Daniel Allaín Cañote, SBS Peru,* and Rafe Mazer, CGAP I. Introduction The importance of sound and effective social inclusion policies has been widely accepted for more than a century. However, one aspect of social inclusion that has been given only limited consideration at the national (and global) policy level until recent years is financial inclusion. Financial inclusion refers to broad access to a portfolio of quality financial products and services which include loans, deposit services, insurance, pensions and payment systems, as well as financial education and consumer protection mechanisms. Traditionally policymakers have been more focused on the soundness of the financial system itself, and providing the right incentives for financial institutions (FIs) to engage in their business while taking into account and controlling their risk exposure. However, the emergence of country-level policy mandates around financial inclusion, coupled with new international initiatives such as the G20‘s Global Partnership for Financial Inclusion (GPFI), have brought considerable momentum to this topic. A central challenge for policymakers seeking to improve financial inclusion within their country is how you can measure and monitor whether changes in policy or financial inclusion strategies impact the levels of access and the types of financial services reaching its citizens. Part of the challenge of accurately measuring financial inclusion, and identifying barriers to access that limit participation by certain populations, is that data collected on financial access and inclusion remains fragmented and incomplete. Lack of clear and meaningful data makes it difficult to understand the size of the gap in the provision of financial services and the best policies that governments can put into operation to reduce it. Without such data, policymakers may find themselves acting more on ―hunches‖ or ―best guesses‖ as to how to increase access, reduce disparities within a country, or incentivize the right kinds of products and delivery channels for their citizens‘ financial needs. Fortunately, the volume and quality of financial inclusion data is improving rapidly through national-level surveys in countries such as Kenya, Thailand, Mexico and Peru, as well as global efforts such as the Alliance for Financial Inclusion‘s ―Financial Inclusion Data Working Group,‖ and the GPFI‘s ―SubGroup on Data and Measurement.‖ This brief seeks to demonstrate how financial indicators can contribute to improved analysis of a country‘s state of financial access, and subsequently more informed financial inclusion policymaking. This paper will use the experience of the Superintendent of Banks and Insurance in Peru to offer insight for policymakers on 1. Establishing financial inclusion indicators that can be measures of both progress towards, and continuing gaps within, financial access; and 2. Developing second-level measurements based on these indicators to track specific topics such as intra-country distribution of financial services and the correlation of financial access and social and economic development indicators. II. Defining Financial Inclusion A first step in producing effective indicators of financial inclusion levels is defining what we mean by financial inclusion [See the example of the Peruvian government‘s definition in Box 1]. There has been some debate amongst specialists around this term, and there is not still a widely approved definition of financial inclusion, yet most definitions of financial inclusion to emerge recently have included certain core elements:  Broad access to a range of financial products and services;  Financial literacy and financial capability initiatives, and a consumer protection framework; and  Minimum requirements for these financial products and services in terms of availability, quality, cost and sustainability.

The authors work at the Superintendence of Banking, Insurance Companies and Private Pension Funds of Peru‘s Office of Products and Services to the Consumer. Please send questions and comments to or This paper‘s findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the Superintendence. All errors in this paper are responsibility of its authors.

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239


rural savings and loans institutions and entities for the development of micro and small enterprises).Box N° 1 The Peruvian Definition of ‘Financial Inclusion’ Financial inclusion means that the majority of the population has broad access to a portfolio of quality financial products and services which include loans. reaching US$ 51. In addition to defining what is meant by ―financial inclusion. with an average annual GDP growth of 5. trust issues or inadequate products and services for a specific environment. and improved information disclosure regarding financial products and services‘ features.Perú Telf. reaching US$ 45. the second group may be at a stage where financial inclusion policy will offer little help. however little it was.255 between 2001 and 2010.98%. when compared with other Latin American countries. but who would be able to access and use the financial products and services offered by financial institutions in case such barriers were lifted. However.810 and US$ 54. whereas those who do not meet these conditions will need other types of support before being able to become financially included.986 and US$ 51. : (511)6309000 Fax: (511) 6309239 2 . These results are reflected in increased financial intermediation through regulated FIs.685 million by the end of July in 2011. finance companies and microfinance institutions (municipal savings and loans institutions. pensions and payment systems. insurance companies and private pension funds. benefits and costs for consumers. Promoting financial inclusion requires creating or enhancing market incentives to develop and provide financial products and services focused on populations with low levels of access or use of other types of financial products and services.Lima 27 . and instead they would need a more direct approach to combat their poverty issues: direct transfers or subsidies of resources. and GDP per-capita from $2. deposit services. these economic and financial results have not translated into a deeper penetration of financial products and services in relation to the size of the economy. deeper knowledge about banks and microfinance institutions.084 to $5. However. like geographical barriers.  Those who do not use the financial system because they do not have the means or the resources to use the financial system. which have both increased by more than 250% between 2001 and 2010. Despite total deposits as a percentage of the GDP—a commonly used ratio for measuring financial penetration— Los Laureles Nº 214 . their economic condition is so critical that they wouldn‘t have any means of repayment of a credit. and other actions that would have a direct impact on their income levels. insurance. all of which are regulated and supervised by the SBS. III. policymakers may need to be careful to include only those people who meet certain basic economic well-being in the short-term. nor do they generate enough resources to cover even their most basic needs. The improving economic environment allowed for sustained growth of the financial system while maintaining internal price stability during the last decade. Insurance Companies and Private Pensions Funds of Peru The last decade has been one of consistent economic growth for Peru. which include private and state-owned banks. Greater financial inclusion can promote economic development through the establishment of mechanisms that allow for greater access to products and services of financial institutions. Using Financial Inclusion Indicators for Targeted Policymaking: The Superintendence of Banking. This growth continues. that is. the last decade has shown an explosive growth of loans and deposits. as well as empowering financial users with the tools needed to better understand financial products and services offered and the channels required to enforce their consumer rights. social programs to enhance labor.667 million by the end of 2010.‖ it is important to distinguish between two categories within the financially excluded:  Those who do not use the financial system due to the barriers that prevent them from contracting with existing financial institutions. cultural barriers. respectively. as well as financial education and consumer protection mechanisms. When determining how to act and whom to target with expanded financial inclusion efforts. The first category of financially excluded could in the future engage in a productive and beneficial use of the financial system if some market conditions are changed. Undoubtedly.

29 61. Reaching out: Access to and use of banking services across countries.19 78.94 24. mortgage companies. in which there is urgent need to understand financial inclusion levels of low-income.45 61.having increased from 19. municipal savings and loans institutions.7% in 2004 to 26. the SBS has been able to observe several trends in financial inclusion within Peru: The financial inclusion indicators used by the SBS in Peru are based on the work of Beck et al. entities for the development of micro and small enterprises (Edpymes). 2 These indicators have been calculated for the period 2001 – 2009.21 Deposits ODCs* / GDP 17.27 43. leasing companies. : (511)6309000 Fax: (511) 6309239 3 . 4.18 44.) [see Box 2] Box N° 2 Financial Depth 2009¹ Loans ODCs* / GDP 12. The work to measure financial inclusion indicators in Peru is focused on data that can be measurable and meaningful for developing countries.77 20. with an additional five indicators developed independently. ¹/ Indicators of Financial Inclusion of Financial System.44 73.Lima 27 . ODCs (Other Depository corporations) includes commercial banks and other deposit-taking institutions. Asli Demirguc-Kunt and Maria Soledad Martinez Peria. The ODCs includes save and loan associations. Peru is still below the regional average for this indicator (considering deposits in private banking institutions only. Insurance Companies and Private Pension Funds of Peru‘ (SBS) developed and began to measure a series of indicators to assess how deep or shallow access and use of financial products and services is within the Peruvian population. and loan and debtor-related data.46 24. March 2006. in 2010 the Superintendence of Banking. Insurance and Pension Funds.67 30. and Indicators of geographical inequality distribution.9% during the last five years. World Bank.60 19.59 Argentina Brasil Chile México Guatemala Uruguay Peru² *As defined by the International Monetary Fund. December 2010. except for financial institutions‘ branch data. (2006). Agrobanco and Banco de la Nación.27 32.30 Loans from Commercial Banks 11. Developing National Financial Inclusion Indicators It is in this context of improving financial penetration that the SBS has developed a first set of financial inclusion indicators. lowaccess populations in particular.49 28.2 Using data for these indicators from 2001-present. 5]: Indicators of access.28 35.Perú Telf. and to determine what measures can be taken in order to deepen financial access in Peru. classified in three groups1 [see Box 3.15 35.46 20.25 26. financial institutions‘ ATMs and banking agents. rural savings and loans institutions. Indicators of use. ²/Indicators for Peru consider loans and deposits given by financial companies (multiple banking. See Thorsten Beck.98 23.53 74. the SBS in Peru developed a set of 13 financial inclusion indicators.45 16. 1 Los Laureles Nº 214 . so adequate measures can be taken to correct and improve any identified weaknesses and to measure the impact of any policy action taken on financial inclusion levels.65 25. which was available from 2000 to 2009. and to take proactive and effective action to improve upon financial access and inclusion amongst these populations. which was only available from 2008 to 2009.88 35.86 Deposits from Commercial Banks 17. consumer loans only) To better address the lack of full penetration of financial services and products to its population. in order to identify policy actions that are effective in boosting financial intermediation. As a result. which covers the period 2002 – 2009. to map out how financial inclusion levels have evolved during the past decade. microfinance institutions and others.67 20.00 29. whose main objective is to provide them with information regarding access and use of financial products and services.

services and access channels made available to them by FIs.000km²). ATMs and agents. that is.000 adults 0 10 15 25 33 50 Examining issues of intra-country inequality and distribution via financial indicators Box N° 4 Financial Inclusion Indicators Used by the SBS Peru II) Indicators of Use: Broad estimates of the portion of the adult population who actually use financial products and services through any available channel. the normalized ratio of total loans outside Lima over total deposits outside Lima has grown by nearly 3% per year.Number of agents per 100. Los Laureles Nº 214 . Similarly.000 km² 6.Number of branches per 1.84 1.Number of ATMs per 1.Number of agents per 1. ATM network. A reduction in the average size of deposits and of loans to GDP per capita.Average size of total loans per borrower to GDP 0. A growth of 18.Lima 27 . 2005 2006 2007 2008 2009 2010 1. the Peruvian capital and economic center.000 adults 169 183 201 227 235 251 9. A rapid growth in the number of agents4 from 2006 to 2010—geographically and per capita—that is now more than triple the figure for branches (7 agents per 1.000 adults 558 595 638 674 714 816 8.Number of borrowers per 1.87 per capita (number of times) 10.89 1. in comparison to 2 branches per 1.Number of ATMs per 100.72 0.Perú Telf.000km².     A constant increase in the past decade in the number of access points3 per 1000km² and per 10.75 0.Number of branches per 100.000 adults. In 2005 the SBS established the regulatory framework for the operation of the agents. both of which are signs that financial services are reaching lower-income segments of the population than previously. how many locations providing access to financial products and services are available. : (511)6309000 Fax: (511) 6309239 4 .000 km² 2 2 2 3 3 4 4.70 1.000 adults 13 15 18 23 25 28 0 1 2 3 5 7 5. This also suggests that funding for those loans should have come from other sources of financing not located in these provinces. who decide to use those products.70 0. Box N° 3 Financial Inclusion Indicators Used by the SBS Peru I) Indicators of Access: Broad figure for estimating the existence and quantities of provision channels available to the adult population.000 km² 1 1 2 2 2 2 2.96 1. like deposits from Lima or credit lines from banking institutions from Lima or abroad. which most likely reflects an increased presence of smaller-value depositors and smaller loan amounts. thus suggesting a transference of resources from Lima to other cities by via province-based financial institutions. from 2001-2010. 2005 2006 2007 2008 2009 2010 7. An increasing.7% in the participation of loans and deposits originating outside of Lima.72 0.000 adults 9 10 11 15 17 17 3.64 per capita (number of times) 3 4 The number of access points is the sum of branches.Average size of total deposits per depositor to GDP 1.64 0. that is.83 1. but still underdeveloped compared to peer countries. This means that the participation of loans in provinces has grown faster (or decreased slower) than participation of deposits in provinces. Number of depositors per 1.

These indexes do not take into account other factors like regional production levels or initial wealth of the population in each department. and FI branches.Perú Telf. deposits.25 1.72 provinces and participation of deposits 12.  To measure these two variables. : (511)6309000 Fax: (511) 6309239 5 . deposits and FI branches. comparing them against the population distribution in Peru. Los Laureles Nº 214 .Lima 27 . at the departmental level.28 1.19 provinces (index) 13. These three series allow the SBS to study the evolution of the inequality in the distribution of loans. the SBS has followed the evolution of credits and deposits generated in Lima and in other regions considering that average income levels in Lima are superior to those of other cities. and if they are using their branches in Lima to cross-finance projects in lower-income cities. which then can be used as a starting point to find some answers about financial inclusion in each department.12 1.06 1. For this indicator.Total loans in provinces to total deposits in 1.18 9. thus allowing us to see the pure statistical distribution. thus measuring deviations in resource distribution from a perfectly equitable distribution.93 18. the total value of the deposits. in Peru the initial data provided from their 13 financial inclusion indicators was aggregated at the regional level and run against the Lorenz curve and Gini coefficients to identify if there are particular financial access gaps in certain regions of the country. The hypothesis here is that municipal and rural savings and loans institutions are financing the creation of loans in Peruvian provinces with deposits raised in Lima.20 15.92 8. and the number of financial institutions‘ branches opened in each department. deposits. loans. As a first approach. The distribution of loans. The SBS was interested in analyzing the behavior of municipal and rural savings and loans institutions whose main offices are located outside of Lima.Box N° 5 Financial Inclusion Indicators Used by the SBS Peru III) Indicators of Geographical Inequality Distribution 2005 2006 2007 2008 2009 2010 11. These indicators seek to measure two key variables for financial inclusion:  The effect of regional FIs operating outside their base cities on the allocation of financial services and products to different regions. Gini indexes between population. the SBS utilized three series of Gini indexes to gauge financial access and compare the cumulative distribution of Peruvian population per department against the total value of the loans.16 1. and access points per region [discussed in the Annex of this brief] Examining issues of intra-country inequality and distribution via financial indicators Financial indicators such as those utilized by the SBS are useful to monitor how financial access is changing from year-to-year and over a large time-series at the national level. effectively contributing to a redistribution of resources.Difference between participation of loans in 6. if the presence of a bigger branch network allows for resource transfers between high-income and low-income regions. For example.05 12. the SBS estimated Gini indexes to compare the cumulative distribution of resources against the cumulative distribution of population (the Lorenz curve). This basic indicator data can also be used to examine further specific topics that can provide clues to where policymakers should focus their financial inclusion efforts to address existing gaps or inequalities in access. while the three of them combined allow them to investigate the relationship between these three distributions. that is.

but in the Peruvian case this has not been the case.000 people while Arequipa has 178 access points per 100. there is not a deposit-creation process of the same level going on. This process has been continuing steadily during the decade. especially in later years.79% of total deposits during most of this period.04 points). Lima branches have decreased their participation from 43% in 2006 to 41% of the total branch network. Lima is not located at the top of the access points distribution. but Arequipa.Perú Telf. This leads to the conclusion that the financial inclusion process in Peru to date has been pushed principally from the credit side (retail or small-business loans). Distribution of Deposits Regarding deposit distribution. Besides. with agents being one of their most potent tools in doing so. which could mean that people in Lima have a greater capability for savings. Even more surprising. Total deposits in Lima have accounted for 78% . due to a significant raise of deposits in Lima.46. grocery stores and other retail 2006 establishments. and loan distribution has been reducing its inequality levels in a slow but constant rate. however.Lima 27 . which means that inequality in the distribution of access points against population of each department has been low. However. but most of that decrease was achieved between 2008 and 2009 (0. One of the main suppositions regarding financial exclusion is lack of access points (branches. the SBS did not observe the same process. with each year registering a constant increase of the participation of loans in provinces over the total loan portfolio and a constant decrease of the Gini index of about 0.31 in 2010.60 to 0.000 adults in 2010).33 in 2006 to 0. low levels of trust in the financial system or a perception that existing products and services are not adequate for part of the population (especially in the case of deposit accounts). They are typically small retail points such as pharmacies. In fact. The Gini index of deposits against population decreased from 0. while branch distribution has never been as unequal as deposits or loans. ATMS and agents). 2010 2001 2010 2001 Distribution of Access Points In 2005 the SBS established the regulatory framework for the 2010 operation of the agents. The results of the 13 financial indicators and related Gini coefficients exhibit how financial institutions in Peru have been making an effort to increase their network reach. So while more funding is available for people living outside Lima.58 to 0. This result indicates that the observed inequalities in the geographical distribution of loans and deposits could be less related to lack of access and more related to other factors. but could also be the result of a strategy in the financial system for raising resources in Lima in order to finance their lending in other regions. this Gini index increased during 2010. The Gini index has been very low during the decade. ranging from 0.Distribution of Loans During the past decade. : (511)6309000 Fax: (511) 6309239 6 .02 points and during the year 2010 the index was constant.54 between 2001 and 2010. the Gini index for the distribution of total loans decreased from 0. despite the existence of financial institution branches (often named as one of the most important drivers of Los Laureles Nº 214 . is before Lima in 20010 (Lima has 144 access points per 100. the deposit distribution is still heavily concentrated in Lima. like lack of knowledge about the products and services offered by the financial system. due to the reduction in the participation of loans created in Lima from 85% to a little over 70% of the total portfolio of loans in the financial system.

Each group (which accounts for a cell in the 5 x 5 grid) is formed by categorizing districts with 0.e. branches are more concentrated in urban areas while the population is distributed in rural areas. and what policy 5 Banco de la Nación Los Laureles Nº 214 . 3 or more than 3 financial agents. To address this limitation of first-round measurements of financial access. including students. as users. Without more detailed information regarding financial access. 2. Regarding financial capability. and its results should be ready in December 2011. or doesn‘t trust in financial institutions‘ deposit accounts. An additional next step for the SBS in Peru will be to estimate another set of qualitative indicators for financial inclusion. use of financial products and services. they were able to determine that while most respondents knew about different products and services offered by the bank. These surveys will cover different target populations. districts (in percentage) and the needs index estimated for each group. to complain in case of dissatisfaction with a product or service or the procedure to place a complaint with the financial system. literacy and poverty barriers in financial inclusion levels as well as develop a tool to estimate if low financial inclusion levels in some areas are a product of geographical barriers or barriers of other types (lack of trust. the SBS has conducted an informal survey in towns where the state-owned banking institution5 was the only financial institution. or doesn‘t know how to use. it is difficult to pinpoint the exact nature of these barriers. dependent and independent workers. Concluding Remarks In this paper we have examined how a set of financial inclusion indicators has provided the SBS in Peru with effective information about the access and use of financial services by the population. ―The Financial Touch-Point Access‖ matrix. and will be applied in different cities in Peru. young adults. 1. according to the Poverty Map elaborated by Peru‘s Cooperation for Social Development Fund (FONCODES). Through this next series of qualitative indicators the SBS hopes to further understand the impact of geographical. Next steps in measurement In order to take into account these distribution inequalities across different regions and deepen analysis of the reasons behind these different behaviors. so they don‘t use them) or c) operational (deposit accounts in the market are difficult to use or very costly to use for the population – i.Perú Telf. Based on these surveys. none of them knew about the regulator‘s role in overseeing the financial system nor about their right. use of financial services. and financial literacy of the Peruvian population. and travelling to the closest branch is difficult or costly). These ‗financial surveys‘ will measure financial knowledge related to products and services offered by the financial system and levels of use. 3 or more than 3 financial institution branches. These indicators also provide a first explanation of the evolution of financial access in Peru over the last decade. 1. by using surveys specifically developed to measure financial literacy. which could mean that people outside Lima face other barriers – besides lack of physical access – to become financially included.deposit creation). access and use among the population. and districts with 0. to provide more information about the correlation between population. a FI agent or an ATM to make a withdrawal – so they don‘t have the incentives to use them). trying to find out why people use (or don‘t use) financial institutions‘ products and services. This matrix operates under the assumption that more branches and agents will be correlated to lower levels in the needs index. lack of information or cultural reasons). IV. at least from the savings side. soon-to-be-retired and retired adults. This composite indicator will provide deeper insight into the relationships between financial inclusion and economical well-being and will allow the SBS to take into account different levels of financial inclusion across different districts. and the questionnaire covers topics like day-to-day money management. it‘s difficult to access a branch. it would be beneficial to pursue greater measurements of three different types of barriers: a) geographical (even at the department level. 2. the SBS is currently developing a composite indicator. provinces and regions. b) informational (the population doesn‘t know.Lima 27 . physical availability of financial products and services and welfare indicators. : (511)6309000 Fax: (511) 6309239 7 . The Financial Touch-Point Access matrix correlates in a 5 x 5 grid three indicators: population (in percentage). and basic financial math and financial concept questions.

both in the short and in the long term. The Peruvian case also shows how basic financial inclusion indicators can be cross-reference to monitor any correlations (although not causation) between financial access and changes in other socio-economic indicators that contribute to a country‘s economic development. will help financial institutions. propose adequate measures to enhance financial inclusion and evaluate their impact. policymakers and researchers alike to understand the problem of access to financial products and services. This data. Los Laureles Nº 214 .Perú Telf.approaches it could suggest going forward to increase both access and use of financial products and services. aggregated over time. : (511)6309000 Fax: (511) 6309239 8 .Lima 27 .