The Provision of Banking Services in Latin America: Obstacles and Recommendations - Working Paper 124

Liliana Rojas-Suarez

06/25/2007

The financial services provided to individuals and firms by banks is crucial for spurring economic activity, employment and poverty alleviation. But in Latin America access to financial services is extremely low. This CGD working paper by Liliana Rojas-Suarez describes why access is low and presents recommendations to overcome them. Obstacles to access are presented in this paper in four categories: The first category groups socio-economic obstacles that undercut the demand for financial services of large segments of the population. The second category identifies problems in the operations of the banking sector that impedes the adequate provision of financial services to households and firms. The third category captures institutional deficiencies, with emphasis on the quality of the legal framework and the governability of the countries in the region. The fourth category identifies regulations that tend to distort the provision of banking services.

Recommendations to confront these obstacles include innovative proposals that take into consideration the political constraints facing individual countries. Some of the policy recommendations include: public-private partnerships to improve financial literacy, the creation of juries specialized in commercial activities to support the rights of borrowers and creditors, and the approval of regulation to allow widespread usage of technological innovations to permit low-income families and small firms to gain access to financial services.

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