The Dominican Republic’s fast-growing economy has been a top performer in Latin America and the Caribbean over the past two decades, with poverty levels nearly halving and the middle class doubling in size, according to the World Bank.
But low rates of financial inclusion, particularly for women and women-led businesses, continue to plague the country’s development. Only 51 per cent of adults (aged 15 and over) had an account with a banking institution or mobile money service in 2021, according to the World Bank’s latest Global Findex Database.
This puts the Dominican Republic well behind the regional average, where account ownership among adults stood at 73 per cent, having climbed 19 percentage points between 2017 and 2021.
Experts say a complex mix of regulatory, commercial and social obstacles have stunted financial inclusion levels in the Dominican Republic relative to many of its peers, leaving much of the population underserved even by its banks.
Susana Almeida, an analyst at Moody’s Ratings, says: “The primary challenge for the banking system in the Dominican Republic is the low financial penetration, with domestic credit to the private sector amounting to only 31 per cent of GDP, compared to 51.1 per cent in Costa Rica, a country with a similar macro profile.”
The Central Bank of the Dominican Republic (BCRD, by its Spanish abbreviation) reckons financial inclusion has improved more recently, with data from its 2023 National Financial Inclusion survey showing that 55 per cent of adults had a bank account or financial product.
But it still leaves rates of financial product ownership more or less steady from 2014, when 54 per cent of adults had a bank account, according to the World Bank.
The BCRD did not respond to an interview request.
Time for a change
Today, however, a sea change is underway as development finance institutions, domestic and international banks, and government agencies come together to address the long-standing hurdles to financial inclusion.
Isabel Berdeja, senior gender, diversity and inclusion officer at IDB Invest, the private sector arm of the Inter-American Development Bank, says the Dominican Republic has an “opportunity to create more modern and inclusive financial systems” and that developing regulation, institutional capacity and promoting collaboration between policy makers and the private sector will be vital.
In 2022 the BCRD published its first National Strategy for Financial Inclusion. It aims to boost the ownership of financial products among adults to 65 per cent by 2030 by improving policy co-ordination among national stakeholders.
It comes as incremental regulatory modernisation is already delivering change.
New rules were introduced in 2020 to facilitate the wider use of mobile money, including allowing financial institutions to offer “basic accounts” with less onerous due diligence and know-your-customer requirements.
In 2021, payment system regulations were updated to enable fintechs, banks and sub agents to issue “electronic payment accounts”, according to the Alliance for Financial Inclusion, which groups financial regulators from 84 developing countries.
These changes could boost national financial inclusion efforts over time, given the country’s high rate of mobile phone penetration. By 2022, mobile cellular subscriptions had climbed to 90 per 100 people in the Dominican Republic, according to data from the Federal Reserve Bank of St Louis.
Meanwhile, development finance institutions are marshalling additional resources to deepen the financial inclusion of women.
Significant gender-based inclusion gaps exist in the Dominican Republic today, with only 49 per cent of women having a bank or mobile money service account in 2021, compared with 54 per cent of men, according to the World Bank.
Reasons for this disparity include social and cultural issues hindering women’s access to financial products, the ability to secure identity documents, and a dearth of suitable products, among other factors, according to the AFI.
For many institutions, tackling these problems is a priority.
Berdeja from IDB Invest says: “Gender and diversity are key components of our strategy in the Dominican Republic with the private sector.”
IDB Invest has partnered with the country’s national association of banks and the Women Entrepreneur Finance Initiative to launch the Dominican Republic’s Women Entrepreneurs Finance Code Pilot, an industry-level initiative to accelerate sex-disaggregated data in the financial system.
The ultimate aim is to contribute to better understanding and best practices among financial institutions to build their engagement with women-led businesses, as an initial step in developing financial and non-financial products.
“To date, 14 commercial banks have signed the commitment and are on track to deliver the first set of data,” Berdeja says.
The fintech sector has excellent potential to address the needs of unbanked and underbanked populations [in the Dominican Republic]
Diego Herrera, sector lead specialist for financial markets, IDB
For its part, the government is pushing to digitise the vast flow of remittances between the US and domestic recipients, 47 per cent of whom are women, to accelerate the inclusion of women in formal financial services, according to the AFI.
Domestic and international banks are also moving ahead with their own initiatives.
In January, local lender Banco BHD secured a $75mn subordinated loan with a tenor of up to seven years from IDB Invest to support micro, small and medium-sized enterprises owned or led by women.
A few months later, in August, the US International Development Finance Corporation signed an agreement with the Dominican Republic’s largest bank, Banreservas, to provide a $42mn loan portfolio guarantee to support women entrepreneurs and women-owned small businesses.
Meanwhile, Citi structured two loans to finance local trade and working capital for small and medium-sized enterprises in April to Banco Popular Dominicano and Banco Santa Cruz, under its global Social Finance initiative.
The approved amounts reached 5bn pesos ($83mn) and represent the first social trade loans structured by Citi to support SMEs in the Dominican Republic.
Máximo Vidal, general manager of Citi Dominican Republic, says: “SMEs are key contributors to job creation and economic development in developing markets. With these loans, our objective is to provide further liquidity to SMEs which allows them to grow and meet their liquidity needs over the short and medium term.”
Growing fintech scene
Looking ahead, the Dominican Republic’s financial inclusion goals will also hinge on the nascent but growing role of fintechs. Though the country has historically fallen behind regional peers on fintech development, momentum is now shifting as a growing fintech scene takes root.
“The fintech sector has excellent potential to address the needs of unbanked and underbanked populations [in the Dominican Republic],” says Diego Herrera, sector lead specialist for financial markets at the IDB.
Herrera says most fintechs in the Dominican Republic are focused on lending, payments, remittances and enterprise financial management, and, in common with other markets, are filling the gaps left behind by the traditional financial sector.
The IDB is currently working with Dominican authorities to explore the development of open finance rules that could catalyse further gains in financial inclusion.
“We believe payments are the entrance door for financial inclusion. We are working with countries such as the Dominican Republic to set public policies allowing open finance to grow. We expect developments in the country shortly,” Herrera adds.
The obstacles that have slowed the Dominican Republic’s progress on financial inclusion are finally in the joint sights of banks, fintechs, development finance institutions and regulators.
As a result, the coming years could deliver gains for the country’s financial inclusion agenda that could potentially, at last, match the Dominican Republic’s broader economic achievements.
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Publish date : 2024-10-31 22:41:00
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