El Salvador: Expanding Access to Financial Services through New Agency Banking Channels
FIRST provided TA to support authorities in El Salvador in developing a conducive legal and regulatory framework to expand access to financial services. Within the timeline of project implementation, the regulation on agency banking was enacted, allowing two banks to open a nonbank agent network. Just a few months after launching the innovative products, 484,128 basic banking transactions totaling nearly $45 million were processed through new channels. The project directly linked to the FSAP 2010 recommendations and was implemented during 2012-2013 with a total disbursement of $40,000.
El Salvador has one of the lowest levels of use of formal financial services in Latin America. According to World Bank data (Findex 2011), just 6 percent of the poor population (bottom 40 percent) have accounts at financial institutions. Although financial access has expanded, most credit and deposit-taking activity still occurs in the capital city. Often banks do not open branches elsewhere, because the volume of transactions is too low to be cost-effective. This makes it difficult for others, particularly those living in rural areas, to access basic financial services without high transaction costs. El Salvador did not have a legal framework that allowed banks to use nonbank agents to provide financial services (e.g., payments, remittances) in locations where bank branches are absent. As the Salvadoran government was very committed to the financial inclusion agenda, the Banco Central de Reserva de El Salvador sought FIRST's support in helping to establish a conducive legal and regulatory framework for mobile financial services.
FIRST's support included drafts of regulations on agency banking, mobile payments, and a financial inclusion decree that all together will support the extension of financial service delivery channels. In addition, the project also supported stakeholder dialogue-for example, through a presentation on retail payments to promote financial inclusion at a forum attended by 200 people from the financial industry and other stakeholder groups in June 2013. Finally, the project team also provided comments on a decree to support financial inclusion that supports the framework for retail payments, electronic money, and basic bank accounts with simple conditions and lower fees.
The Central Bank has indicated that the TA provided by FIRST was very useful in clarifying the conceptual aspects of models used to support financial inclusion (mobile banking, agency banking, electronic money, and basic banking accounts) as well as in the legal drafting process. The Central Bank also appreciated the opportunity to learn from global best practices in this area.
In June 2013, El Salvador's Central Bank approved regulations governing agency banking, paving the way for financial institutions in the country to be able to offer their services through third parties such as shops, supermarkets, and even individuals. To date, two banks have received licenses to operate agency banking and expect to open hundreds of agents across the country (source: Elsalvadore.com). In the months for which data are available (December 2013 to May 2014), 484,128 basic banking transactions totaling nearly $45 million were processed through agency banking.
The mobile financial services regulation was made available for public comment in December 2013 and is pending approval with the Committee of Regulation. The financial inclusion decree was submitted to the Legislative Assembly for approval in June 2014.
The project has helped the Government of El Salvador realize half of its commitments toward financial inclusion declared in the Maya Declaration in April 2013.