Empowering Global Workforces

The Impact of Financial Inclusion in Central America

Financial inclusion is a crucial prerogative and byproduct of economic development. Workers in developing countries are joining the global financial system. They are reaping the benefits that offers. In countries like El Salvador, financial inclusion offers individual empowerment and economic benefits.

To achieve financial inclusion, financial products and services need to be available to more people. People and businesses from all socioeconomic backgrounds need access to:

• Banking service
• Credit
• Investment opportunities
• Money transfers
• More

Likewise, individuals and small businesses need the ability to send and use their funds quickly and affordably.

In Central America, a portion of the population remains underserved. The rural impoverished are gaining access slowly. However, a dynamic middle class is driving economic growth. All the while they are expanding the demand for accessible financial services. Fintech companies, in particular, are helping to bridge this gap.

The State of Financial Inclusion in Central America

Central America and El Salvador in particular suffer from a lack of accessibility. In 2021 the World Bank’s Findex 2021 Database revealed that 27% of adults in Latin America and the Caribbean lack access to financial services. This is just below the OECD average. As late as 2023, the Inter-American Development Bank highlighted a wide wealth disparity and a large number of underserved people.

So, financial inclusion in Central America and El Salvador faces several challenges. But there are also many opportunities. There is also, as of right now, a lot of progress that has already been made.

79% of people in Latin America have access to only basic financial services. Among them, 58% own a credit card and almost one-third have access to advanced financial services:

• Loans
• Insurance
• Investment instruments

Low access to credit is possibly as much of an issue as poor financial education. The Open Finance and digital banking revolutions offer much promise to Central America. They make traditional banking services more accessible to the middle classes in the region. More so than in other areas, this means a rapidly climbing share of the population has basic financial accounts.

El Salvador has a relatively well-developed financial services sector. The financial services sector lags behind its peers in financial depth. In other ways the country punches above its weight in competitiveness.

Post-war El Salvador had a bad starting point. But since then, rapid financial liberalization and a massive flow of remittances have created a dynamic financial environment. Global tech solutions are outpacing local banks’ abilities to serve locals. The country is even well-known for its positive attitude toward cryptocurrencies.

In 2021, approximately 36% of Salvadorians had a bank account. Interestingly, 11% had a mobile money account, an area that outpaces traditional banks in growth.

The Role of Financial Services in Facilitating Financial Inclusion

The financial services industry is making it easier for Salvadorians to receive, send, and invest money. In 2022, remittances alone formed 23% of El Salvador’s GDP. This figure has been higher during recent years but has long stood near one-fifth of the country’s economy.

El Salvadorians now have an easier time receiving funds from abroad thanks to the growing global financial services industry. This money is then reinvested into the local economy through consumption and investment. Anyone can now transfer funds to El Salvador and have the money arrive fast and at low cost. The impact is a more promising playing field for Salvadorians.

Financial services connect the Salvadorian diaspora with their relatives and institutions back home. This provides an ongoing source of funds for local families and the businesses they run and support.

Those families and businesses are in turn served by a wide variety of financial service companies. They enable them to bank, store money, invest, and more.

Supporting Global Business Operations

Financial inclusion’s benefits go beyond individuals, families, and businesses. They also support global business operations. Efficient financial services make innovation and investment easier.

Access to Capital

Financial inclusion helps small businesses access needed capital. With accessible capital, they can invest and expand or weather a bad season.

Trade

International payment systems reduce the friction of trading and cross-border investment. Businesses can more efficiently deliver products and services on a global market.

Risk Management

Access to risk mitigation finance products helps businesses suffer less from many risks. Natural disasters, currency fluctuations, inflation, and supply chain disruptions can be prepared for. Growth is more sustainable when insurance and risk mitigation products are widely available.

Benefits of Financial Inclusion for Workers

Last but not least, workers stand to gain the most from financial inclusion. El Salvadorian workers can receive remittances easily. This helps foster economic independence and security faster. Many households in El Salvador have remittances as a major source of income.

Financial inclusion helps workers access formal channels during the remittance process. That means being connected with banks, credit unions, and other payment platforms, but at a faster and more affordable rate. It also means more choice; cash is the most common way to send remittances. But with mobile wallets and financial apps, workers gain more safety and convenience. They also benefit from any educational material that the app or wallet provides.

Going beyond cash is an important step for workers in many economies. Workers are both safer and more likely to take advantage of more financial services. Financial apps that offer banking services and transfers may offer investment opportunities.

As financial accessibility reaches wider shares of the population in El Salvador, social inclusion is another byproduct. Workers access financial systems previously out of reach to them and join the formal economy.

Conclusion

Improvements in financial inclusion for workers in Central America are helping improve the economic situation in the region. El Salvador provides a particularly intensive look at how this process is playing out. The growth of the middle class and an international diaspora are the main ground where financial inclusion is expanding.

Financial services benefit individuals, families, and small businesses. As inclusion expands, the benefits reverberate globally.