No more than one third of Colombia’s population has a savings account, a report by the World Bank revealed.
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“Saving small amounts at home is difficult, since family members can demand to use those savings to cover them with their immediate needs” |
In the World Bank’s latest report on personal finance, it was revealed that only 2 out of 10 people in Colombia have the ability to respond to a medical emergency or another unexpected expense.
The remaining 80% save via placing their money under mattresses or various other unregulated mechanisms. Private lenders tend to take full advantage of in the peoples plight by charging excessive amounts of interest, in many cases the private lender’s interest rates exceed the certified rate.
In the report, a specialist in financial inclusion of the World Bank, Rekha Reddy, said that one of the biggest problems Colombians have is that they do not save money and when they do it is done informally. “Saving small amounts at home is difficult, since family members can demand to use those savings to cover them with their immediate needs,” Reddy said.
So why don’t Colombians use banks?
“In Latin America, 65% of people don’t use banks, because they just don’t trust banks,” the CEO of a non-bank financial services company told Colombia Reports last year.
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“Here in Colombia, trust is built between people…it is hard to build trust with an institution. And something very small, like an overcharged account, will lose trust in that bank,” said Ana Barrera of Aflore.
Because of this underlying lack of confidence, said Barrera, 24% of adult Colombians have loans through friends, families or informal financial advisers, while only 12% have formal loans with a bank. And indeed, even that 12% is a significant increase over just a few years ago.
Even Colombia’s growing middle class has a “trust issue” with the country’s banks, Barrera said. “People need insurance and loans. If the level of trust in banks isn’t going to change, there’s an opportunity to build a business connecting people with the services they need.”
But access is improving
Just last month, UN envoy Queen Maxima of the Netherlands said Colombia as an excellent example of how to increase access to banking and financial systems.
MORE: Colombia ‘sets excellent example’ for increasing banking access: Dutch Queen
The United Nations Secretary General’s special advocate for inclusive finance for development made the comments in a statement in which she praised Colombia’s financial sector.
“Today, more than 99% of municipalities are covered by financial institutions or banks, and loan accounts are more than double those were ten years ago,” the Dutch queen said, adding that “Colombia has demonstrated the value of financial inclusion to reply directly to the needs of his people, the growth of its business and the potential of its country.”
Sources
- Dos de cada tres personas no manejan bien su dinero (Vanguardia)
- Global Financial Development Report: Financial Inclusion (The World Bank)
- Financial Building in Colombia in 2013 (International Monetary Fund)