IDB Lab Communications Team (*)

Having a checking account, making a bank transfer, receiving a digital bill and accessing valuable and affordable financial products that meet the needs of those who require them is not so obvious for a large part of Latin America and the Caribbean. Nevertheless, financial inclusion in our region has made remarkable progress in recent years. In 2021, 76% of Latin Americans over the age of 15 had a bank account when, ten years earlier, that percentage was 50%. If we consider mobile money accounts, i.e., those linked exclusively to a mobile device, we see that they have made an even more dizzying leap since in 2021, almost one in four adults in our region (23%) had one, compared to 5% in 2017.

Behind these improvements in financial inclusion in such a short time lies technology. The spread of mobile telephony, the acceleration of digitalization processes and the adaptation of regulatory frameworks to technological innovations are, together with the flourishing of financial technology companies (fintechs). These elements have contributed significantly to this positive evolution.

Innovation at the service of inclusion

At IDB Lab, as the innovation laboratory of the Inter-American Development Bank (IDB), we test early-stage entrepreneurial solutions with a high technological component that have allowed us to prove that technology development provides great opportunities to continue advancing financial inclusion. We have been innovating for 30 years to achieve effective inclusion in Latin America and the Caribbean, and our portfolio shows a strategic work of supporting fintech companies by investing in projects that impact the financial inclusion of vulnerable populations.

In the last six years at IDB Lab, we have invested in numerous projects that have sought to expand access to financial services in Latin America by leveraging financial innovation, incorporating new digital tools and fintech solutions that have sought to reduce some of the gaps in our region in terms of financial inclusion, such as the delay in the penetration and use of financial services in the most vulnerable populations, including women, the financing problems of MSMEs or the difficulties of access in rural and remote areas, just to name a few.

A range of opportunities

IDB Lab's portfolio has concrete examples of projects focused on financial inclusion in Latin America and the Caribbean of most of the global trends in business models, technologies and sustainability initiatives. Among them, we can highlight the following:

1. EthicHub is one of the companies in IDB Lab's portfolio that best exemplifies how technology applied to traditional business models (loans, in its case) can increase and accelerate growth while generating a positive impact on vulnerable populations, such as rural communities or farmers who do not have access to financial services. This Spanish marketplace connects loan applicants from rural Mexican communities (mainly coffee producers) with investors. To this end, it has developed a novel financial product that combines blockchain technology with cryptocurrencies to enable small farmers to access loans, making financial services more accessible and bringing them within reach of new markets. 100% of its clients belong to vulnerable rural populations who have received loans to improve their production, income and quality of life.
2. Fundación Génesis Empresarial has received financial support and technical cooperation from IDB Lab to strengthen the reach and expand the coverage of financial services for Guatemala's low-income population, particularly women and the indigenous and rural population, using digital technologies and transactions that reduce the costs of financial products and services. The installation of smart ATMs, electronic wallet services to facilitate multiple transactions by cell phone, credits to generate purchases and sales through smartphones within a system of affiliated merchants, mobile Apps, or the use of big data and artificial intelligence have allowed it to create an ecosystem of digital payments that complements its services to customers who live 80% in rural areas.
3. Also in Central America, IDB Lab finances Cubo Technologies to boost the development of digital payments in micro and small businesses and reduce the gap in financial inclusion. Created two years ago in El Salvador, Cubo offers a user-friendly solution for MSMEs to accept credit and debit card payments, generate links for quick payments and QR codes for digital payments that can be physically printed or digitally shared. Cubo's development and expansion plans in Guatemala, Panama and Costa Rica during 2023 will provide 70,000 beneficiaries, 40% of whom are women, with tools to help them digitize and develop their businesses and formalize their relationships with financial institutions.
4. Pago46 is a regional startup that offers an innovative payment solution that allows users to pay with cash for services purchased through digital platforms. It also generates additional income for gig economy agents, such as Rappi couriers, who get a commission for picking up cash at users' homes. It is present in Argentina, Chile, Colombia, Guatemala, Mexico and Peru, and 99% of its agents belong to low-income populations.
5. In the Caribbean geography, IDB Lab is investing in Term Finance, which seeks to expand the scale and reach of credit services for MSMEs in Trinidad and Tobago through client-centric digital innovations, such as a fully digital loan application and evaluation process. Fifty percent of its clients are low-income, and 51% of the MSMEs that have received loans are women.
6. IDB Lab's support enabled Chilean financial technology company Migrante (now Galgo) to improve the economic resilience and financial access of predominantly Venezuelan migrants in Chile and Peru by offering specialized financial services tailored to their needs, including loans for work tools that are essential to their new lives, such as vehicles and motorcycles, as well as professional title approval services, housing guarantees and limited consumer credit. With its unique credit scoring system, migrants can receive fast and accessible loans through digital means, such as a telephone or computer.
7. Finally,  Waymimóvil is a digital platform for underbanked and unbanked people that uses a cell phone app to easily access microcredits simply with an identity document, an internet connection and a utility bill. Eighty percent of its clients cannot access financing through the traditional credit system, 72% of its loans were granted to people with incomes of less than US$ 400 per month, and 66% of the value of its loans were granted to women.

In parallel, IDB Lab is leading, together with the IDB and IDB Invest, the private sector arm of the IDB Group, the imminent launch of the FINLAC initiative focused on promoting financial inclusion and unleashing the entrepreneurial and innovative potential of our region by ensuring that the most vulnerable segments of society participate in modern financial systems. FINLAC will guide companies and policymakers to design and implement the most effective business practices, policies and reforms to create inclusive financial markets in Latin America and the Caribbean. It will also generate and share relevant knowledge and data on financial inclusion, test innovative business models that can be scaled up in the region and disseminate recommendations and best practices for building more inclusive financial markets.

Financial inclusion is a priority for development, and although the room for improvement remains large, our region is on the right path. This path leads us towards more prosperous and egalitarian societies and systems that improve lives in Latin America and the Caribbean.

* Based on data from Luis Maldonado.