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The 2023 Financial Inclusion Report, presented by the Financial Superintendence of Colombia and Banca de las Oportunidades, shows how access and use of financial products has behaved.
Paola Arias, director of Banca de las Oportunidades, told The viewer The report shows that the growth path was consolidated in transactional products, with practically universal coverage (94.6%), driven in recent years by low-amount deposits and wallets (such as Nequi and Daviplata). In the country, 19 out of every 20 adults have at least one financial product or service; however, gaps persist, especially in access in rural areas and for women.
Despite the good general results, the report also shows that access to financing fell: the percentage of adults with access to credit stood at 35.3% in 2023, 0.9 points less than in 2022, which translates into 13 .5 million fewer adults with formal financing products. As Arias points out, although the goal is not necessarily to reach 100%, the report reveals that access to credit has not managed to return to the data from before the pandemic.
So far in 2023, 175.9 million disbursements have been made for consumption (98.7%), microcredit (1.1%), housing (0.1%) and low-value consumption (0.1%). The figure grew 3 points in the last year, especially due to the consumer portfolio, since the microcredit portfolio decreased 7 points, the housing portfolio decreased by 3 points and the low-value consumer portfolio decreased by 49 points.
Why is the drop in credit important?
Carlos Alberto Moya Franco, international consultant on issues of financial inclusion and development, points out that people decide to go into debt when they know that advancing today on a project or satisfying a need generates such a benefit that they can pay the credit, the interest and keep a surplus.
Access to credit for companies was 26.1%, 1.2 points less than in 2022. This means that 6,917 fewer companies have a formal financing product. The report indicates that access remains limited for microenterprises, nascent companies and those in the service sector.
Read: Financial inclusion in Colombia: there is progress, but is it enough?
In the case of companies, less credit, says Moya, means that some of the investments that could be made today and impact the country’s economic growth will be postponed or may not occur.
In the case of consumption, the surplus is understood in terms of well-being. The expert explains that, for example, if a family decides to buy a vehicle with credit, it is because they determined that it was viable to go ahead to have the benefit, even if that means paying interest. A portion of those purchases are being postponed today.
For Moya, this is a bad sign because he anticipates less investment (especially due to the decline in companies’ access to credit) and less movement in the economy.
What is the reason for the fall?
The 2023 data is largely explained by the restrictive monetary policy, with high interest rates to contain inflation. In the midst of the monetary adjustment, the Bank of the Republic raised interest rates to 13.25% in April 2023.
As Rémi Stellian, professor at the Javeriana University, explains, the increase means that borrowing is more expensive, which is why households and companies “prefer to forego applying for credit.” In part, these data were to be expected.
This year, at least in that aspect, the situation has already changed: by this point the Bank has already lowered its rates four times, to 11.75%, thanks to the drop in inflation.
Read: The Bank of the Republic continues to loosen the reins and lowers its interest rates
“The decision to increase the intervention rate also reduces the growth potential of the economy. Precisely, banks take these perspectives into account when analyzing credit applications. Less favorable macroeconomic prospects increase risk and banks cannot tolerate any level of losses generated by loans that clients will not be able to repay, consequently, to avoid a critical accumulation of losses, they also reject certain applications,” says Stellian.
For Moya, the drop in credit also has to do with the economic slowdown in the country and uncertainty, especially in the business sector: “Investments are largely financed with credit, but if there is no appetite for investment and there is no demand for credit, national production suffers. At the same time, lower production impacts employment which, in turn, generates fewer resources for consumption and less demand for the goods and services produced by the business sector. “It becomes a vicious circle.”
In 2023, economic growth was 0.6%, a figure below the worst projections. In the first quarter of this year, although the economy showed some signs of recovery (the national GDP grew 0.7% for the first three months), several concerns persist, mainly in areas such as industry and, precisely, investment.
Also: The Colombian economy shows signs of improvement, but it is far from optimal
How to boost access to credit?
Stellian states that to improve access to credit, the outlook for economic growth and inflation must be more favorable. That is, the macroeconomic context needs to improve so that households and companies are willing to take on debt and so that banks can grant loans within the limits of adequate risk management.
Moya points out that, in addition, it is necessary to “break the vicious circle”, which is why he considers that the key is confidence to increase investment and encourage the country’s productive apparatus. Although there are options such as interest rate subsidies, for the expert these measures are not sustainable in the long term and, on the other hand, can affect payment behaviors. At this point it is worth remembering that the non-performing loan ratio also increased.
Arias, for his part, maintains that information is key: “There is a population that we do not know, we do not know who they are, where they are, what they do, what they need and what their credit profile is. Since we do not have information, we associate this population with a high risk profile, including microbusinesses, entrepreneurs, and the rural population.”
Hence, for the director, data is one of the bets to boost credit and move from credits based on guarantees and the reports that are analyzed today, to credits based on information.
In general, healthier inflation that allows lower interest rates and more solid economic growth will boost credit. Generating trust will also be key to facilitating investments.
