Opening channels for access: Mobile banking and electronic accounts are set to boost a relatively low penetration rate

Compared to regional and emerging market peers, Colombians are under-banked. Despite more rapid credit growth in recent years and efforts to broaden access, the ratio of loans to GDP was still below 38% at the end of 2012, while only 66.5% of adults over the age of 15 use at least one financial product. By November 2012 there were 34.6m savings accounts in operation, 8.9% growth compared to the end of 2011. Although this represents 11,161 accounts for every 10,000 adults, the fact that some people operate multiple accounts means that effectively only half the population has an account. “In urban areas clients may have up to six different accounts,” Jose Alejandro Guerrero, president of microfinance institution Banco WWB, told OBG. This means room for growth exists predominately in rural areas. Recognising both the challenges of and opportunities for broadening access for firms and households to financial services, the government included widening participation as a policy priority in its 2010-14 National Development Plan. As the president of Bancóldex, Santiago Rojas Arroyo, told OBG, “Bank penetration and formalisation projects will inevitably contribute to the economy’s diversification and help increase the competitiveness of all industries.”

TECHNOLOGY AS THE ANSWER: Many view electronic and mobile banking as the next frontier of financial inclusion in Colombia. Given that mobile phone penetration is more than 100% and that the country’s infrastructure is otherwise sparse, modern technology is seen as having the potential to establish almost universal access to financial services. While these services have only become widely available relatively recently, the initial rate of take-up has been impressive and future prospects for this segment are bright. By November 2012, 2m electronic savings accounts were active, with a further 700,000 open but inactive. However, these numbers have been declining year-on-year since 2010. Of the 1.411bn financial transactions carried out in the first half of 2012, only 13m, or less than 1%, were classified as mobile banking transactions. Of these, 32% were internet transactions, 24% were carried out in offices, 21% at cash machines and 11% by telephone. More than half of all mobile banking transactions (6.6m) were accounted for by Bancolombia, with AV Villas (1.7m) and BBVA Colombia (1.4m) also featuring strongly. While the share of mobile banking transactions may still be small, it increased rapidly by 272% in three years from 3.5m transactions in the first half of 2009.

LEGAL FRAMEWORK: In 2012 a new law was introduced to govern mobile banking, setting out minimum quality and security requirements for service providers. This law, Circular Externa No. 042/2012, updated its predecessor, Circular Externa No. 022/2010, and covers all forms of mobile banking, not just transactions conducted by mobile phones. It did, however, include requirements specific to this small yet rapidly growing sub-segment. This formalised the rules and requirements governing financial transactions by mobile phone that had previously been regulated by conventions agreed to by service providers such as Davivienda and Banco AV Villas. The aim of the new law was not specifically to support the proliferation of such services or to extend access to financial services, but rather to increase public confidence in the integrity of the financial system in general, and in mobile banking transactions in particular.

More comprehensive draft legislation – the “Easy Pay – Digital Pay” law – has been proposed by the Ministry of Information and Communication Technologies and the Ministry of Finance, complete with a new type of banking licence that could expand commercial participation in the sector. Balancing the interests of the banks with those in the post and telecoms sectors, which are already active in mobile banking, is proving challenging. It therefore appears unlikely that this new law will be enacted in the near term.

KEY PLAYERS: Presently, mobile phone banking services can be offered either by credit entities or as joint ventures between credit entities and the mobile phone companies that provide a technological platform. In the latter case, the Financial Superintendence of Colombia insists on a business model whereby the responsibility of each partner is clearly set out so that it can supervise relevant activities, such as capital adequacy. While Bancolombia and Banco de Bogotá, respectively the largest and second-largest banks in Colombia, have launched their own mobile banking services, it is Davivienda, the third-largest bank, that has been blazing a trail. Its mobile banking platform, DaviPlata, was launched in 2011 and attracted 1.5m subscribers by end-2012, a third of whom joined in the final two months of that year alone. Having acquired a 70% stake in mobile virtual network operator Uff! Móvil in 2012, Bancolombia launched its mobile banking service in early 2013. Given that the bank has the biggest branch network and client base in the country, it can be expected to mount a serious challenge to Davivienda.

SMALL BUSINESSES: According to the World Bank, 28.8% of Colombian firms identify access to credit as the biggest obstacle to doing business, while 41.4% identify it as a major constraint, more than the 30.8% average in the Latin America and Caribbean region. While large corporations have relatively easier – and cheaper – access to credit, smaller firms often face great difficulties in borrowing funds. Although micro, small and medium enterprises (MSMEs) account for 99% of all Colombian firms, 80% of private sector employment and 35% of GDP, they account for only 14% of business loans currently. To raise awareness among small-scale entrepreneurs of financial products and services, the authorities and many private sector banks are engaging in financial education programmes. In recent years, micro-lending has become an increasingly important feature of Colombian banking, benefitting from the support of government policies aimed at expanding access to finance. “With credit to micro-entrepreneurs in Colombia and through permanent financial education, credit institutions providing microcredit have grown steadily from COP3.5bn ($2.1m) in 2006 to COP8.3trn ($4.98bn) in 2012, with an increase of 24% between June 2011 and June 2012,” Manuel Buriticá, the president of Banco Procredit, told OBG. Given the social and economic importance of small businesses, the government has stepped up its efforts to support lending to this sector. Bancóldex, the state development bank, offers medium- and long-term loans while the National Fund of Guarantees (Fondo Nacional de Garantías, FNG) was supporting some 532,000 businesses by year-end 2012, guaranteeing up to 50% of loans worth COP9.2bn ($5.5m) provided to MSMEs by financial intermediaries. BANCÓLDEX: Operating between 1992 and 2002 as an export agency, Bancóldex has since developed into a broad-based development bank and a second-tier banking player in its own right. As well as maintaining a cross-shareholding in FNG, the bank essentially operates through its five subsidiaries: Fiducóldex, Proexport Colombia, Leasing Bancóldex, Segurexpo, and Bancóldex Capital. It also works at times with other government-backed financial entities like FNG (see below), the Agricultural Financing Fund and the Financier of Territorial Development.

By filling in market gaps to provide financial instruments otherwise difficult or impossible for firms to obtain, Bancóldex aims to drive innovation, modernisation and internationalisation in the entrepreneurial sector, indirectly supporting job creation. Much of Bancóldex’s activity involves discounted lending to financial intermediaries that provide credit to firms. Either directly or through its subsidiaries, Bancóldex offers a wide spectrum of financial instruments, including trade credit, sector-specific credit lines, microinsurance and invoice discounting.

Increasingly, it is a provider of private equity and venture capital (PEVC), operating as a cornerstone investor with the aim of mobilising wider private sector participation. Long-term financing, micro-lending, PEVC activity and crisis response lending (such as after the 2010-11 flooding) are seen as important areas of future activity for the bank. Since becoming a fully fledged development bank in 2002, the focus of Bancóldex’s activities has shifted from large enterprises to small and micro-enterprises. Large businesses, small and medium-sized enterprises (SMEs), and micro-firms accounted for 74%, 8% and 0% of disbursements in 2002, respectively, but by 2012 this had changed to 22%, 34% and 17%, respectively. There has also been a moderate shift away from working capital loans and towards longer maturity loans, modernisation and post-shipment loans.

FNG: In order to support credit deepening in Colombia, particularly among those segments deemed economically and socially important, the state-funded FNG – with a 30.21% cross-shareholding by Bancóldex – underwrites various types of loans provided by financial intermediaries, 99% of which are banks. By end-2012 FNG guaranteed or partially guaranteed loans to the tune of COP9.2trn ($5.5bn), up from COP2.6trn ($1.56bn) in 2005 and representing an increase of 23.07% in 2012 alone. “The guarantees given by the FNG also work as an indicator of sector health. Trade and services are moving forward while the industry and agribusiness are struggling,” Juan Carlos Durán, the president of FNG, told OBG. As the FNG shifts its focus to supporting smaller loans and microcredits, the number of final beneficiaries has increased dramatically, reaching 334,489 by end-2012, up from 86,668 as recently as 2009 and representing an increase of 28.3% in 2012 alone. FNG’s value added is its facilitation of credit for borrowers who may not otherwise have been able to access it due to their weak financial situation. FNG’s core business segments are microcredits, SME loans, leasing finance and overdraft facilities. It supports lending of up to three years to SMEs for working capital and investment purposes. Although government-backed, FNG operates on a purely commercial basis and is subject to the same regulatory requirements as other financial entities.