René Arce
Hogan Lovells
Dinorah Pensado
Dinorah Pensado
Hogan Lovells
Expert Contributor

Financial Inclusion an Opportunity for Women and Fintech

By René Arce , Dinorah Pensado | Mon, 03/22/2021 - 09:01

Over the last few years, the financial industry in Mexico has become among the most developed and dynamic in Latin America with the emergence of financial technologies. However, the country´s progress toward financial inclusion in recent years has been limited. Only 47 percent of the total adult population, aged between 18 to 70 years, has an account in a formal bank institution and only 31 percent of the adult population has access to a credit product. In communities of less than 15,000 people, the numbers are even lower with only 22 percent of the adult population having access to credit.

Data from the International Monetary Fund show that greater and more inclusive access to financial services can help reinforce stronger and more durable economic growth. Notwithstanding, in Mexico, women face a gender gap in terms of financial inclusion.

In this article, I will briefly analyze the data regarding the gender gap in financial inclusion in Mexico, as well as the recent initiatives and developments to promote greater access to financial products and services for women.

Data for Financial Inclusion

According to data from the Encuesta Nacional de Inclusión Financiera (National Survey on Financial Inclusion, or ENIF) published by the Instituto Nacional de Geografía y Estadísitica (INEGI) in 2018, there are disparities between financial inclusion for women and men in Mexico. For example, the proportion of men with access to at least one credit product (33 percent) is higher than women (29 percent). Also, 28 percent of men has at least an insurance product compared to only 23 percent of women. The gender gap is even larger for retirement funds or Afores, where women are significantly less likely than men to have a retirement account (49 percent of men compared to 31 percent of women).

On the other hand, results from the ENIF show that since 2012, financial inclusion for women has been improving. For example, the percentage of women with at least one financial product increased from 25 percent in 2012 to 65 percent in 2018 but continues to be lower than that of men (65 percent compared to 72 percent). Likewise, in 2018, the proportion of women customers with only one financial product (25 percent) is higher than men (22 percent). Finally, men also hold higher deposit account balances and are more likely than women to have more than one financial product.

In terms of the gender gap in retirement savings, the Comisión Nacional del Sistema de Ahorro para el Retiro (National Commission for the Pension System, CONSAR) found that for every 100 pesos that a man receives in retirement, a woman only receives 70.

Furthermore, a case study from the Inter-American Development Bank (IDB) with data from the ENIF and the Comisión Nacional Bancaria y de Valores (CNBV) shows that there are gender differences between the use of commercial bank accounts and development bank accounts. According to the IDB data, men use payroll accounts while women use accounts related to government programs. For example, more men than women use payroll accounts (72 percent of men versus 52 percent of women for payroll accounts, and 27 percent of women compared to 7 percent of men for development bank accounts). The IDB states that such differences can be explained by men being more likely than women to be formally employed.

Using Tech to Tackle the Gap

Mexico is taking the lead in encouraging the use of innovative technologies in the delivery of financial services, with more than 441 fintech companies in 2021 offering a range of services like digital banking, payments and remittances, microfinance and crowdfunding and insurtech.

Regarding financial inclusion, Mexican fintech companies are creating innovative technologies that can help close gender gaps. For example, there are crowdfunding companies in Mexico that offer microloans at lower interest rates by using different algorithms to approve loans within hours. According to the IDB, these data technologies can help women overcome the lack of property and other physical guarantees that banks require to approve loans, therefore granting women access to credit-related products.

Likewise, electronic distribution channels and digital client onboarding processes can help reach excluded groups making services more efficient and lowering market entry barriers for new competitors. Additionally, compliance and risk-management approaches using digital means, through simplified customer due diligence and alternative credit scoring, can help tackle barriers to financial products through the use of innovative technologies.

Regarding joint public and private initiatives to promote female financial inclusion, in 2020 the CNBV, with the joint participation of the United Kingdom Embassy, the Prosperity Fund, Distrito Emprendedor, Hogan Lovells and other law and consultancy firms, organized and sponsored the first Sandbox Challenge in Mexico. This is a regulatory competitive process to promote innovation in the fintech environment. During the Sandbox Challenge, fintech startups were evaluated from a gender perspective and the competitive process included a special price category for those startups whose business models were focused on financial products targeted to women or that were founded or led by women. This was a first, both for the Sandbox and women.

Fintech companies can help create innovative solutions to provide greater access to financial services with increased transparency and lower transaction costs for customers in Mexico. Therefore, fintech innovation can lead to more affordable products and services, tackling the gender gap in financial inclusion.

At Hogan Lovells, we have always embraced innovation, including the emergence of new digital and financial technologies, and are constantly evolving to be prepared to provide guidance and support on the regulatory legal framework for fintech companies. Addressing gender gaps in financial services and promoting inclusive and sustainable economic development is just the cherry on the cake.