Brazil’s Central Bank Calls for Changes to Boost Financial Inclusion

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Aug 2011
Brazil, August, 11 2011 - Brazil is progressing towards financial inclusion, but can go further, says the Central Bank of Brazil. The bank calls for improvements in governance, transparency, regulation, credit, technology, distribution channels, and product diversification.

In a 2010 report that describes how Brazilian regulators should think about financial inclusion, the bank proposes specific changes. Many of these changes go hand-in-hand with the Center’s vision for financial inclusion, in which product range, service quality, and provider diversity all play key roles in reducing financial exclusion.

The report was released against the backdrop of the September 2009 Pittsburgh Summit of the G20, at which leaders prioritized financial inclusion and committed to expanding financial services to the poor. Many countries have since begun to follow through, among them Mexico, whose National Banking and Securities Commission released three reports in the period 2009-2011 to measure the state of financial inclusion nationwide. They set an example for financial regulators of other countries by requiring that commercial banks provide regulators with the information needed to track progress towards financial inclusion goals.

Brazil’s report presents the central bank’s own financial inclusion initiative. Access to and use of financial services in Brazil has increased from 2006 to 2010. However, the report pinpoints certain areas that could benefit from further improvement:

  • Revision of MFI governance structures would make the institutions more sustainable.
  • Significant steps can still be made to bring more transparency to the Brazilian financial system.  Creation of a certification system for MFI transparency would ensure that all information, whether good or bad, is released to the public. This would allow the market to make informed decisions regarding which institutions to work with.
  • Establishment of credit bureaus for the sector will allow MFIs to share information about clients and prevent over-indebtedness.
  • Credit reference information in the country can be inconsistent; for example, while positive industry information is released to the market, negative information is often omitted from reports.
  • It has been shown that regulated MFIs have more success than unregulated MFIs. The report calls for a revision of the regulatory framework, in order to ease MFI transitions from non-regulation to regulation.
  • Alternate distribution channels allow for an inexpensive and reliable way to take products to market. The report calls for mobile technology that is safe, dependable, and easily assimilated into the market.
  • The more diversification of MFI products and services, the more people can be reached. Products that go beyond microenterprise credit—such as micro-insurance or financing for renovation and construction—can help meet the needs of a low-income market, and bring more sustainability to MFIs. Every market is different, and the next step in Brazil is to determine exactly what this particular market needs in order to produce successful financial services. Financial education is also important for consumers, so that they can utilize these services to their best advantage.

The changes this report outlines are in keeping with the Center’s vision for financial inclusion, in which product range, service quality, and provider diversity are all central to reducing financial exclusion. The Center’s  “Weathering the Storm” white paper discusses the crisis-management experiences of MFIs around the globe; and, like the Central bank of Brazil’s report, suggests that good governance makes all the difference in the success of financial institutions. Likewise, both the bank’s conclusions and the Center’s “Opportunities and Obstacles in Financial Inclusion” report stress the importance of listening to client and market needs when developing financial services. By recognizing the needs for improvements, countries like Brazil and Mexico are on the right track to achieve full financial inclusion down the road.



 

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