Report on Financiall Inclusion Number 1 – 2010 Catalog card prepared by the Library of Banco Central do Brasil Banco Central do Brasil. Report on Financial Inclusion. – N. 1-. 2. ed. –. Brasília : BCB, 2010 - n. ; 29,7 cm. Annual Report ISSN 2179-6696 1. Financial System – Periodical. 2. Finance – Periodical. CDU 336.7(05) President’s Letter In 2010, the Brazilian central bank, Banco Central do Brasil (BCB) defi ned the promotion of fi nancial inclusion as one of its strategic objectives. This commitment to fi nancial inclusion was identifi ed as one way for the BCB to fulfi l its institutional mission with respect to ensuring the soundness and effi ciency of the National Financial System (SFN). The publication of this fi rst Report on Financial Inclusion (RIF) is a crucial step towards meeting this objective. The RIF aims to consolidate BCB’s data and information in order to examine the issue and construct a map of fi nancial inclusion in Brazil. This undertaking is motivated by a conviction that, in order to develop targets and indicators and establish effective public policies on fi nancial inclusion, it is necessary to defi ne, categorize, and measure it. This is not the fi rst step taken by the BCB to promote fi nancial inclusion. Since the 1990s, the Brazilian central bank has been working with public and private agents to articulate knowledge and actions on the issue. We have focused on regulatory improvements and on raising public awareness about fi nancial inclusion in both the public sphere and fi nancial system. Efforts aimed at publicizing fi nancial inclusion initially focused on microcredit, then microfi nance. Today, we are articulating fi nancial inclusion as the right of all to social inclusion and a better quality of life, as well as a tool for strengthening the country. In the suite of actions aimed at improving the regulatory framework for fi nancial inclusion, some areas of normative changes may be highlighted: correspondents and simplifi ed accounts, credit unions, and Microentrepreneur Credit Companies (SCM), which later became Microentrepreneur and Small Business Credit Companies (SCMEPP). In April 2010, BCB dedicated a segment of its Financial System Regulation Department (DENOR) to deal specifi cally with fi nancial inclusion and other issues related to socio-environmental responsibility in the fi nancial system. As part of the Financial Inclusion Project, the BCB hosted the First Brazilian Central Bank Forum for Financial Inclusion in 2009. One of the main outputs of the Forum was ratifying the need to organize BCB’s existing fi nancial inclusion data and information. The Financial Inclusion Project also incorporated activities of the G20 Financial Inclusion Experts Group (FIEG), in which Brazil leads with Australia the work of the Access Through Innovation Sub-Group (ATISG). As a product of the Financial Inclusion Project, this report will illustrate the current state of fi nancial inclusion in Brazil through data that regulated institutions send to the BCB, and will provide a comparative analysis with other countries’ scenario. Report on Financial Inclusion 3 We hope this report will ultimately contribute to public policy decisions that promote fi nancial inclusion for the people of Brazil. In the short term, we expect that it will raise the profi le and intensify analysis of fi nancial inclusion, not only by prompting discussion among those directly involved, but by shining a light on the issue for everyone to see. Happy reading! Henrique de Campos Meirelles President, Banco Central do Brasil (BCB) 4 Table of Contents 1 Introduction 7 1.1 Objective ________________________________________________________________8 1.2 Structure _________________________________________________________________8 1.3 Methodology and the development of indicators _________________________________11 2 The State of Financial Inclusion in Brazil 17 2.1 Defi ning Financial Inclusion ________________________________________________17 2.2 Assessing BCB’s performance _______________________________________________18 2.3 Financial Inclusion Project __________________________________________________22 2.3.1 Financial Inclusion Project in 2009 ______________________________________22 2.3.2 Financial Inclusion Project in 2010 ______________________________________24 3 Brazil’s National Financial System (SFN) 31 3.1 Macroeconomic overview __________________________________________________31 3.2 Structure of the National Financial System _____________________________________37 3.2.1 Regulatory bodies ___________________________________________________37 3.2.2 Supervisory institutions _______________________________________________38 3.2.3 Traders ____________________________________________________________39 3.2.3.1 Traders under the supervision of the BCB __________________________39 3.2.3.2 Traders under the supervision of the CVM __________________________42 3.2.3.3 Traders under the supervision of SUSEP ___________________________42 3.2.3.4 Traders under the supervision of PREVIC __________________________42 3.2.4 Development of the National Financial System ____________________________43 4 Access to Financial Services 45 4.1 Financial institutions regulated by the Banco Central do Brasil (BCB) _______________45 4.2 Distribution channels ______________________________________________________46 4.2.1 Bank branches ______________________________________________________53 4.2.2 Correspondents ______________________________________________________54 4.2.3 Other distribution channels _____________________________________________57 4.2.4 Self-service machines (ATM – Automated Teller Machine) ____________________57 4.2.5 POS (Poinf of Sale) ___________________________________________________60 4.2.6 Remote access _______________________________________________________61 4.3 Capillarity: access channels in Brazil’s municipalities ____________________________61 4.3.1 New technologies ____________________________________________________66 5 Financial Services Usage 67 5.1 Credit __________________________________________________________________67 5.1.1 Microcredit _________________________________________________________74 5.1.2 Rural credit_________________________________________________________77 5.2 Deposits ________________________________________________________________81 5.3 Payment tools and distribution channels _______________________________________88 5.4 Conclusions on the use of fi nancial services ____________________________________94 6 The Challenge of Financial Inclusion in Brazil 97 References 101 Annexes 105 Appendices 113 Financial Inclusion Project Participants __________________________________________115 Financial Inclusion Project Team _______________________________________________117 Acronyms _________________________________________________________________119 Introduction 1 Banco Central do Brasil’s (BCB) institutional mission is to “ensure the stability of the currency’s purchasing power and a solid and effi cient fi nancial system.” The BCB adopts prudential measures aimed at ensuring the health of fi nancial institutions and an effective system of fi nancial intermediation to meet the needs of all economic agents in the country. Recognizing that stability, integrity, and fi nancial inclusion are complementary, the BCB progresses in improving the regulatory framework and in coordinating the various agents that are involved somehow with the provision of fi nancial services. This work is guided by a conviction that fi nding mechanisms for fi nancial inclusion is essential for reducing social inequalities and enhancing economic development. These mechanisms are expected to produce a “snowball effect” whereby greater access to the formal economy promotes progressively greater access to savings and investment, which in turn expands the production sector and contributes to economic growth. Image 1.1 – Financial inclusion virtuous circle Appropriate financial inclusion Access to formal Economic development economy/ more savings and investment Although fi nancial inclusion has traditionally been associated with access to credit, it is important that it is seen as more than this. There is a universal need for savings, payment, and transfer services, and access to them empowers less advantaged social groups to grow or stabilize their incomes and become more resilient to economic shocks. In terms of supply, fi nancial inclusion tends to leverage the fi nancial services industry by stimulating the offering of innovative services and highlighting opportunities to provide differentiated services through microfi nance institutions (MFIs), aimed at reaching segments of the population that are generally excluded from the traditional banking system. Report on Financial Inclusion 7 Gathering information and arriving at an accurate appraisal of fi nancial inclusion in Brazil is a crucial step towards developing public policies that create more effi cient tools for fi nancial intermediation and promote the fi nancial inclusion of the Brazilian population. This Report on Financial Inclusion (RIF) 1, which collects and analyses information on access and use of fi nancial services in Brazil, helps the BCB to fulfi l its institutional mission and meet one of its strategic objectives, “to promote the effi ciency of the national fi nancial system and the population’s fi nancial inclusion.”1 The report draws on data that fi nancial institutions and other institutions authorized to operate by the BCB send to the BCB. It is worth emphasizing that this report is only the fi rst step;