Pandemic Draws More Latin American Poor into the Banking System

20 November 2020

Sonia Fierro sells books for children on the streets of Bogota, Colombia. She earns just enough money to pay for her meals, housing and other living expenses. But she has never earned enough for the monthly fees that are required for a bank account.

When the COVID-19 public health crisis left her with little money, Fierro found she could receive government aid, but needed a bank account. With her daughter's help, she began using a banking app called Daviplata. It lets her and other users receive and withdraw money, and make payments.

"It's the best thing they could have done because it's easy and doesn't cost anything," she said.

Tatiana Gomez shows how using her cell phone she pays a utility bill, in Bogota, Colombia, Tuesday, Nov. 10, 2020.(AP Photo/Fernando Vergara)
Tatiana Gomez shows how using her cell phone she pays a utility bill, in Bogota, Colombia, Tuesday, Nov. 10, 2020.(AP Photo/Fernando Vergara)

Across Latin America, the COVID-19 crisis has brought an unlikely, but hopeful development: Millions of people who never used traditional banks have joined the financial system because of online banking services. Governments use these services to give out emergency assistance and, as a result, the number of people who use banks has increased.

"To be able to store money, save money and pay with money is actually a really important part of being lifted out of poverty," said Mahesh Uttamchandani. He is a financial expert at the World Bank. He noted that being able to save money makes a person better able to survive economic shocks.

Fourteen countries in Latin America have used online financial tools to give out aid money, says the Better than Cash Alliance. The group is a coalition of governments and international organizations that believe internet banking will reduce poverty.

In Colombia, at least 1.6 million people who never had a bank account have joined the nation's financial system since April. Eighty percent use internet systems like DaviPlata, notes Luis Alberto Rodríguez, who directs the Department of National Planning. Officials say 85.9 percent of Colombians now use some banking system, a number the government did not expect to reach until 2022.

Colombia's success is mostly because the government quickly identified citizens who could receive aid, but did not have a bank account. The country is also home to several banking apps. DaviPlata was created in 2012 by Davivienda, the country's third-largest bank. Users do not have to pay monthly fees or have a set amount of money in their account.

Movii, another application, was launched 18 months ago with 300,000 users. By August, it had more than 1 million users, mostly those who lived in poverty.

"For banks, it's a bother to tend to the poor," said Movii co-founder Hernando Rubio. He said that most banks are not interested in servicing the poor, but his company was "created specifically for this."

Latin American countries have spent about 4 percent of their gross domestic product (GDP) on lower taxes and other measures to limit the severity of the economic crisis. The area's GDP will fall by 9 percent by the end of 2020. Poverty is at levels not seen for 15 years, reports the United Nations Economic Commission for Latin America and the Caribbean.

As Brazil struggled to deal with the COVID-19 health crisis, the government offered $217 a month to most citizens. Those who asked for the aid were given online bank accounts to get the money. Of the nearly 100 million new accounts, 40 percent went to those who had never before used a bank.

It has been more difficult in other countries, like Peru. About 60 percent of Peruvians do not use banks and the government has struggled to give out emergency aid. Most people had to go to a bank to get their money. In some places, government officials had to drive house to house.

"We didn't have a DaviPlata who wanted to take this problem on," said Liliana Casafranca. She serves as an adviser at the Bank of the Nation, a large bank in Peru.

Former President Martin Vizcarra has set a goal of getting every Peruvian over the age of 18 a bank account by 2021. Officials hope to open one million new accounts by the end of the year.

I'm Susan Shand.

The Associated Press reported this story. Susan Shand adapted it for Learning English. George Grow was the editor.


Words in This Story

expense – n. the cost of something

fee – n. a specific cost tied to an action

bank account – n. a service from a financial institution

app – n. an application used on a smart phone or tablet

bother – v. to take an interest in

tend - v. to usually do or make an effort

gross domestic product - n. the full amount of productivity of a nation