Colombia remains one of the most economically unequal nations on earth with a vast chasm separating the haves from the have nots. A new study from the Brookings Institution, however, suggests that the country is now better positioned than most to ensure the lower class has better access to the financial system.
While many in the United States and Europe take such things for granted, only 39% of adults in Colombia currently have a formal financial account. That figure is even lower among women (34%), and too many people remain outside of the formal economy with no practical means to benefit from even common insurance products. Studies have shown that simply increasing the number of people who have bank accounts can lead to better economic outcomes for the poor.
But the nation has recognized its problem and taken steps to address it. The progress so far has been enough for the Washington-based think tank to rank Colombia second overall in its 2016 Financial and Digital Inclusion Project Report. It now trails only Kenya and recorded the largest year-over-year score increase among any of the 26 developing economies included in the analysis. By establishing concrete, quantifiable goals, this South American nation also got a perfect 100% score in terms of its commitment to financial inclusion, and its regulatory environment scored highly as well at 89%.
While commitment and fostering a climate for better access to banks won’t make Colombian society more equal overnight, the stage is now set for tangible improvement, according to Robin Lewis, author of the report and associate fellow of governance studies at the Brookings Institution’s Center for Technology Innovation.
“Significant disparities still exist in terms of income level, rural vs. urban locations, and across men and women,” said Lewis. “We’re still seeing those disparities in terms of adoption of financial accounts. But the narrative that we’re seeing in Colombia is that there has been tremendous progress, and we think they have laid the ground work for considerable growth in the future.”
In addition to the personal benefits for the lower class, increasing financial inclusion has been proven to help at the macroeconomic level by encouraging sustainable development, and Brookings points to several key steps that Colombia has made. For one, it has ensured that there is now at least one “access point” (a bank or ATM, generally) to the financial system in every municipality in the country, something that was badly lacking just a few years ago.
Then, in 2012, Colombia committed to the Alliance for Financial Inclusion’s “Maya Declaration,” a global initiative to “unlock the economic and social potential” of the world’s two billion people without bank accounts. President Juan Manuel Santos also launched a national financial inclusion strategy in 2014, and the government passed Decree 2338 and Decree 1491 the following year to cement the strategy into law.
More can still be done. To actually turn a positive climate for progress into real-world change, Colombia must monitor its plan and adjust policies as necessary. It should encourage wider mobile usage of financial products, something that could be especially beneficial to those in far-flung rural areas of the country. And the government must create a financial education strategy so that the disadvantaged not only have access to financial networks — but actually know how to leverage them to improve their livelihood.
But overall, Colombia outranks almost all its peers in terms of setting up the proper processes. In time, that will help the most vulnerable members of society. “We strongly believe that promoting access to and usage of secure, affordable, quality financial services can help individuals protect themselves from economic shock, plan for the future, and promote their family’s welfare,” said Lewis.