credit access in BelizeDespite having the third highest per capita income in Central America, credit access in Belize is still in need of improvement. With the help of governmental programs, bank expansions and bank partnerships, credit access will continue to improve.

Belize’s GDP increased from $3.082 billion in 2015 to $3.097 in 2016. However, this increase does not accurately depict the large disparity between the rich and the poor in the country. To combat the approximately 11.1 percent unemployment rate and the 41 percent of the population living in poverty, Belize has actively created programs and partnerships to increase credit access that would benefit those in poverty.

In 2012, in order to increase access to financial services and credit access in Belize, the country created a program called BOOST, which stands for Building Opportunities for Our Social Transformation and provides small cash assistance to poor households. The program has helped children in schools and offers services such as savings and micro-loans as a first step toward financial independence. According to a World Bank Social Protection Specialist, BOOST promotes human capital growth, savings and productive investments.

The following year the country partnered with the International Finance Corporation, a member of the World Bank Group, to help establish the first credit reporting system in Belize. The system would allow financial institutions to share credit information and better manage lending risks. The partnership will also help expand access to finances for individual borrowers and small businesses.

The creation of a credit reporting system, along with BOOST, is key to a sound economy and will help reduce the risks of financial institutions, which will lead to lower interest rates, making loans more affordable and more widely available.

With the continued success of programs such as BOOST and the credit reporting system, credit access in Belize will continue to improve and become more available to everyone.

 – Amira Wynn

Photo: Flickr

Credit Access in Costa RicaAccording to the World Bank’s financial inclusion data in 2014, 65 percent of Costa Rica’s adult population had some form of bank account, indicating that banking was available to a strong majority of the population. However, only 13 percent of Costa Rica’s adult population has borrowed from a financial institution at all, and only 6 percent have formally borrowed to “start, operate, or expand a farm or business.” The Alliance for Financial Inclusion interprets these facts to mean that credit access in Costa Rica is not so much an issue of access to financial services, but a problem with the types of financial products offered by traditional banks.

The World Bank describes Costa Rica as an upper middle-income country, and the nation is widely seen as a success story for development. However, despite a relatively stable economy and steady growth, one in five Costa Ricans still fall below the poverty line, and Costa Rica lags behind other nations in financial inclusion and modern small business practices. Despite widespread access to banks, traditional loan products remain out of reach or unfamiliar to most people, and increased credit access in Costa Rica could assist the poor in raising their standard of living.

In response to this untapped market, new products targeted at small-scale borrowers began to expand in Costa Rica in the past decade. One leading microfinance company’s loan portfolio expanded by 25 percent per year from 2010 to 2015. By 2015, microfinance-specific institutions held a combined portfolio of at least $81 million in loans in Costa Rica. A forum hosted by Costa Rica’s General Superintendency of Financial Institutions in 2016 provided government and industry officials there with background information on microcredit products, and aimed to increase assistance to the burgeoning sector.

During these same years, younger and smaller firms in Costa Rica grew at a faster rate than larger, more established firms and the general economy grew at around 3.5 percent per year. A 2017 report by the International Monetary Fund stated that credit growth in Costa Rica is healthy, along with other macroeconomic trends.

Costa Rica often tops lists of the happiest nations on Earth. The small Central American country of five million has no national military. The people enjoy a robust social safety net including universal basic healthcare, and about a quarter of its territory is dedicated to protected nature reserves. With the success of microfinance programs, credit access in Costa Rica is expanding along with its rapidly developing economy. As a result, Costa Ricans can look forward to reduced poverty levels in the near future, an outcome that should keep happiness levels near the top of global rankings.

– Paul Robertson

Photo: Flickr

Credit Access in Russia
In 1991, the Russian Federation rose from the ashes of the former Soviet Union in economic and political turmoil. Prime Minister Yegor Gaidar led free-market reforms in 1992, and many Russians accused him and the Russian government of corruption and poor management, leading to the rise of the oligarchs. Many former party members and enterprising individuals took advantage of the disorganization of the new state’s economy and government in order to privately take control of assets and former state-run companies.

The high concentration of wealth in the hands of only a few rich men was detrimental to the Russian economy and its new democratic government. Credit access in Russia was easy to acquire for these men, as many ran the banks and largest companies in the country; unfortunately, credit was not as accessible to common Russian people. In 2004, President Vladimir Putin declared war on the oligarchs. As a result, Mikhail Khodorkovsky — one of the richest men in Russia at the time due to his ownership of the oil company Yukos — and Putin’s chief political rival were jailed. Other oligarchs suffered the same fate in the name of improving the lives of the lives of the common Russian people.

The Long Game

Despite these gains, credit access in Russia was not going to improve overnight. The immense size of the Russian Federation hinders banking for the common Russian person still to this day. According to the Alliance for Financial Inclusion (AFI), a major contributor to this issue is the combination of Russians living in rural areas of the country, the ability to reach banks and archaic and dysfunctional banking legislation.

The Ministry for Economic Development (MED), the Ministry of Finance, the Central Bank of Russia and the Russian Micro Finance Center compiled a team of experts to visit and study other banking systems so as to work to improve their own. In 2010, their findings influenced laws that allowed banks broader powers to provide financial services to their clients and ease credit access in Russia. But due to the lack of clarity and infrastructure, the banks were not able to take advantage of these new reforms.

This trend is not new to Russia and had to be fixed by government intervention. Russian’s Ministry of Economic Development received a long-term grant from the AFI in order to improve banking access to Russians. Increased access to banks improves credit access in Russia, and in 2012 the AFI stated that their were 40,000 banks to the 143 million Russians. By the end of their partnership with the MED, their goal is to increase the number of banks to 50,000.

Domestic Banking

The improvement of domestic banks helped the Russian economy to function after the United States and the European Union levied sanctions against Russian companies and government officials. Russian companies were forced to use Russian banks instead of foreign banks, and those companies who were not sanctioned began using Russian banks in fear of finding their name added to the sanctioned list.

This increase in power of the banks has increased credit access in Russia. Although it has been good for businesses, banks have begun a system of predatory lending. Tuva, one of Russia’s poorest and most undeveloped regions, has seen an increase in borrowing. Much of this money is used to either pay off existing accrued debt or to maintain the standard of living.

It is estimated that average household in Russia spends 15 percent of its income managing debt. Interest rates have also climbed higher, thereby making it more difficult for these Russians to climb out of debt and for the banks to make their money back. High interest rates have driven off people who could afford to pay back loans, and this money would help banks recoup their losses. In 2014, the Russian government was forced to bail out two of the country’s top five lenders.

Credit access in Russia has improved dramatically since the collapse of the Soviet Union, but the quality of the banking system has fluctuated. To save its economy, the Russian government needs to once again improve the country’s banking system, including its lending practices. Although rural citizens have better access to credit, it only does them harm if they are unable to save themselves from debt.

– Nick DeMarco

Photo: Flickr