Labor informality, a barrier to promoting financial inclusion in Colombia

Promoting financial inclusion in Latin America has been one of the greatest crusades of companies that belong to this sector in recent years. However, the social characteristics of the region have played against the possibility of success in this matter, especially from the labor market. However, it should be noted that progress has been made, even if it is not at the expected level.

A recent report by Ipsos and Credicorp reviewed the impacts of labor informality on financial inclusion, finding that this scourge, which worsened during the pandemic, is making it difficult to enter this market and the stabilization of income and consumption flows. which tend to be irregular, mostly in low-income strata, in which the economy revolves around day-to-day life.

These experts begin by highlighting that “informality is a phenomenon with a very high prevalence in Latin America and covers various sectors, both in the public and private spheres. Added to this, the covid-19 pandemic led the continent to an unprecedented labor crisis: 70% of “Jobs generated between 2020 and 2021 were occupations in informal conditions.”

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With this on the table, both firms begin their analysis, making it clear that the informal sector plays an important role in generating income for families, in these times when the demand for work is insufficient or there is no access to a job. good formal employment and informal self-employment constitutes a fixed alternative for families that need to survive.

Informality.

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“In the region, micro, small and medium-sized enterprises (MSMEs) represent 99.5% of companies and 60% of formal employment. However, they have a participation in the regional Gross Domestic Product (GDP) of 25%, in contrast to 56% in the European Union,” they added.

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Before reviewing the main findings of the Ipsos and Credicorp study, it should be noted that the survey was carried out in Colombia, Argentina, Ecuador, Bolivia, Mexico, Panama, Chile and Peru; countries with similar socioeconomic characteristics and where levels of labor informality exceed 30%.

Informality,

“Bolivia (69%), Peru (69%) and Ecuador (57%) show the highest rates of workers who report doing so informally within their workforce, which far exceeds the number of formal workers. In contrast, Colombia (47%), Panama (46%), Argentina (43%) and Chile (36%) exhibit a greater presence of formal than informal workers,” they began reporting.

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On the other hand, they maintain that financial inclusion remains within a range ‘medium low’ (45.5 points out of 100) compared to the previous year. While in perceived quality (60.9) a slight advance is reported, and the dimensions of use (30.5) and access (45.1) continue at the same levels as in previous periods in which this survey was carried out.

Financial inclusion

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“When analyzing the results by levels of financial inclusion, 24% of citizens are located at a level achieved in the global index. However, it can be seen that there is a higher percentage of formal than informal workers in the level achieved in access, use and perceived quality of financial products and services,” they highlighted.

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In simpler terms, the analysis highlights that the better the quality of work that people have, the better it will allow them to obtain access to greater tools of the financial system, both in use and in their offer; which will end up having a positive impact on the perception they have of this market.

Financial inclusion

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Proof of this is that “the dimension with the lowest proportion of citizens at the level achieved is that of use (25%), while 43% of workers formal workers obtain an achieved level, and only 18% of informal workers achieve this level.”

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A chapter of this report was dedicated to reviewing only the products of the financial system to which informal workers in Colombia had access, highlighting that, for example, in the case of credit cards, only three out of 10 have a product of this style. , falling below similar countries such as Chile (80%), Argentina (59%), Ecuador (49%) and Panama (42%).

Financial Inclusion

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Similar figures can be seen in the item of savings or current accounts, in which only 32% of informal employees claim to have one. With this data, the country is surpassed by nations like Ecuador (64%), Argentina (45%), Chile (39%) and Panama (39%). Mexico is the country with the lowest report after reaching just 5%.

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“When examining the ownership of savings or transactional products among informal workers by country, particularities can be observed. Chile (85%), Argentina (78%), Colombia (78%), Ecuador (74%) and Panama (73%) would have a higher proportion of informal workers who have any of these products,” the study adds.

A point that draws a lot of attention from these figures has to do with digital wallets, since it is the point in which Colombia stands out compared to other countries, after reaching 65% coverage, surpassing Argentina (61%), Panama (55%) and Peru (44%). ; making it clear that this is the tool most used by people who do not currently have a formal job.

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“At a general level, it is observed that only one in three citizens in the region has some credit product. Regarding tenure by type of job, 28% of informal workers reported having at least one credit product, compared to 51% of formal workers. On the other hand, 20% of formal workers reported having with two or more of these products, in contrast to 9% of informal workers,” the report concludes.

With all that said, Credicorp and Ipsos closed by highlighting that given the enormous dimension of the informal sector, it is essential to think about policies and actions that promote the inclusion of those who operate in this environment, since although the numerous efforts made by the various states at a global level to combat informality can represent an enormous contribution to the expansion of financial inclusion, there are still many challenges to overcome.