Financial Inclusion In Brazil Alexandre Tombini Governor G20 Finance Ministers and Central Bank Governors’ Meeting Washington DC April 20, 2012

General Index 1. General Overview –

Brazil Demographics

–

Social Development

–

Recent Economic Indicators

–

The National Financial System

2. Financial Inclusion –

Financial Inclusion Framework

–

Financial Inclusion Statistics

3. Challenges Annex – Correspondents: Brazilian Experience 2

General Overview Brazil Demographics Recent Economic Indicators Social Development The National Financial System

3

Brazil Demographics

Brazil Demographics • Brazil is among the largest countries in terms of territory, population and GDP • Brazil has vast natural resources, including recently discovered large offshore oil fields, a diverse industrial base, a dynamic and sophisticated private sector, and a well-structured public sector

• Brazil is a vigorous democracy, with free multiparty elections and a stable political system • Brazil has good relations with all its neighbors and has increased its ties with all regions of the world

• 6th largest GDP: US$ 2,475 billion (2011) • Continental country: 5th largest area 8,514,877 km2 • 5th largest population: 191 million people (2010)

Source: IBGE

4

Brazil Demographics

Socioeconomic Development Groups Municipalities According to Socioeconomic Development Groups

Developed Urban Groups Urban Agricultural Groups Urbanized Rural Groups Rural Workers Group Rural Livelihood Groups

Source: IBGE

5

Brazil Demographics

Demographics Pyramid •Population Sources: IBGE(2010) / UN 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4

Dependency Ratio 100

men

women

75 50 25

• Brazil’s population is highly concentrated

within the Economically Population range

Active

2050

2040

2030

2020

2010

2000

millions of people

1990

10

1980

5

1970

0

1960

-5

1950

0 -10

• Brazil’s

dependency ratio is still declining, a trajectory to be reverted to an upward trend around 2020-2030

Note: The dependency ratio is the ratio of the sum of the population aged 0-14 and that aged 65+ to the population aged 15-64

Sources: IBGE / UN

6

General Overview Brazil Demographics Recent Economic Indicators Social Development The National Financial System

7

Recent Economic Indicators

Macroeconomic Policy • Main features of the macroeconomic policy framework: - Inflation targeting - Fiscal responsibility - Exchange rate flexibility

• The macroeconomic fundamentals, combined with adequate prudential policy and strong bank supervision, resulted in: - Capacity to absorb internal and external shocks - Macroeconomic and financial stability - Sustainable growth - Credit and capital market development - Investment growth 8

Sources: BCB / IBGE

2011

2010

2,500

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

US$ billion

Recent Economic Indicators

GDP US$ 2,475

2,000

1,500

1,000

500

0

9

Recent Economic Indicators

GDP Real Growth 8

7.5 5.9

6

6.1

5.7

5.2

4.9 4.3

4.2

4

4.0

3.4

3.5

3.2

2.7

2.7 2.2

%

2

1.3 1.0

1.1

0.0 0.3

0

-0.3

-0.5

-2 -4 -4.4

2012*

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

-6

*Forecast from Central Bank of Brazil (Inflation Report – Dec 11)

Sources: BCB / IBGE

10

Recent Economic Indicators

GDP per Capita 14,000

US$ 12,696

12,000 10,000

US$

8,000 6,000 4,000 2,000

Sources: BCB / IBGE

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0

11

Recent Economic Indicators

Unemployment Rate 14

% (seasonally adjusted)

13 12 11 10 9 8 7 Jan 12 5.6%

6

Jan 12

Jan 11

Jan 10

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

5

up to Jan 12

Source: IBGE

12

0

Source: IBGE Dec/11

Dec/10

Dec/09

Dec/08

Dec/07

Dec/06

Jan 12

Jan 11

Jan 10

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

0

Dec/05

Dec/04

Dec/03

Dec/02

4,000 Jan 04

Apr/90

Dec/01

6,821%

Dec/00

4,922% % yoy

6,000

Dec/99

Dec/98

Dec/97

Dec/96

Dec/95

Dec/94

5,000

Dec/93

Dec/92

Dec/91

Dec/90

7,000

Dec/89

Dec/88

Dec/87

Dec/86

Dec/85

Dec/84

Dec/83

Dec/82

Dec/81

Dec/80

% yoy

Recent Economic Indicators

Consumer Price Index – 1980-2011 8,000

10

8

6

Jun/94

4

2

Inflation target

3,000

2,000

1,000

Feb/11

5.8%

13

Recent Economic Indicators

General and Producer Price Index 20.0 17.5 15.0 12.5 % yoy

10.0 7.5 5.0

3.39

2.5

1.73

0.0 -2.5

General Price Index

Jan 12

Jul 11

Jan 11

Jul 10

Jan 10

Jul 09

Jan 09

Jul 08

Jan 08

Jul 07

Jan 07

-5.0

Producer Price Index

General Price Index (IGP-DI) data up to Feb 12; Producer Price Index data up to Jan 12

Sources: IBGE / FGV

14

Recent Economic Indicators

Consumer Price Index 10

9 8 7 5.8 5.5

% yoy

6 5

4.6

4

3 2 1

IPC-Fipe

INPC

IPC-Fipe: families living in the municipality of São Paulo with monthly income below 6,220 INPC-IBGE: urban-living families with monthly income below BRL 3,732; wage-earner head of family; 11 metro areas IPCA-IBGE: urban-living families with monthly income below BRL 24,880, from all sources; 11 metro areas

Sources: IBGE / Fipe

Jan 12

Jul 11

Jan 11

Jul 10

Jan 10

Jul 09

Jan 09

Jul 08

Jan 08

Jul 07

Jan 07

0

IPCA up to Feb 12 USD = 1.709 BRL (Feb 12)

15

Recent Economic Indicators

Inflation – Convergence to Target 22 20 18 16

%, yoy

14 12 10

Reference scenario

8

6 4

target (4.5%)

2 Jan 13

Jan 12

Jan 11

Jan 10

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 02

Jan 01

Jan 00

Jan 99

Jan 98

Jan 97

Jan 96

0

BCB’s reference scenario (Inflation Report – Dec 11); target up to Dec 13

Sources: BCB / IBGE

16

Recent Economic Indicators

Real Interest Rate 25

% annual

20

15

10

5

Mar 9th 3.9%

Jan 12

Jan 11

Jan 10

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 02

0

360-day market rate discounted by the IPCA expected for the next 12 months Focus up to Feb 11; BCB’s reference scenario up to Mar 12 (Mar 9th)

Sources: BM&FBovespa / BCB

17

Recent Economic Indicators

International Reserves 400 352 357

350

US$ billion

300

289

250

239 194

200

180

150 100

86 52

50 4

12 12 7 5

24 7

60

32 39

52

45 36

33 36 38

49 53 54

9 10 10 9

2012*

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

0

*as of Mar 8th

Source: BCB

18

Recent Economic Indicators

External Debt Ratios 140 120

120.6%

100

%

80 63.4%

60 42.4%

40 21.5%

17.0%

20

12.1%

0 short term debt/intl. reserves

debt services/exports

Dec 03 Source: BCB

Jan 12*

external debt/GDP

* estimate

19

Recent Economic Indicators

Net External Debt 200

190 182190 163 165 151

150 103 106

US$ billion

100

136

131

79

87 88 92

96 97

105 108

100 99

88 92

101

101

75

50

0 -12 -28

-50

-51 -62

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

2012*

-79 -79

-100

* estimate Jan 12

Source: BCB

20

Recent Economic Indicators

Main Economic Indicators 2004

2005

2006

2007

2008

2009

2010

2011

2012

663.8

882.4

1,088.8

1,366.5

1,650.9

1,625.6

2,143.9

2,475.1

3,665.2

4,812.0

5,867.3

7,282.7

8,706.7

8,489.8

11,093.9

12,696.1

5.7

3.2

4.0

6.1

5.2

(0.3)

7.5

2.7

Household consumption

3.8

4.5

5.2

6.1

5.7

4.4

7.0

4.1

Gross fixed capital formation

9.1

3.6

9.8

13.9

13.6

(6.7)

21.8

4.7

11.5

9.9

10.0

9.3

7.9

8.1

6.7

6.0

5.5 /4

Real payroll (growth rate)

1.6

4.2

5.9

5.8

6.9

3.9

7.4

4.8

4.6 /2

Industrial production (growth rate)

8.3

3.1

2.8

6.0

3.1

(7.4)

10.5

0.3

-0.2 /2

7.6

5.7

3.1

4.5

5.9

4.3

5.9

6.5

5.8 /5

3.7

3.8

3.2

3.3

3.4

2.0

2.7

3.1

3.3/2

50.6

48.4

47.3

45.5

38.5

42.1

39.1

36.5

37.2/4

Exports (USD bn)

96.7

118.5

137.8

160.6

197.9

153.0

201.9

256.0

267.0/1

Imports (USD bn)

(62.8)

(73.6)

(91.4)

(120.6)

(173.0)

(127.7)

(181.7)

(226.2)

(244.0) /1

11.7

14.0

13.6

1.6

(28.2)

(24.3)

(47.4)

(52.6)

(65.0) /1

1.8

1.6

1.3

0.1

(1.7)

(1.5)

(2.2)

(2.1)

(2.5) /1

18.1

15.1

18.8

34.6

45.1

25.9

48.4

66.7

50.0/1

2.7

1.7

1.8

2.5

2.8

1.6

2.3

2.7

1.9/1

52.9

53.8

85.8

180.3

193.8

238.5

288.6

352.0

356.9/3

Gross Domestic Product GDP (USD bn) GDP (USD per capita) Real GDP (growth rate)

Economic Activity Unemployment rate (annual average)

Consumer price index (% yoy) Fiscal (consolidated public sector. % of GDP)

Primary balance Public sector net debt Balance of Payments

Current account (USD bn)

Current account (% of GDP) Foreign direct investment (USD bn) Foreign direct investment (% of GDP) International reserves (USD bn) /1 Central Bank forecast /2 12 months until Jan 12 /3 on Mar 8th

/4 in Jan 12 /5 12 months until Feb 12

21

General Overview Brazil Demographics Recent Economic Indicators Social Development The National Financial System

22

Social Development

Social Development • Both macroeconomic and inclusion policies have led to marked improvement in living conditions

• A significant share of low income groups joined the middle class

23

1981 1983 1984 1985 1986 1987 1988 1989 1990 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009

index ( 0-1)

Social Development

Gini Coefficient 0.64 0.63

0.62

0.60 0.60

0.58

0.56

0.54

0.52 0.52

0.50

Source: IBGE 24

Social Development

Average Income 900 BRL 855

BRL / month

850 800 750 700 650 600 2001

2002

2003

2004

2005

2006

2007

2008

2009

Average monthly income of 10+ year-old individuals USD = 1.709 BRL (Feb 12)

Source: IBGE/PNAD

25

Social Development

Extreme Poverty 16

15.3

15 14

% of population

13 12 11

10 9 8

7.3

7 6

2001

2002

2003

2004

2005

2006

2007

2008

2009

The extreme poverty line here employed is a household’s per capita income estimation which allows the acquisition of a food basket providing a minimum calorie intake required for survival, as recommended by FAO and WHO. Different per capita estimations for 24 Brazilian regions.

Source: IPEA

26

Social Development

Families – Per Capita Income* < BRL 70 Municipalities in which more than 36% of families had a per capita income below BRL 70 reduced to 39 (2010) from 1,099 (2000) – a 96% reduction.

2000 **

* Monthly per capita income below BRL 70 is equivalent to internationally accepted criterion for extreme poverty ** Both maps at 2010 prices

Source: IBGE

Ellaboration: BCB

2010

Families % 0 – 12% 12 – 24% 24 – 36% 36 – 48% 48% –

Municipalities % 2000 2010 42% 69% 19% 22% 19% 8% 14% 1% 6% -

BRL 70 = USD 40.96 USD = 1.709 BRL (Feb 12)

27

Social Development

Social Mobility Social Classes E D C A/B

250

millions of people

200 7.6%

13

37.6%

66

12.0%

23

53.6%

102

20.7%

39

15.5%

31

56.5%

113

20.0%

40

8.0%

16

150

100 26.7%

47

50 28.1%

49 13.7%

26

0 2003

2011 monthly per capita incomes A/B: above BRL 923 D: BRL 135 – 214 C: BRL 214 – 923 E: below BRL 135

Source: FGV

2014* * FGV Forecast USD = 1.709 BRL (Feb 12)

28

Social Development

Illiteracy 18

17.2

17 16

% of population

15 14

13 12 11 9.6

10 9

2009

2008

2007

2006

2005

2004

2003

2002

2001

1999

1998

1997

1996

1995

1993

1992

8

Illiterate adults (age 15 or older) over total adult population

Source: IBGE/PNAD

29

Social Development

Years of Schooling* 7.5

7.2

7.0

6.5

years

6.0 5.5 5.0 4.5 4.0 3.8

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009

3.5

* 25-year-old people and older

Source: IBGE

30

Social Development

Population with 11+ Years of Study 35

33.3

% of population

30

25

20

15

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000*

1999

1998

1997

1996

1995

1994*

1993

1992

10

* Interpolated values

Source: IBGE/PNAD

31

Social Development

Mobile Access and Density* 245

250

200 million lines

176

150 123

100

50

87

Up to 1 mobile/citizen 1 – 1.2 1.2 – 1.3 1.3

44 29

0 2002

2004

2006

2008

2010

2012

* Jan 12

Source: Anatel

32

General Overview Brazil Demographics Recent Economic Indicators Social Development The National Financial System

33

The National Financial System

The National Financial System NATIONAL FINANCIAL SYSTEM

Management Council of Complementary Pension - CGPC

National Monetary Council - CMN

National Council of Private InsuranceCNSP

Securities and Exchange Comission - CVM

Central Bank of Brazil - BCB

Financial Institutions

Exchange Brokers

Other financial intermediaries

Commodities and Futures Exchange

Stock Exchange Bovespa

Other financial intermediaries

National Monetary Council (CMN) - Composed by the Minister of Finance, the Minister of Planning, Budget and Management and the Governor of the Central Bank of Brazil - Establishes the inflation target for monetary policy, prudential rules and credit policy - The Central Bank of Brazil (BCB) is the financial supervisory authority

Source: BCB

34

The National Financial System

Central Bank of Brazil – Main Activities Wide scope of BCB’s authority helps policy coordination

Financial Regulation and Supervision

Monetary Policy

Payment System

35

The National Financial System

Number of Institutions by Type Type

2007

2008

2009

2010

2011

2012*

135

140

139

137

139

139

Commercial bank

20

18

18

19

20

21

Development bank

4

4

4

4

4

4

Savings bank

1

1

1

1

1

1

17

17

16

15

14

14

2

2

2

Multiple bank

Investment bank Exchange bank Consumer finance company

52

55

59

61

59

58

Securities brokerage company

107

107

105

103

99

99

Exchange brokerage company

46

45

45

44

47

50

Securities distribution company

135

135

125

125

126

123

Leasing company

38

36

33

32

31

30

Real estate credit company and savings and loan association

18

16

16

14

14

12

6

6

6

7

8

7

12

12

14

15

16

16

591

592

581

579

580

576

1,465

1,453

1,405

1,370

1,312

1,299

52

47

45

45

42

42

2,108

2,092

2,031

1,994

1,934

1,917

329

317

308

300

284

274

2,437

2,409

2,339

2,294

2,218

2,191

Mortgage company Development agency

Credit cooperative Micro-entrepreneur credit company

Consorcio company Total

* Feb 12

Source: BCB

36

The National Financial System

Top 10 Financial Institutions Name

Ownership

Total assets (BRL billion)

Credit and leasing operations

Total deposits

Net worth

Employees

Branches

(BRL billion)

(BRL billion)

(BRL billion)

(Thousand)

(#)

Basel capital ratio (%)

Banco do Brasil

Federal government

908

377

420

55

132

5,156

14.5

Itaú

Domestic private

810

279

237

69

123

3,796

15.1

Bradesco

Domestic private

636

229

225

54

95

3,953

15.0

BNDES

Federal government

568

196

21

56

3

1

21.6

Caixa

Federal government

507

227

257

18

109

2,252

13.5

Santander

Foreign controlled private

422

166

120

66

52

2,449

24.2

HSBC

Foreign controlled private

152

47

76

9

31

868

13.4

Votorantim

Domestic private

127

60

25

9

2

34

12.7

Safra

Domestic private

89

40

17

6

6

103

12.7

Citibank

Foreign controlled private

62

13

17

7

6

128

17.5

765

286

244

109

69

1,649

5,048

1,920

1,659

458

627

20,389

Others Banking segment total

Sep 11

Source: BCB

37

The National Financial System

Credit / GDP 2005-2008: 25.2%

2009-2011: 18.3% (average growth of nominal credit)

43.7

45

49.1

48.8

2012*

50

2011

(average growth of nominal credit)

45.2

40.5

40 35.2

25

24.6

25.7

2004

26.0

2003

25.8

2002

30

30.9 28.3

2001

% of GDP

35

20 15

10 5 2010

2009

2008

2007

2006

2005

0

* Jan 12

Source: BCB

38

The National Financial System

Total Credit 50

% of GDP

40

30

20

10

individuals Source: BCB

corporations

Jan 12

Jan 11

Jan 10

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 02

Jan 01

0

up to Jan 12

39

The National Financial System

Credit to Individuals by Destination 25

% of GDP

20

15

10

5

Consumption

Real Estate

Jan 11

Jul 10

Jan 10

Jul 09

Jan 09

Jul 08

Jan 08

Jul 07

Jan 07

Jul 06

Jan 06

Jul 05

Jan 05

0

Rural up to Jun 11

Source: BCB

40

The National Financial System

Housing Credit / Total Credit 100 90 80

% of total

70 60

50 40 30 20

Source: BCB

9.0

11.1

13.1

2010

2011

2007

housing credit

7.5

2009

6.8

2008

6.4

2006

6.1

2005

0

6.5

2004

10

other credits 41

Financial Inclusion in Brazil

42

Financial Inclusion

Highlights • Macroeconomic stability contributed directly to financial inclusion, allowing the government to advance on the social development agenda • The government has promoted financial inclusion in many ways: improving distribution channels, adopting targeted social programs, increasing transparency, and adapting regulation of financial services to low income customers • We are now reaping the benefits of these policies: –

All 5,565 municipalities are served by the Financial System

–

Individuals with active relationship with FIs grew 31% to 121 million over the last five years 43

Financial Inclusion in Brazil Financial Inclusion Framework Financial Inclusion Statistics

44

Financial Inclusion Framework

BCB’s Evolving Approach • As financial inclusion has gradually gained relevance in BCB’s agenda, the regulatory scope has also advanced Microcredit

Microfinance

Financial Inclusion

• Since 2010, promoting financial inclusion is one of BCB’s strategic objectives

45

Financial Inclusion Framework

Complementary Distribution Channels Financial System in Brazil is highly spread out. Three alternative channels were fostered by BCB to complement the traditional ones: • Correspondents - Non financial firms hired by FIs to provide services in remote regions and more convenient access in metropolitan areas • Credit Cooperatives - Relevant for specific activities and social sectors • Bank Services Outposts - Bank satellite with smaller staff and infrastructure for unassisted municipalities 46

Financial Inclusion Framework

Tools and Initiatives • Transparency – regulation directed at enhanced transparency in prices and services, standardized and simpler contracts to support clients’ decision-making • Switching costs reduction – regulation creating automatic inter-bank procedures to transfer accounts, loan balances, and personal data • Simplified accounts – targeted at low income clients, they are exempt of fees, require simpler procedures and limit balances • Payroll-guaranteed loans – legal framework that ensures repayment favoring access to credit for workers and pensioners, with adequate safeguards • Mandatory FI staff certification, including correspondents 47

Financial Inclusion Framework

Synergies Between Financial Inclusion and Social Programs

Financial inclusion initiatives and social programs are fully integrated policies • Poverty Reduction – innovative distribution channels enable G2P cash transfer programs to reach remote communities such as “Brasil sem Miséria” and “Bolsa Família”

• Social Finance Programs – innovative distribution channels enable access to subsidized credit programs such as: - Low income farmers program (Pronaf) - Microcredit programs (PNMPO, “Crescer”) - Social housing loan program (“Minha Casa Minha Vida”) 48

Financial Inclusion in Brazil Financial Inclusion Framework Financial Inclusion Statistics

49

Financial Inclusion Statistics

Savings accounts penetration has grown Clients with savings accounts per 1,000 adults 700 671

675 650 625 600 575

Values in each December

646

641

2008

2009

601

573

550 525 500 2006

Sources: BCB / IBGE

2007

2010

50

Financial Inclusion Statistics

New clients are active users of financial services Individuals with active relationship with FIs* 125

121.3

122.4

2011

2012**

120 115 115

110

millions

110

Values in each December

105

98

100 95 90

105

93 88

85 80 2005

2006

2007

2008

2009

2010

* BCB General Registry of the National Financial System (CCS) – Identifies FIs and their clients for demand deposits, savings deposits, fixed-term deposits and other assets and values ** Feb 12

Source: BCB

51

Financial Inclusion Statistics

Access grew most in low income classes (1) Individuals with demand deposits account 80 70

70 63

60 52

%

50 39

40

29

30 20

16

10 0 A/B

C

D/E

Social Classes

2005 Source: BCB – Survey

2010

52

Financial Inclusion Statistics

Access grew most in low income classes (2) Individuals with credit card 80 70 60

60 53

%

50

43

40 30

30

25

20

15

10 0 A/B

C

D/E

Social Classes

2005 Source: BCB – Survey

2010

53

Financial Inclusion Statistics

Broader access to credit (1) Clients with loan balances over BRL 5,000 30

29.0

millions

25

20

15

10

Jul 11

Jan 11

Jul 10

Jan 10

Jul 09

Jan 09

Jul 08

Jan 08

Jul 07

Jan 07

Jul 06

Jan 06

Jul 05

Jan 05

Jul 04

Jan 04

Jul 03

Jan 03

5

up to Dec 11

Source: BCB

54

Financial Inclusion Statistics

Broader access to credit (2) Payroll-guaranteed loans 200 180 157.5

160 138.5

BRL billion

140

Values in each December

120

107.8

100 79.3

80

64.8

60 40

47.8 32.0

20 0

2005

2006

2007

2008

2009

2010

2011

USD = 1.709 BRL (Feb 12)

Source: BCB

55

Financial Inclusion Statistics

Low Income Farmers Finance Program* 14 12.0

12

11.2

BRL billion

10 8.7 8

7.2

7.1

2006

2007

6 4 2 0 2008

2009

2010 * Pronaf USD = 1.709 BRL (Feb 12)

Source: BCB

56

Financial Inclusion Statistics

Microcredit Program* 3.0

2.80

BRL billion

2.5 2.0

2.23

1.5

1.69

1.0 0.95 0.67

0.5 0.47 0.0 2005

2006

2007

2008

2009

2010

* PNMPO USD = 1.709 BRL (Feb 12)

Source: MTE

57

Financial Inclusion Statistics

Access to Banking Services 2002

2009

2011

Accounts (for the banking sector)

55,708,468

83,308,800

91,944,421

Customers

87,630,527

151,102,765

174,791,126

For the banking sector

17,049

20,046

21,278

For all financial institutions

17,756

21,287

22,628

32,769

53,628

60,375

129,913

165,567

174,920

78,539

151,351

177,925

222

-

-

5,337

5,565

5,565

96%

100%

100%

Branches

Posts of service (for the banking sector) ATM’s Domestic correspondents Municipalities Without banking services With banking services Municipalities banking services coverage

Source: BCB

58

Financial Inclusion Statistics

Geographic coverage increased 82% of municipalities had less than 5 points per 10,000 adults in 2000. In 2010, 94% were above this level. 2000 2010

# of points per 10,000 adults (% of municipalities)

# of points per 10,000 adults (% of municipalities)

0 (20%)

0 (0%)

>0 to 2 (22%)

>0 to 2 (0%)

>2 to 5 (40%)

>2 to 5 (6%)

>5 to 10 (16%)

>5 to 10 (29%)

>10 (2%)

>10 (65%) Bank branches, bank advanced outposts (PAA), credit cooperatives (headquarters and outposts) and correspondents

Sources: BCB / IBGE

59

Financial Inclusion Statistics

Complementary channels are important All municipalities have at least one bank branch, outpost or correspondent. Correspondents contribute to network density. Bank branches – 2010

# of points/1,000 km2 (percentage of municipalities)

Bank branches, outposts, credit cooperatives and correspondents – 2010

# of points/1,000 km2 (percentage of municipalities)

0 (38%)

0 (0%)

>0 to 1(25%)

>0 to 1(3%)

>1 to 5 (26%)

>1 to 5 (12%)

>5 to 10 (13%)

>5 to 10 (12%)

>10 (14%)

>10 (73%)

Sources: BCB / IBGE

60

Financial Inclusion Statistics

Financial Inclusion shows relevant evolution Financial Inclusion Indicator*

2000

2010

Indicator Ranges (pp) 8 – 12 12 – 15 15 – 25 > 25 * BCB’s Financial Inclusion Indicator combines 18 access and usage measures

Source: BCB

61

Financial Inclusion Statistics

Less well-served regions benefited most Financial Inclusion Indicator* - Region Average 40

37.6

35

32.5

31.5

30 25

22.9

22.8

21.7

21.7

20 13.8

15 10 5

15.3

14.8

13.4

8.1 3.9

16.4 13.8 9.0

7.7 5.0

0 North

Northeast

Midwest 2000

Southeast 2005

South

Brazil

2010

* BCB’s Financial Inclusion Indicator combines 18 access and usage measures

Sources: BCB / IBGE

62

Challenges

63

Challenges

Agenda • Our main objective is to foster financial inclusion and to ensure it remains a sustainable process • Financial education is key to achieve this goal, by promoting responsible and rational decision-making

• Another requisite is the continuous development of the regulatory framework: suitability and transparency, improvement of distribution channels (e.g. mobile payments), consumer protection and mandatory training of financial services providers • Coordination of public and private agents through the National Partnership for Financial Inclusion 64

Challenges

Financial Education • Financial education is key to promote responsible and rational decision-making, specially taking into account the recent incorporation of millions of new financial consumers • Workstreams: –

Government created the National Committee for Financial Education (CONEF) to coordinate actions of financial regulatory agencies, Ministry of Education and other government bodies

–

Partnerships with financial Governmental Organizations

industry

and

Non-

65

Challenges

National Partnership for Financial Inclusion The National Partnership for Financial Inclusion will coordinate the actions of the different government bodies and other entities, in line with G20 guidelines, with the following objectives: • Assessment – to deepen our understanding of the issues concerning access and use of financial services • Suitability – promoting the provision of financial services that suit the needs of different society segments • Information for responsible finance – favoring the responsible use of financial services • Access to financial services – fostering the development of distribution channels and products to increase access

• Sustainable microcredit – promoting the supply of microcredit on a sustainable basis 66

Correspondents Annex

67

Correspondents

Bank Correspondents • Definition: non-financial firms hired by FIs to render basic banking services on their behalf • Main correspondent chains are post offices, lottery outlets, supermarkets • Over 180,000 points of sale, compared to 20,000 branches of FIs (May 2011) • Allows banking system to cover all 5,565 municipalities

• Due diligence and anti-money laundering rules apply to correspondents 68

Correspondents

Bank Correspondents • Reception handling – – – – –

of

applications

and

transaction

Checking accounts Savings accounts Investment in mutual funds Loans Credit cards

• Processing of payments: government benefits, utility bills, taxes

• Transfer of funds 69

Correspondents

Bank Correspondents • Financial institution (licensed, supervised) takes full responsibility for the services –

Even when there is total or partial subcontracting

• Correspondent may not charge additional fees to the public for its services • Main activity of the correspondent must be commercial, non-related to financial services • Mandatory disclosure to customers regarding the associated financial institution 70

Correspondents

Synergies in Correspondent Banking • Benefits for the bank –

Broadens client base

–

Lower overhead and direct costs

–

Informal environment, appreciated by lower-income customers

–

Flexible hours of operation

• Benefits for the correspondent –

Source of revenues (transaction fees)

–

Use of spare capacity

–

Increased flow of customers

–

Link with a renowned brand 71

Correspondents

Correspondents per 1,000 Km2

# of points/1,000 km2 (municipalities %)

# of points/1,000 km2 (municipalities %)

0 (39%)

0 (0%)

> 0 to 5 (44%)

> 0 to 5 (18%)

> 5 to 15 (11%)

> 5 to 15 (25%)

> 15 to 40 (3%)

17%

> 40 (3%)

> 15 to 40 (30%)

82%

> 40 (27%)

In the last decade regulation changed and correpondents network expanded, so as to support an increase in competitiveness and access to financial services market. Sources: BCB/IBGE

72