El Salvador: Financial inclusion law

Author: | Published: 20 Apr 2016
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Consortium Legal – El Salvador

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Edificio Avante Local 313
Urb. Madre Selva III
Calle Llama del Bosque Poniente
Antiguo Cuscatlán, La Libertad
El Salvador

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+503 2209-1600

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aragon
Felipe Arágon

By the beginning of 2011, significant innovations in financial and technological products were happening in El Salvador. This prompted a series of joint efforts by Congress, the government and financial institutions to catch up with the accelerated development of the financial markets and products in Latin American countries such as Brazil, Mexico, Colombia, Peru and Paraguay. In these countries, important changes in the financial regulations and way of doing business were already underway.

In El Salvador, the Financial Inclusion Law (Ley para Facilitar la Inclusión Financiera , the FI Law) has been in force since September 11 2015. Congress passed this law as a complement to the existing financial system regulatory framework. The main purpose of the legislation is to make financial services more accessible for lower income sectors of society.

The FI Law introduced the concept of a so-called e-money provider. This is a company whose sole purpose is to provide banking services and online/mobile payments. E-money providers thus give almost every sector of society easy access to financial transactions. A review of international business models for e-money and mobile banking suggested that there are essentially two main service providers: banks and mobile phone operators. Because banks are only authorised to provide financial services, they must enter into an agreement with a mobile phone operator to use their software and platform to provide mobile banking services. Mobile phone operators might be able to give financial services the requisite regulatory authorisation. This authorisation would entail minor requirements if compared to the conditions that attach to the authorisation to conduct business for financial institutions.

The FI Law was created as a tool to help reduce poverty rates and improve the development of micro- and small businesses by combining the strengths of the financial system and telecommunications. It thus seeks to capitalise on the broad coverage that mobile phone operators can offer, and the financial sector's vast experience of risk assessment and fund management. To this day, the mobile banking business in El Salvador has successfully helped those with limited resources to obtain a cheaper way to access banking services.

Felipe Arágon