El Salvador: Perspective on the Development of the Financial System, With an Inclusive Approach and Use of New Technologies

The Pandemic Exposed Evidence of Financial Exclusion

The Covid-19 pandemic made evident the situation of exclusion to digital financial services that characterises El Salvador. The government faced this problem in its first year in office. Food delivery services increased, but only with the use of cash as a payment method; that is, with a great absence of digital payments. Without a doubt, there was a learning curve in the transition to home delivery services, which contributed to the shift from traditional commerce to some variants of e-commerce.

We now need to take a healthy reading of the scale of the challenges to be faced in financial inclusion, which brings us to the issue of fintech; only then can we address the development of the financial system in the future. We can now better understand that in order to make faster progress in financial inclusion, we must make intensive use of fintech, and we must take into account the current low number of fintechs in the country and the unfavourable environment for their development. It is increasingly unacceptable to lack digital payments infrastructure in rural and semi-urban areas, where financial exclusion is concentrated.

El Salvador does not have a deep digital payments infrastructure in rural areas, and at best the use of Financial Correspondents is growing, which significantly limits access to financial services on a mass scale.

Efforts Have Been Extensive

Reviewing some of the efforts made, we can go back to 2012, when Banco Central de Reserva de El Salvador and the Superintendencia del Sistema Financiero (SSF) began a coordinated effort to incorporate financial inclusion into their work plans. Thus, in 2015, the Law to Facilitate Financial Inclusion (Ley para Facilitar la Inclusión Financiera) was passed, which included the creation of two products with an inclusive profile, the e-wallet and Savings Accounts with Simplified Requirements (known in Spanish as Cuentas de Ahorro con Requisitos Simplificados, or CARS), as well as the creation of the Electronic Money Provider Company category. However, only one such e-money provider currently operates in the market and it faces a series of difficulties in adapting to the established regulation. History shows that efforts have been insufficient and therefore intensive review is required for regulatory reform.

In 2016, banking penetration reached less than a quarter of the population. It was during the pandemic (2020) that banks modified their procedures to CARS, achieving at the aggregate level more than 90,000 clients, according to data published by SSF. However, this result still seems too little. Efforts to address the situation have been conditioned by the change in priorities and difficulties brought forth by the Covid-19 pandemic.

A New Perspective

Thus, with the change in government in June 2019, the paradigm shift to the digitalisation of the economy began to accelerate. One of the first actions of the new government was the ...

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