An Index of Regulatory Practices for Financial Inclusion in Latin America: Enablers, Promoters, and Preventers

This paper constructs an index of regulatory quality for improving financial inclusion for the purpose of assessing and comparing the quality of rules and regulations in a sample of eight Latin American countries. The index comprises 11 regulatory practices classified into three categories: those that determine the overall quality of the financial environment where providers of financial services that meet the needs of the poor operate (the enablers); those that deal with specific types of market frictions and regulate the provision of specific financial products and services (the promoters) to large segments of the population; and those that, albeit unintentionally, create distortions and barriers that adversely affect financial inclusion (the preventers). An important novelty of the index is that the assessment of individual regulatory practices not only takes into account accepted standards, but also recognizes that there are important interactions between regulations for financial inclusion as well as between these regulations and other type of government interventions. Among the countries in the sample, by mid-2017, Peru ranked first in this index, followed closely by Mexico. Chile, Colombia, Paraguay, and Uruguay obtained lukewarm results, although there were wide differences among these countries’ individual results. Argentina and Brazil were the two countries with the lowest overall scores. An additional contribution of the paper is that, throughout the analysis, countries’ specific areas of strengths and weakness in financial regulatory practices for improving financial inclusion are identified.