Exchanging Experiences, Expanding Opportunities

Financial Education, Savings and Bancarization in Colombia - The Experience of IED-VITAL

The issue of financial inclusion has become part of the discussion on promotion and social protection in the Americas in recent years. The Inter-American Social Protection Network (IASPN) recognizes the importance of these discussions and has designated April 2014 as the month of financial inclusion. In this respect, we are organizing a conference in New York City on April 29-30 which will bring together senior officials from the Ministries of Social Development in the region, the financial services sector, foundations and other stakeholders in order to discuss the way towards public-private partnerships for financial inclusion of disadvantaged groups.

The IASPN has also developed a number of special activities and virtual products for this month with the purpose of involving the whole community on this virtual discussion. This interview is the first in a series of 4 blogs on financial inclusion in the region.

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The IASPN recently had the opportunity to talk to economist Jaime Villarraga, manager of IED-VITAL, to learn more about the experience of his organization with the savings and credit groups model, as well as the knowledge they have acquired in the financial inclusion and public-private partnerships field. 

Could you tell us the type of work your organization does in the field of financial inclusion?

IED-VITAL (www.iedmicrofinanzas.comwww.corporacionvital.com) has specialized in providing practical financial education based on savings to populations in situations of poverty and vulnerability in Colombia. This financial education model is based on the Self-Managed Credit and Savings Groups methodology, which seeks to generate financial inclusion through services such as savings, credit and social emergency funds that groups may require based on their financial capital.

With this methodology in hand, IED-VITAL is assisting more than 62,000 people in Colombia through the creation and support of about 4,500 credit unions in 150 municipalities of 22 departments. Building on this progress, IED-VITAL is developing new methodologies and models for income generation (micro-franchising, micro-distribution, community purchasing and commercial networks) and for access to formal financial services (insurance, savings and loans at medium and long term) for this population.

As far as new methodologies and models are concerned, we have made significant progress on two fronts: the first is micro-distribution where we have the support fromthe Citi Foundation, and the second is the establishment of agreements with the private sector, which allow group participants’ to act as distributors of their own products in regions where IED-VITAL operates. For example, we have agreements with anchor companies of propane gas, producers of kitchen items, and restaurant managing companies, among others.

What are - in your opinion -some of the main lessons learned in financial inclusion?

The major lesson that savings groups have left us with is that bancarization and financial inclusion are not the same thing. Some might assume that if people are unbanked (with regards to products from a bank, a cooperative or a regulated entity) there is no financial inclusion. For us the key issue is that people are actually saving and that they have credit. The region has advanced in bancarization but the population in poverty continues to live without savings and access to credit or insurance. And out of these services we believe the most important one is saving, since it is at the core of  risk protection and future planning for poor communities. 

“The major lesson that savings groups has left us with is that bancarization and financial inclusion are not the same.”

Jaime Villarraga, 

Manager, IED-VITAL

 

 

Although credit is important for people who have the opportunity to invest or improve their assets, we believe that saving is more important, especially with the poor. (Nor) is it enough to make the effort to get people to open a savings account ... we have to get people to actually save. This implies that policies and programs should be much more effective in achieving this goal.

What is the role of public-private partnerships in this field of action? Could you give us some examples?

Public-private partnerships are critical for advancing on the financial inclusion front, especially to help poor people to improve their financial literacy and access to savings, credit and insurance, which is what savings groups represent. Colombia has much to showcase with the experience of “Banca de las Oportunidades”, Colombia’s public policy geared towards the improvement of financial inclusion of the population.

Banca de las Oportunidades has designed policies that have been implemented through programs and projects executed by private institutions such as NGOs, financial institutions, and cooperatives that bring their experience, expertise and resources to the table. This is how we have managed to jointly create and accompany savings and credit groups in Colombia.

To conclude, what challenges or obstacles have you faced in working with the public and private sectors in the implementation of your projects? Could you give us some examples of how these problems were solved?

There have been no obstacles. Rather, we have had challenges in terms of institutional coordination, since we have to interact with different public and private entities at the national, regional and local levels. Our work involves constant dialogue and communication with the different stakeholders with whom we have to coordinate our projects.

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