals pose when considering a credit or insurance application.

By developing creative credit profiling and scoring analytics such as digital footprints related to biometrics, social media or e-commerce, as well as the customer’s feedback on service credibility, banks and credit unions can find reliable ways to measure creditworthiness and business viability.

The lack of financial inclusion is still a major problem in the Caribbean, but it is also an opportunity. Financial institutions need to find creative pathways to address local challenges, and although it will not be an easy feat, it’s a development imperative for the region.