Financial inclusion: another window into the updating of the model

“The importance of financial inclusion for Cuba… includes the need to reduce the use of cash, modernize the financial system and strengthen its capacity to improve the allocation of resources and invigorate productive activity.”

This article is part of the series La Letra de Temas 2020. Postpandemia: ¿hacia dónde?

Puede leer aquí la versión en español de este artículo.

When the COVID-19 curve reached a new peak, Temas-Catalejo asked a group of researchers to examine Cuba’s present status and prospects for the rest of the year. We requested them to make a detailed diagnosis and scrutinize the pandemic, its significance from the clinical and public health viewpoints, as well as its subjective socioeconomic, political and international effects and probable future.

This series is not focused on the mountains of figures, reported facts, statements and reports currently flooding the media, nor on the countless wishes and requests sent to and scanned by the government which abound in the social networks. It’s intended instead to evaluate the country’s present and future so that we can see it better, like a path between politics and its circumstances.

As it’s usual in Catalejo, La Letra de Temas 2020 is more open to other analyses than to other opinions.

The Covid-19 epidemic has altered many practices that defined the way modern societies function, often accelerating tendencies that were already taking hold internationally. If anything will characterize the “new normality” it will be the intensity of use of electronic platforms for communications, education, commerce, finances and, increasingly, services.

In Cuba the use of e-commerce has been encouraged, given the urgency to “decongest” the stores and shops and thus mitigate the incidence of agglomerations that compromise the efforts to combat the pandemic.

Beyond the capacity of the retail trade sector to correct its short-term flaws, the government has made public its support for e-payments, a strategic component of the computerization of the society that has received greater priority and protagonism. 

The current situation and the political will should be an opportunity to make room for a set of additional measures to enhance the financial system, known in recent experience as policies of financial inclusion. These practices, of growing importance in underdeveloped countries, have been insufficiently considered in the transformation process associated with updating the Cuban economic model.

What does the international experience tell us?

Historically, traditional financial systems have tended to exclude from its services small and less sophisticated actors. An important proportion of the population and small businesses, principally in underdeveloped countries, does not have access to basic products offered by formal financial institutions: savings accounts, credits, basic insurance, non-cash instruments of payment. [1] These segments are often found in rural areas or places distant from urban centers, which add geographic barriers to the access to basic financial services.

From the point of view of the offer of the products and services provided by the financial system, three great restrictions for small players have been identified (CEMLA, 2015). In the first place, the documents required by banks for opening, maintaining and closing accounts, as well as for applying for loans, create barriers for persons or companies with limited financial culture, credit history and/or financial strength. 

Secondly, the amount of the loan – depth of credit – once access to the banking systems is granted, is generally determined by the guarantee requirements, which tend to be restrictive for businesses and families with great uncertainty as to future financial flows.

Lastly, the high transaction costs that result from the asymmetries of information between banks and loan applicants leads to higher commissions and interest rates charged to those that require smaller credits and/or have less capital.

Most authors focus on the analysis of the offer of financial products and services for small players. Nevertheless, there are important restrictions on the demand side as well: distrust of the financial system, lack of correspondence of existing products with their needs or business models, and a prevalence of a business culture that does not like to take risks, among others.

Various initiatives to mitigate these impacts have been developed in the last two centuries – savings and loan cooperatives, savings banks, development banks, etc. Nevertheless, it was not until the beginning of this century that financial inclusion has become part of the public agendas. Three basic factors explain the recent interest of governments in these topics.

Firstly, given the increasing weight of finances in modern economies – financialization of the economy –[2] a group of studies demonstrate the high correlation between poverty and financial exclusion.

Secondly, there is increasing concern about the risks of access to informal financial services, especially through the use of cash.

Finally, given the multiple barriers that are eliminated and the increase in competition generated by the rise of new technologies associated with financial products and systems  –fintech–,[3] traditional banking has begun to see an important market niche in historically excluded sectors.

The term “financial inclusion” has to do with providing access to financial services to entities and persons that do not have them and perfecting the use of the system by those who participate in the formal financial circuit (CEPAL, 2018).

It centers on three dimensions: access – possibility and capacity to obtain a formal financial product or service –, use – frequency and stability of access -, and quality – adequacy of a product to the needs of the client, consumer protection, regulation and security, etc.

The policies of financial inclusion pursue two basic objectives: universalize the right of citizens to access a set of basic financial services of quality, and achieve a more efficient functioning of the system of payments in the economy, promoting the use of forms of electronic payment in substitution of cash.

In the international experience, these policies have privileged three great tendencies: the identification and promotion of new segments for access to financial products – low-income families, SMEs, miSMEs,[1] and remittance receivers -, the use of new products – microcredits, mortgage loans, micro-insurance, remittance management funds – and the promotion of new channels – specific institutions that provide microfinancing services, non-banking correspondents and mobile telephony.

Analysts and governments have poised special attention on two novel alternatives: non-banking correspondents and mobile telephony. Non-bank correspondents expand the capillarity of the financial system, permitting that retail businesses with wide networks of branches – stores, gas stations, pharmacies -  act like intermediaries for basic financial transactions – deposits, withdrawals, payment of invoices.

Non-bank correspondents mitigate the problem of poor access to bank branches, but the strict requirements for opening traditional accounts involve a complex process.  

Thus, many authorities modified the regulatory framework, introducing simplified savings accounts that can be associated to mobile phones, with agile procedures for opening them, often from the phone itself or from the correspondents themselves.

Payment with mobile phones represents one of the main advancements in financial inclusion. Mobile banking is twice as inexpensive as online banking, 13 times more than transactions using ATMs and 43 times cheaper than transactions at bank branches. (Herrero, 2017). These platforms not only reduce the use of cash, accelerate transactions and decongest bank branches, but also eliminate technological and cultural barriers for population segments and businesses that do not have access to the internet from their residences, especially in the most backward countries.

As a result, some underdeveloped economies have evolved in a short time from rudimentary financial systems with scant use of checks, transfers or magnetic cards to dynamic systems that use digital money and mobile devices.

In Kenya, where mobile money services reach 90 percent of the population, the payment platform M-PESA guarantees, through SMS messages and a network of over 100 thousand correspondents, the existence of an accessible, low-cost platform for small payments, remittance receipt and new business models. Ten years after it was created, M-PESA boasts thirty million users in ten countries and carries out more than 500 transactions per second. (CNVB, 2019)

In addition to these initiatives, others stand out including the development of financial education programs, the use of non-traditional loan guarantees for small players, easier and cheaper access and maintenance of financial services of small magnitude –including lower requirements for client identification – tax reductions for use of digital payment methods, subsidies for the purchase of digital devices for small players, authorization to providers of non-traditional forms of payment – tech companies or other non-bank agents – differential regulation for different types of clients, products and providers; as well as public tenders for risk capital and seed capital funds, and the use of incubators to support new businesses.

Stimulating and developing these changes in the technological and financial paradigm requires an extensive institutional configuration. Financial inclusion is considered a public good and as such demands the creation of government programs and allocation of funds, with the participation of various institutions, and the development banks playing a leading role within the financial sector. 

The use of incentives, subsidies and tax exemptions to stimulate the participation of demanders and suppliers of financial services in these initiatives requires setting aside specific fiscal budget lines. Especially relevant for the region has been the creation of guarantee funds: public capital enterprises meant to guarantee the partial or total financing of small businesses, by emitting securities that are then sold to the banking sector. 

Financial inclusion, in turn, demands important logistical support to insure the efficient operation of wholesale payment systems, the expansion of connectivity and greater access to digital technology by small players.

On the other hand, the viability of these financial services depends on the trust of the users. This requires clear regulations to protect the funds of the clients and confidentiality of their information.

Finally, the development of financial inclusion programs has led to an increase in the research on informal financial services. Although they tend to operate under a strong culture of payment – they are generally found in communities with binding moral bonds – the low-income informal settings hardly guarantee optimal levels of security in the face of potential fraud (Sánchez G., 2013). A better understanding of informal finances is key to the design of products destined for the non-bank sector. 

First approximations for Cuba

The Cuban banking sector experienced an important process of development beginning in 1997, when the Central Bank of Cuba (BCC) was created, along with a set of institutions that articulated a modern financial system, separating the functions of a central bank from those commercial banks, and encouraging the automation of banking operations and the technical development of its professionals. 

Nevertheless, the banking system has not incorporated swiftly the deep changes in paradigm that the international banking practice has undergone in the last few years. Currently it suffers from the use of a narrow range of forms of payment, a limited offer of savings instruments, few incentives for small business and consumers to access credit, scant differentiation of savings and loan products for clients, and insufficient use of new technologies for banking services.

Add to this the incipient development of financial markets and a weak structure of incentives within the system, aspects that limit the capacity of the Cuban banking system to carry out the role that the national economy requires of it.

This situation is reflected in a limited financial intermediation and a low rate of banking in the population. Contrary to international experience, loan activity in Cuba is minor, and the Central Bank has excessive protagonism in financing economic activity. [4]

Cash in circulation, on the other hand, represented in 2018 more than half of monetary assets held by the population (55%). [5] In the period 2015 -2018 cash supply grew 44%, or 11% annual average, five times the growth rate of GDP.

These tendencies were evident even in the years that the government has made important efforts to advance the bancarization of the economy, establishing rebates for payments with magnetic cards and through mobile telephone services, the development of applications for digital payment like Transfermóvil and EnZona and the first platform for e-commerce.

In 2018, slightly more than 7% of transactions in the financial system used electronic channels. This year some 460 million pesos (CUP) in payments of goods and services were registered using magnetic cards, 62% more than 2017. Mobile banking transactions reached 131 million CUP, 13 times more than in 2017. In 2019 operations with magnetic cards increased 41% and those associated with mobile banking almost nine times. [6]

That is small for a country with 5 million mobile lines and 3.5 million clients with magnetic cards, but still it is not small fry. Although moving in the right direction, this points out the need to expand the number of initiatives and approach the process with an integral vision, aimed at finding solutions to the essential causes behind these issues.

The low financial intermediation is a result of the limited autonomy and weak system of incentives in the state enterprise system – including the banks – that result in a reduced demand for services on the part of enterprises and the insufficient promotion of new products on the part of commercial banks.

Add to this the fact that many enterprises are not or seem not to be subjects of credit. This is a consequence of an environment of insufficient industrial capitalization, lack of financial discipline – breach of contract of collections and payments and cuasi-fiscal transfers – and difficulties for accurately measuring economic events.

In the population segment, few players would qualify as subjects of credit under the traditional canons: a private sector with poor credit record and financial education, individuals with insufficient salaries and pensions and a significant number of persons involved in informal activities. [7].

The low rates of bancarization in the population, in this case, is due to the greater vitality of the private sector, which operates mainly in cash. This tendency to use cash is prompted by various factors, the majority of them not directly related to the operation of the financial system. This includes an increase in alternative sources of funding; incentives for tax evasion given the prevalence of illegal activities; the incoherent design of the tax system and regulatory framework governing the private sector; disincentives to taking on formal credit given the guarantees required; mistrust of the financial system and low financial education.

The importance of financial inclusion for Cuba, therefore, goes beyond the goal of reaching the segments typically excluded, according the international literature and experience. It includes the need to reduce the use of cash, modernize the financial system and strengthen its capacity to improve the allocation of resources and invigorate productive activity. It could be an important tool for reducing social inequality, the restoration of the productive weave, the control of public resources and the improvement of monetary policy.

At the heart of the matter are important structural faults, but there are also advantages that cannot be overlooked: a) determination of the government to further e-commerce and the computerization of the society, b) levels of education that allow for a rapid assimilation of a program of financial education and the swift development of computer applications for the financial sector, and c) a banking system made up exclusively of public institutions. [8]

The international experience suggests that a strategy of financial inclusion requires the participation of multiple institutions and know-hows, under the leadership of the government. In a paper of this nature it is impossible to define all of the actions that could be undertaken. We can, nevertheless, outline some basic ideas, taking account of the starting point:

  1. The public sector is completely bancarized. The majority of its monetary assets are deposited in bank accounts, with the small exception of petty cash for minor expenses. Therefore, the priority for this segment is the diversification and better use of the financial services.
  2. The population, for its part, shares the problems of limited diversification and quality of the services it utilizes, but its main limitation is the low level of bancarization – less than half of the monetary assets of this sector are deposited in the financial system.
  3. A strategy of financial inclusion, therefore, should be based on expanding the access of the population and improve the use and quality of its financial products and services for all of the economy, through its diversification and adaptation to the needs of its multiple markets: large enterprises, SMEs, miSMEs, self-employed workers, cooperatives, public institutions, large savers, low-income persons, et
  4. It is not sufficient to accumulate isolated actions. It is necessary to have a nationwide vision that, under the leadership of the government, articulates the sequence, the interrelation among the different initiatives and of these with the transformations of the economic model.
  5. The point of departure of the entire process is the institutional transformation of the banking and financial system, through the redesign of the rules of the game that determine its operation – autonomy, relations to the fiscal budget and the Central Bank, practices of corporate government, market organization and regulation, among others.

Beyond the government strategy, it is essential that the banking system be granted sufficient autonomy and incentives to adapt, on its own, to the dynamic and changing world of modern finances.

This process is facilitated through the implementation of some of the measures outlined in the documents generated by the VI and VII Party Congresses – separation of governmental and business functions, transformation of the planning system, currency and exchange rate unification – but requires adapting and complementing these with measures of its own, that take into account the uniqueness of the financial system and its relations with the economy.

  1. In terms of access, given the problems of the retail trade sector, it does not seem appropriate for the moment to expand the number of non-bank correspondents. The emphasis should be on the development of e-payment platforms, particularly mobile banking.
  2. Reducing the use of cash is fundamental: it diminishes the costs of printing, delivering and securing of money, while contributing to the control of public resources, reducing tax evasion and strengthening the transmission channels for monetary policy. [9] This objective, nevertheless, requires institutional and cultural changes that cannot be brought about through administrative procedures alone. It is necessary to incorporate the financial flows of this sector of the population through incentives.

Individuals, cooperatives, private businesses, small farmers, all collect a large portion of their revenues through the financial system – salaries, pensions, bonuses, payments of contracts with state entities –, and carry out another important group of payments– for goods, services and taxes.

To the degree that electronic payments become more attractive and thus stimulate the need to have money in an account to make regular payments, a considerable portion of the collections that today are automatically converted into cash will remain in the financial system.

  1. Among the instruments used to encourage e-payments, a positive example is the use of bonuses for payments using magnetic cards, an experience that should be expanded to all transactions that are amenable to electronic payment: public services, loan repayments, fines, etc.

Other actions may include giving tax rebates to taxpayers that use electronic payment methods [10] and bonuses to consumers when they pay with cards in private businesses. In this case, the private business does not receive a bonus but it makes them more competitive vis-a-vis those businesses that do not accept magnetic cards since, from the clients’ perspective, their products are cheaper. The main initiatives in terms of incentives should be focused on this sector because it is the one that least uses banking services.

  1. In addition, it would be wise to encourage the transit to payments in stores using mobile phones, organize and promote e-commerce and encourage the development of digital apps for providing simplified services of savings, micropayments, microcredits and micro-insurance.
  1. Technological developments should be accompanied by “friendly” apps, security, transparency, consumer protection and financial education. If the applications are sophisticated, opaque, insecure or hard to manage, financial exclusion, instead of diminishing, is aggravated.

In order to avoid greater financial exclusion as a result of the new practices, it is recommended that government policies be implemented to encourage, through subsidies, price discounts and other provisions, the access of low-income families and small businesses to devices for insertion into the channels of financial inclusion.

  1. Particularly important in the current scenario is financial education and regulation, given the ever greater connection of the population with international financial markets and the accumulated inexperience about finances and bank practices and instruments.

In the era of financialization of the global economy, the limits to trans-border financial operations are fewer every time. Adequate financial education and regulation are essential for effective exchange controls and the protection of the population from fraudulent activities and scams – such as the ever more frequent Ponzi schemes, associated with the launch of cryptocurrencies and other trickery found in social media.

  1. It is necessary to increase the academic studies on informal financial markets, as well as alternatives for incorporating remittances into the banking system and channeling them into productive use, taking into account the international experience in this regard.  The border closings in response to the coronavirus could be “forcing” these flows of funds to go through the banking system; this should be monitored and made the most of.
  1. The participation of the banks in the policies of financial inclusion cannot be in detriment to their profitability, so that associated costs and risks should be shared by the fiscal budget and other forms of capturing revenues.

It would be wise to evaluate the creation of a guarantee fund with an initial capital contribution by the government, as well as fiscal incentives to the players most active in financial inclusion. The Central Bank should create its own toolbox to encourage the program across banks, using the traditional tools of monetary policy. 

The current situation associated with the battle against COVID-19 is favorable to implementing, in unison, a strategy of financial inclusion in line with the best international practices. Although this requires financial resources, particularly to build needed technological infrastructure, much can be gained by establishing incentives and clear rules for the institutional transformation of the Cuban banking system, the bancarization of the population, the diversification of financial instruments, the migration of processes to virtual environments, as well as the adequate education and regulation in key topics for the operation of modern economies.

The policies of financial inclusion are, notwithstanding, a complement to the policies of structural transformation. On their own, they cannot solve the distortions of the monetary environment, the weakness of the productive system or the incentive systems under which the private sector operates.

It is crucial not to lose focus of the fundamental transformations, incorporating urgent learnings for the “new normality”.


Translated by Rafael Betancourt



  1. BCC. (15 de Mayo de 2020). Banco Central de Cuba. Obtenido de Sitio web:
  2. CEMLA. (2015). Inclusión financiera: un enfoque centrado en AL. Boletín, 244-281.
  3. CEPAL. (2018). Inclusión financiera para la inserción productiva de las empresas de menor tamaño en América Latina. Santiago de Chile: Naciones Unidas.
  4. CEPAL. (2018). La inclusión financiera para la inserción productiva y el papel de la banca de desarrollo. Santiago de Chile: Naciones Unidas.
  5. CNVB. (2019). Innovación en inclusión financiera. México D.F.: Secretaría de Hacienda y Crédito Público.
  6. Figueredo, O. (26 de Diciembre de 2018). Cubadebate. Obtenido de Economía cubana: balance de 2018 y perspectivas para el futuro inmediato:
  7. Figueredo, O. (18 de Abril de 2019). Cubadebate. Obtenido de ¿Qué hay de nuevo en materia de comercio electrónico en Cuba?:
  8. Figueredo, O. (29 de Febrero de 2020). Cubadebate. Obtenido de Díaz Canel: Hay que aligerar la burocracia en la actividad bancaria de la población:
  9. Herrero, J. (2017). Seminario sobre la gobernanza de los bancos centrales. La Habana: Banco de España.
  10. ONEI. (2018). Anuario Estadístico de Cuba 2017. La Habana: Oficina Nacional de Estadísticas en Información.
  11. Sánchez G., M. (2013). La tarea compartida de la inclusión financiera. México D.F.


[1] On average, only 45.8%of persons over 15 years of age in Latin America and the Caribbean have access to the formal financial system, a figure lower than the world average (61%) (CEPAL, 2018).

[2] Progressive change in the pattern of capitalist accumulation since the end of the last century, encouraged by the rapid growth, deregulation, innovation, introduction of new technologies, global expansion and institutional changes in financial markets.

[3] Technological developments and new business models applied in the financial sector in the last decade (blockchain, new trading systems, artificial intelligence, machine-learning, peer-to-peer loanscrowdfundings and payments using mobile phones).

[4] The monetary multiplier associated with the aggregate M2 exhibits low values, close to 1. This multiplier relates to the proportion between the monetary aggregate M2 (cash, checking and savings accounts of the non-bank public) and the monetary base (money emitted by the central bank). It is considered an indicator of the functioning of loan activity. The higher the multiplier, the greater is the weight of the activity of commercial banks in the processes of creation of money.

[5] The government requires that all of the monetary assets of businesses, with few exceptions, be placed in banking institutions. Thus, a better measure of the low level of banking in the economy is the relation between cash and the monetary assets of the population. All of the calculations were made using (BCC, 2020). In all cases this refers to monetary assets in all currencies: CUP and CUC added at the corresponding exchange rate.

[6] Data provided by functionaries of the BCC in the Mesa Redonda (Cuban televisión). See (Figueredo, Cubadebate, 2018), (Figueredo, Cubadebate, 2019) y (Figueredo, Cubadebate, 2020).

[7] The rate of economic activity in Cuba was 63.4% in 2017, much lower than the 74.2% five years earlier, in 2012 (ONEI, 2018).

[8] Financial inclusion has been accused of being an instrument that more often than not contributes to strengthening the international tendencies of financialization and, with it, the subordination of the large majorities to the ever more centralized power of banks and technological enterprises. Nevertheless, by having a totally public banking system, our country can further these tools for the benefit of its economic and social development.

[9] The majority of the instruments of monetary policy that recognize the international experience operate through the financial system. In an economy with a low degree of use of the banking system, the traditional tools of the Central Bank have limited effectiveness.

[10] In the Mesa Redonda (Cuban television program) of June 15, the Minister of Finances and Prices announced that they were studying measures of this nature.


[1] NE: SMEs: small and medium-sized enterprises; miSMEs: micro, small and medium-sized enterprises

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