1. Private initiative and
financial inclusion
Latin America between two models
Alvaro Uribe Velez
September 2012

2. Issues to be addressed
1. The current context of Emerging Markets and the
evolution of Latin America 1980-2012
2. Latin America between two policy paths
3. Lessons from the Colombian Experience
 Confidence
 Communitary State Policies
4. Private Initiative and Financial Inclusion: The region and
Colombia

3. 1. The current context of
Emerging Markets and the
evolution of Latin America 1980-
2012

4. 1. The current context of Emerging Markets and
the evolution of Latin America 1980-2012
1. Emerging economies have become engines of economic
growth.
2. During the last three decades developing countries have
experienced a profound transformation driven by two
components:
 On the one hand a rapid demographic transition. Since 1980 the
World population has increased by 2.5 billion people and 95 percent
of that growth has taken place in the developing World.
 The other element has been a dynamic period of sustainable
economic growth. In 1980 developing economies represented 33
percent of the World GDP and today that number is closed to 46
percent.

5. 1. The current context of Emerging Markets and the
evolution of Latin America 1980-2012
1. By 2050 19 of the top 30 economies by GDP will be countries that we
currently describe as ‘emerging’
2. China and India will be the largest and third-largest economies in the
world.
3. Eight countries – India, China, Brazil, Russia, Indonesia, Korea, Mexico and
Turkey – will be responsible for most of global growth up to 2025
4. Emerging economies will account for 68% of global growth by 2030.
5. In 1980, 5% of goods were sourced globally. By 2000, this was 20%. By
2025, it will be 50%.
6. In 1980, world exports accounted for one-sixth of global GDP. Today it is a
quarter. By 2030, it will have risen to a third.
7. By 2030 the urban middle class will rise to 42% of the global population.
The number of people with daily income of $10 to $100 a day will rise from
1.8 billion today to 4.9 billion by 2030.

6. 1. The current context of Emerging Markets and the
evolution of Latin America 1980-2012
 According to FAO: Demand for food could increase 50% by 2030
 Demand for water has been projected to rise by 30% between
2000 and 2030
 The International Energy Agency has said energy needs will grow
by 40% by 2030.
 According to BP China represents 20.3% of the World Energy Consumption (The
world largest energy consumer in 2010 for the first time over the U.S)
 Natural Gas consumption has experience its strongest consumption rate since
1984 (7.4%)
 Coal share in world energy consumption has reached its highest level since
1970 (29.6%). China represents 49% of the world coal consumption.
 In 2010 Global Biofuel consumption grew by 13.4%

7. 1. The current context of Emerging Markets and the
evolution of Latin America 1980-2012
 How does Latin America fit in this panorama? Between 1980 and
today some changes have occured…
1. The inflation tragedy is over: in 1985 regional inflation average
was 159%, today is below 6%. This means that fiscal and
monetary prudence have become policy principles.
2. Debt is no longer a threat: Debt to GDP ratios in the region
have passed from 40% in 2002 to 20.4% in 2009
3. Between 2003 and 2007 the region experienced a growth
average of 5%...the highest since 1967-1974
4. Democracy has expanded in the region with few exceptions…
5. Regional exports have increased 160% betwee 2002 and 2010
6. In 2008 the region faced a record number in FDI reaching
almost 100 US$billion

8. 1. The current context of Emerging Markets
and the evolution of Latin America 1980-2012
Policy Changes match four range of
Population
Close to 600
million people
Average age
between 24 and
28
Per Capita
Income in PPP
close to
US$10.000
Poverty
reduction
64% of our population is a
expanding middle class.
During the last decade 40 million
people have left the poverty line
Life expectancy has increased
from 65 to 75 years.
Child mortality has been reduced
by 50 per cent.
Literacy rates are above 94%.
Mobile phone penetration has
increased by 78 per cent.
Internet access has increased by
33%
Healthcare coverage has
increased by 50 percent.
water and sanitation coverage has
reached 80%.
Commodities
in time of
Demand
10 percent of the
World oil reserves.
6 percent of the
World Gas reserves
Almost 50 percent of
the World cooper
reserves.
50 per cent of the
World silver reserves.
13% of the World iron
reserves
26% of the World
fertile land.
24% of the World beef
supply.
Bio Reserves
20 per cent of
the World
Biodiversity is
concentrated in
the Amazon ring.
Almost 50% of
the World
potable water
supply.
57% of the world
primary forest
opportunities

9. 1. The current context of Emerging Markets and the
evolution of Latin America 1980-2012
Policies have been the root of Latin American Changes
 The change process and the potential for the years ahead has happen by accident and it is a consequence of the
consistency, congruence and sense of urgency that a group of countries have adopted as their policy cornerstone.
Brazil, Mexico, Colombia, Chile, Peru and Uruguay represent 70 per cent of the region’s population and 75% of the
regional GDP.
 This group of countries have common characteristics that explain their outstanding performance:
1. The strengthening of Liberal Democracy
2. The adoption of an institutional Framework in favor of foreign and national investment.
3. The construction of a sound and sustainable social safety net.
4. The expansion of export markets and the commercial integration with the World (FTA’s)
5. A public administration driven by results.
6. A sound Macroeconomic Administration driven by fiscal and monetary prudence.
7. Better regulatory environment
8. Construction of strategic infrastructure.
9. The consolidation of an innovation agenda leaded by an improvement in education.
10. A well capitalized financial sector and the constant expansion of financial services.
 Today countries like Panama, Dominican Republic, Costa Rica, Salvador, Guatemala, Honduras, Belize, Paraguay, as
well as most of the Caribbean States, are following that line of behavior

10. Building Modern
Democracies
(5 parameters)
Security
Freedoms and Private
Initiative
Independent Institutions
Social Cohesion
People Participation
A dynamic
Economic
transformation
Investment Target Policies
Maintaining Fiscal and
Monetary transformation
Integrate commodity and
knowledge based
economies.
Expand export markets
Create an
Entrepreneurship culture
(Innovation agenda)
Closing Social
Gaps
Improve education
(quality, coverage,
vocational)
Insure Universal Healthcare
Formal Job creation
Access to Finance
Climate Change,
Environment and
Energy
Sustainability
Expand renewable sources
Install an energy efficiency
conscience
Improve waste
management
Protect the Amazon Ring
Reduce Co2 Emissions
1. The current context of Emerging Markets
and the evolution of Latin America 1980-2012
Despite the changes that have been achieved some important
challenges remain…

11. 2. Latin America between
two policy paths

12. 2. Latin America between two policy paths
 The regional current Political Map is a “Tale of two cities” like the Charles Dickens Book…
(The ALBA and the non Alba Model)
ALBA
(Leaders: Venezuela,
Ecuador, Bolivia,
Nicaragua and Cuba)
Anti-U.S
Anti-Free Trade
Lack of investment
Confidence
Weak institutions
Political Insecurity
Ideology driven
countries
Political Polarization
Modern Democratic Center Countries
(Brazil, Colombia, Peru, Chile, México,
Uruguay, Paraguay, Panamá, Republic
Dominican, Costa Rica, etc)
Cooperation with the
U.S
Pro Free Trade
Investment Confidence
Independent Institutions
Political Stability
State Long Term Policies
and Mgt by Results
Organized Party
Systems
The Democratic Center takes the lead:
• Investment grade countries are in this Group:
Mexico, Brazil, Chile, Colombia, Peru and Panama.
• Countries with more market access through FTA’S
are in this group
• Countries with more FDI are in this group
• Countries with more Middle Class Expansion are
in this group.
• Better fiscally sustainable social programs: Chile,
Mexico, Brasil and Colombia.
Only the group of Countries in the Democratic
Center will become the regional active
participants of the Emerging Markets Boom…some
of the ALBA Members will see some benefits, but
without solid long term development agendas,
they will face transitory profits…

13. 2. Latin America between two policy paths
Bad policies are deteriorating the political and economic context in
the ALBA Countries….
Venezuela
Inflation
Reduction in oil
production
Brain drain
Social conflict
Insecurity
Private initiative in
Jeopardy
Bolivia
Loss of citizen support
Quality of live
deterioration
Lack of private initiative.
Loss in private investment
Ecuador
Press Liberties in danger
Lack of long term private
investment.
Political stability at the
expense of higher
tensions.
Oil driven political power
Nicaragua
Institutional deterioration
(Reelection without
constitutional authority)
Corruption
Private initiative:
Uncertainty
Shameful Chavistas

14. 3. Private initiatiative and
social innovation: Lessons
from the Colombian
Experience

15. Ten years ago Colombia was a fragile state…
The Colombian Paradox: a long and stable democracy in a
permanent threat from terrorist groups, drug dealers and
Security
28.837 homicides
2882 kidnappings
69 homicides per 100.000
habitants
1645 terrorist attacks
350 mayors out of their
municipalities
158 municipalities without police
Economy
Average Economic Growth 1994-
2001: 2.1%
GDP per Capita: US$2377
Investment as % of GDP: 16.5%
Exports: US$11.975 million
FDI: US$2.100 million
Inflation: 6.99%
Fiscal balance: -3.2%
Social
Unemployment: 16.2%
Health Coverage: 25 million
Colombians.
Pension affiliates: 4.5 million
Poverty: 57%
Education Coverage: Primary 97%,
High school: 57%, University: 24%.
Mobil Phone Lines: 4.6 million
Internet coverage: 1.9 million
organized crime…

16. Building Confidence became our
Colombia faced a Confidence
Deficit
The elusive quest for peace
Many governments
exhausted all their political
capital attempting to reach
peace through political
dialogue…the result was
military strengthening from
illegal armed groups and a
rapid growth in their criminal
activities (68% thought the
country was going in a
negative track)
Terrorist Groups (Guerrillas
and Paramilitaries) had
created a sense of defeat in
the Colombian people.
Fear impacted in the
Colombian people Mindset
The lack of investment
The drain of human capital
The sense of danger in
Colombian roads.
The expansion of massive
kidnappings created an
emotional domino effect
priority

17. We introduced a comprehensive
policy framework…
Social
Cohesion
Investment
with
fraternity
Democratic
Security
Confidence
Security as a Democratic Value
Security for
all
Confront all
criminal
organizations
Security
without
martial law
Security with
freedoms and
human rights
protection
Security in
coordination
with the
people
Investment Target
Security:
Human
Legal
Political
Sound
Macroeconomics
Incentive
s
Access
to
markets
Competitiveness
factors:
•Infrastructure
•Regulation
•Connectivity
•Logistical chain
Social Cohesion
Highest quality
in education
Universal
healthcare
Access to
Finance
Stable Jobs
and
entrepreneurial
spirit
Connectivity

18. Our policy achievements generated a
turning point
Indicator 2002 2010
Homicides 28838 15000
Kidnappings 2882 228
Homicides per
100K Habitants
69 30
Terrorist
attacks
1645 250
Municipalities
without
mayors
presence
350 0
Municipalities
without police
158 0
Indicator 2002 2010
Average
Economic
Growth
2.1% 4.3%
GDP per
Capita
2377 5300
Invest % GDP 16.5% 24.6%
Exports US$11.0
00
US$
39.000
FDI US$2.10
0
US$ 7.000
Inflation 6.9% 2.5%
Indicator 2002 2010
Unemploymen
t
16.2% 11.6%
Health
Coverage
25.1 million 43.1
million
Pension
affiliates
4.5 million 7.1 million
Poverty 57% 38%
Education
coverage
(Primary, Hs,
University)
97%
57%
24%
100%
79.4%
35.5%
Mobile phone
users
4.6 million
lines
41 million
lines
• Reached the highest economic growth in
more than 20 years.
• The largest education, health and
connectivity coverage in its history.
• The largest poverty reduction in Colombian
history
• The biggest FDI rates in history
• The lowest violence records in 30 years
• Expanded the middle class
• Highest exports in Colombian
History.
• Paramilitary groups dismantled
• FARC structure severely
dismantled
• Per Capita income more than
doubled

19. 4. Private Initiative and Financial
Inclusion: The region and
Colombia

20. The importance of the Regional Banking system
1. Mandatory Capital Requirements: 15.9% on average Vs 14.2% in Asia
and 13% in developed economies.
2. Moderate balance sheet leverage: 9.5 times Vs 16 times in developed
economies and 10 times in Asia
3. Low levels of delinquency rates: 3.5% average Vs 4.7% in Asia
4. Provisions 165% Vs 108% Asia and 52% Developed economies
5. Banking is a concentrated business in the region 12 Banks control 69% of
the business and 70% of the profits according to Banco Sanatander.
6. As middles class expands more people will access to finance. According
to the IDB in the next 7 years credit could expand from 1.1US$trillion to
2.2US$ trillion, while savings could expand from US$2.5 Trillion to 4US$ Trillion

21. Credit Cards Panorama
1. Credit Card penetration in linked to the expansion of Per Capita Income:
Regional average is close to 0.5 per capita.
1. Credit Cards represent 58% of the world non cash payments.
1. In Colombia between 2002 and 2010 credit cards jumped from 3.5 million to
almost 8 million.
1. E-Commerce is increasing in the region and credit cards are the more
important on line method of payment: (IDB Figures)
• Mobile subscribers in LAC 81.6 in 100 habitants
• Fixed subscribers in LAC 15.6 in 100 habitants
• Internet Subscribers are 4.2 per 100 habitants
• Broadband subscribers 3.4 per 100 habitants
• 9.0 personal computers per 100 habitants
2. The importance of Credit Card Penetration: a) Financial culture, b) Support
consumer habits , c) Incentives for complementary products, d) Trigger of e-commerce.
1. Challenges: a) Cost, b) penetration in the bottom of the pyramid, c)
Complementary products, etc

22. Four elements to expand financial
services in the Region
High investment
levels
The role of
governments for
financial services
expansion and
private sector
development
Inclusive and
sustainable
social policies
Middle class
expansion
Sound
Rule of Law
Macroeconomic
performance

23. Financial services in Colombia 2002-2010
Policies
and
initiatives
Bank of
opportunities
Micro-finance
expansion.
Consumption
credit
expansion
Credit Card
Penetration
Bancarization
Portfolio
Quality

24. Colombian Financial Sector Penetration 2002-2010:
Quantity and Quality
Indicators 2002 2010
Delinquency rates 9.5% 4%
Coverage for bad loans 80% 125%
Solvency 13.8% 15.2%
Financial inclusion, quality of life and consumption….
Sales 2002 2010
Motorcycles 73.000 470.000
Refrigerators 628.000 1.4 million
Cars 56.630 300.000
Computers 500.000 2 million

25. Bank of opportunities: Lessons learned
Public-Private Alliance
Government provides the regulatory framework and pro market
incentives to insure sustainable and profitable financial products
Private sector expand coverage, products and services to the non
financially included population.
Why Bank of Opportunities
Correct market failures Social and private sector improvement.
Principles
Sustainable interventions for long term
sustainability.
Functional elements
Account opening
red tape reduction.
State of the art
information systems.
Partners
Do not make sustainable unsustainable
Non Financial
Intermediaries
projects.
Saving Accounts
Never distort markets
Differential interest
rates
Mobile Banking
Non Financial intermediaries Banks NGO’s Cooperatives

26. Issues for the future
The
road
ahead
Entrepreneurial
education
Financial
education
Angel
Investment
framework
Venture Capital
Funds
Local Capital
markets
development
Guarantee
Funds for SME
Development.
Knowledge
Economy and
Creative
Industries
development

27. Final Thoughts
Financial inclusion and sustainable private sector development can only take place in
Countries with socially responsible capitalism… (Good Capitalism, Bad Capitalism
Framework)
State Guided
Capitalism
Government guides the market
Particular industries are
supported
No sustainable structure for
private investors.
Uncertainty for long term
investment.
Discretional regulation
Oligarquic
Capitalism
State is captured by a small
group of individuals.
Monopoly and oligopoly
Few families and corporations
control strategic sectors.
Weak competition
Corruption
Big Firm Capitalism
Multinationals and large local
corporations control the
economy.
Lack of emerging new
corporations
Weak entrepreneurial spirit
Non dynamic innovation
Tailor made regulation
Entrepreneurial
Capitalism
Easy to start a business
Business registration
Bankruptcy protection
Access to finance
Rule of law, property
and contract rights.
Transparent taxation
Rewarding new ideas
Competition
Research and
Development
Investor friendly
legislation

28. www.alvarouribevelez.com