Defining the Path to Financial Inclusion in Peru

> Posted by Jeffrey Riecke, Communications Assistant, CFI

Town of Ollantaytambo, Peru

Peru is widely recognized as one of the best environments for microfinance and financial inclusion in the world. In fact it ranked first in this year’s Microscope on the Business Environment for Microfinance, out of 55 countries. But the prime movers of financial inclusion in the country are not satisfied. At a recent CFI-Oikocredit event they gathered to consider a new CFI-Oikocredit report, Opportunities and Obstacles to Financial Inclusion in Peru. The report shares insights from surveys and interviews with service providers, investors, policymakers, and other players working to advance inclusion in the country.

What’s the biggest opportunity for advancing financial inclusion in Peru? David Alvarez, an international consultant, lead author of the report and co-organizer of the event, asked the audience this question. Thirty-seven percent of the audience responded with financial education, while 30 percent chose mobile money – responses that confirmed the report study’s responses. When David polled the audience on the biggest challenge to inclusion in Peru, the top response was limited understanding of client needs, chosen by 30 percent of people, followed by financial education with 24 percent.

In addition to the finding that financial education is recognized as both the top opportunity for and obstacle to advancing financial inclusion in Peru, key report findings include:

  • Survey results indicated the consensus that financial education is primarily the responsibility of the Peruvian government.
  • The expert interviews suggested that the main obstacle to achieving financial inclusion in Peru is the high cost of delivering services to rural, remote, and poor areas.
  • Experts agreed that the private sector is in a position to promote financial inclusion in regards to cost, use, access, quality, consumer protection, financial education, and institutional strengthening.
  • The interviewees had a positive view of the extent of Peru’s progress toward financial inclusion. In their opinion, the country is at the mid-point towards achieving full financial inclusion by 2020.

Along with David Alvarez, the event was organized by Oikocredit Director Jacinta Hamann, and brought together about 250 participants. Following Alvarez’s session were presentations from Richard Webb, Director of the Instituto Perú de la Universidad San Martín de Porres, and Yolirruth Núñez, Manager of Social Performance and Capability Building at Oikocredit.

During his presentation Webb shared data on agricultural and other trends in Peru’s rural areas. Aside from this data being interesting, the availability of this information bodes well for the country’s future financial inclusion efforts, including our research activities in the FI2020 Mapping the Invisible Market project. Webb shared that the demographics of Peru’s rural population are changing. About half of rural residents are now getting their income from non-agricultural activities, like commerce, personal services, construction, and teaching. Referred to by Webb as “hueso duro de inclusion financiera”, smallholder agricultural farmers have it tough due to great distances from resources, including from adequate financial services. Only eight percent (about 190,000) of the total 2.7 million productores agropecuarios in Peru have received credit, Webb shared, with most of this going to a few specific areas such as Tumbes and Lambayeque. An influx of agricultural actors harnessing new technologies is also affecting the agricultural landscape.

However, Peru is not undergoing a great migration from rural areas to big cities. Instead, Webb indicated that the great migration is from rural areas to pueblos or towns. And the impediment of distance in rural areas, generally, is being cut. Road building and motorization have reduced travel time between towns by more than half, and mobile phone access among rural residents has increased from 3 to 70 percent over the past few years. In terms of savings, as a percent of total income for families of rural areas, savings rose from five percent in 2004 to 18 percent in 2011. This figure increased in urban areas from about 16 percent to 24 percent, while staying roughly the same in Lima at 25 percent.

Núñez’s session, centering on client protection, included a conversation with two MFI clients from rural areas. Both women having previously saved in regulated entities shared their preference for bancos comunales instead. They cited the entities’ lack of transparency, the need for a deeper consideration of clients’ abilities to repay loans, and aggressive sales tactics as areas for industry improvement. One of the women also impressed the importance of financial education, which her banco comunal provides. In a closing comment, Nuñez shared her view that financial inclusion is not the goal but a strategy, and that client development is the goal.

The latter portion of the event included two panel discussions. The first on challenges for greater financial inclusion in Peru, the second on financial inclusion as a global commitment to the future. Participants included The Rohatyn Group Director Pedro Pablo Kuczynski, Grupo ACP President Luis Felipe Derteano, and CFI’s Deborah Drake. A panelist in the second discussion, one comment of Drake’s particularly resonated with the audience. She indicated that Peru is viewed as a financial inclusion leader and role model, the world will be watching its progress, and as a consequence, Peru has the responsibility to continue its financial inclusion efforts.

To access the agenda for the event, click here. To read the report, available in English and Spanish, click here.

Image credit: World Wide Gifts

Have you read?

G2P Electronic Payments Leading to Increased Aid and Inclusion in LAC

Takeaways from the 2012 Citi-FT Financial Education Summit

Global Microscope Finds the World Getting More Microfinance Friendly

Join the Conversation

Stay informed. Subscribe to our newsletter.