Understanding Latin America's Financial Inclusion Gap

Abstract

This paper analyzes Latin America’s Financial Inclusion Gap, the difference between the average financial inclusion for Latin America and the corresponding average for a set of comparator countries. At the country level, we assess four types of obstacles to financial inclusion: macroeconomic weaknesses, income inequality, institutional deficiencies and financial sector inefficiencies. A key finding of this paper is that although the four types of obstacles explain the absolute level of financial inclusion, institutional deficiencies and income inequality are the most important obstacles behind the Latin America’s financial inclusion gap. From our analysis at the individual level, we find that there is a Latin America-specific effect of education and income. The results suggest that the effect of attaining secondary education on the probability of being financially included is significantly higher in Latin America than in its comparators. Furthermore, the difference in the probability of being financially included between the richest and the poorest individuals is significantly higher in Latin America than in comparator countries.