The Voice ofSavings and Retail Banking

NON-BANKING CORRESPONDENTSIN EL SALVADORTHE CASE OF FEDECRÉDITO(FEDERATION OF CREDIT UNIONS AND WORKERS’ BANKS)

“Working with banks and savings banks to double savings accounts for the poorest”

March 2015

Research Paper

Research Paper

PREFACEThis study has been prepared under the patronage of the Instituto Mundial de Cajas de Ahorro y Bancos al por Menor(IMCA) [World Savings and Retail Banking Institute], in the context of its programme “Working with banks and savingsbanks to double savings accounts for the poorest”, with the main purpose of publicising the main experiences ofone component of the programme, developed by “Fedecrédito” in El Salvador.

This study presents the main lessons learned during the process of planning, preparation and start-up of a networkof non-banking correspondents throughout the country, and also examines the key factors which contribute to thesuccesses and failures of the programme, taking into account, in particular, work with local communities andthe challenges of turning a low-value payment system into a scheme which will make it possible to provide an arrayof financial services to the poorest communities.

Fedecrédito is a member of IMCA, and was the only Latin American entity selected to participate in theaforementioned programme. The network of non-banking correspondents whose establishment and start-up receivedthe financial and technical support of the programme, forms part of a broader strategy adopted by Fedecrédito whichis intended to expand the various distribution channels, including ATMs and mobile banking, to offer a more effectiveservice to the unbanked population who lack access to financial services in the country.

This project can be considered a pioneer in El Salvador since Fedecrédito was the first financial institution in thecountry to establish and render operational a network of non-banking correspondents in the country.

The authors would especially like to thank the Fedecrédito team for its important contribution to the developmentof this study. They would also like to thank Mr Jeremiah Grossman, Mobile Banking Regulations Manager at GSMA1

for his interesting comments on a previous version of the study.

NON-BANKING CORRESPONDENTSIN EL SALVADORTHE CASE OF FEDECRÉDITO(FEDERATION OF CREDIT UNIONS AND WORKERS’ BANKS)

“Working with banks and savings banks to double savings accounts for the poorest”

March 2015

Main Author: Ernesto AguirreCo-author: Weselina Angelow

1 Translator’s note: The GSMA is a body which represents the interests of mobile operators worldwide.

NON-BANKING CORRESPONDENTS IN EL SALVADOR - THE CASE OF FEDECRÉDITO4

1. INTRODUCTIONIn this document we will examine the planning and implementation of a network of non-banking correspondents, asan innovative channel which will make it possible to increase the possibility of access to low-cost financial services forlow-income segments of the population, particularly in isolated areas and areas with certain access difficulties.A particular feature of the case study, carried out in El Salvador, is that it concerns a network that is essentially madeup of cooperative entities, basically comprising members of the actual communities in which they operate, most ofwhich are self-regulated, and united through a federation (FEDECRÉDITO) which coordinates, regulates and supervisesthem, as we shall see in this study.

2. BACKGROUNDa) Banking service coverage in El Salvador (at the start of the project)

El Salvador, a small Central American country with a territorial extension of 21,041 km2, a population of 6,340,000people (2013) and a gross domestic product per capita of US $3.720 (2013)2, had, at the end of 2009, a relativelylow level of banking service coverage3 and only 45% of its municipalities had direct access to financial services(173 municipalities had no formal financial service provider)4.

It is a well-known fact that access by the poor population to low-cost basic financial services has turned out to be acritical socio-economic variable, particularly in isolated rural areas. This is even more true for a dollar economy, highlydependent on remittance flows from abroad, as in the case of El Salvador.

b) FEDECRÉDITO: basic structure, members and organisation

The FEDECRÉDITO system is made up of 55 cooperative-type financial entities, 51 of which are self-regulated, whichprovide universal banking financial services to its members and customers, and FEDECRÉDITO (a federation whichbrings together, coordinates, regulates and supervises the other entities). Four of the members of FEDECRÉDITO canaccept funds from the public and are regulated and supervised by the Superintendencia del Sector Financiero[Financial Sector Supervisory Authority]5.

All of the members of FEDECRÉDITO are independent legal entities which operate autonomously. The Federation issupervised by the Superintendencia del Sistema Financiero [Financial System Supervisory Authority], whose main tasksare the provision of second-tier banking services, technical support, promoter of joint projects and commontechnology system manager. Furthermore, it is responsible for regulating the FEDECRÉDITO System6, within a self-regulatory framework allowed under Salvadoran law.

2 World Bank. Indicators of World Development, 2013.3 In 2007, El Salvador had 4.83 bank branches, 13.32 ATMs and 172.41 points of service (POS) for every 100,000 inhabitants, which placed it below the Latin

American average at the start of the programme (cf. FELABAN, “Promoviendo el acceso a servicios financieros en Latinoamérica” [“Promoting access to financialservices in Latin America”], 2009).

4 FEDECRÉDITO, “Project to increase the number of savings accounts used by people on low incomes”, 2009.5 The FEDECRÉDITO SYSTEM comprises 55 first-tier entities, including 48 Lending Institutions, 7 Workers’ Banks; and FEDECRÉDITO, a federation which is a

second-tier entity, which manages and coordinates the whole system.6 With the exception mentioned in the preceding paragraph.

RESEARCH PAPER 5

3. THE PROJECTFEDECRÉDITO is a member of the Instituto Mundial de Cajas de Ahorro (IMCA), (World Savings Bank Institute (WSBI)),an institution which in 2009 invited its members to participate in a 3-year project the main objective of which was toincrease the number of savings accounts used by people on low incomes.

Within the framework of the “project” the Instituto Mundial de Cajas de Ahorro (IMCA) provided FEDECRÉDITO withtechnical and financial support with the aim of encouraging the poor in El Salvador7 to build up savings and tofacilitate access by the “unbanked” poor to basic financial services in at least half of the 173 municipalities which atthe start of the project (end of 2009) were without any banking services8.

To achieve the aims of the project, three basic tools were to be used:

(i) a network of ATMs;(ii) a network of non-banking correspondents, owned and managed by Partner Entities and coordinated by

FEDECRÉDITO; and(iii) the service provided by Mobile Banking.

ATMs are a well-known and more traditional way of providing financial services but the provision of financial servicesby Salvadoran Mobile Banking is still in its infancy. Thus, in this study, we will concentrate on the lessons learnedduring the establishment and development of the NBC [Non-Banking Correspondent] network.

4. PROJECT DEVELOPMENTa) Planning phase

i) Role of FEDECRÉDITO and of Partner Entities - Structure of the model

The business model plan for the project was produced by a FEDECRÉDITO technical team, with the assistance ofproject consultants hired by the IMCA. Basically, the model was to enable FEDECRÉDITO and its members toestablish a sustainable network8 with at least 100 access points and the capacity to reach customers in at leasthalf of the 173 municipalities which, at that time, had no banking services. The network should make asignificant improvement in the use of basic financial services by the poor. What is more, it was supposed toshow how quickly people would take advantage of the services available and the realistic possibility of reaching,in 2014, the target of opening 200,000 savings accounts.

The model assigned the main role to the Partner Entities, whilst the NBCs were to provide financial services intheir name and on their behalf. FEDECRÉDITO would develop the technological infrastructure offering a turnkeyservice, including the training of both Partner Entities and NBCs, and it would become the central networkmanager once it was up and running. The NBCs would act as agents of Partner Entities for the provision offinancial services, for which they would receive a fee. Partner Entities would be responsible for identifying anddesignating the correspondents, with the help of FEDECRÉDITO, which, for this reason, carried out marketresearch at national level.

In a nutshell, despite FEDECRÉDITO’s important role of coordination and provision of technical and operationalsupport, the key element of the project were the Partner Entities who would offer services to end users throughthe new channels. As can be seen, the success of the project ultimately depended on the interest expressed byPartner Entities in taking part.

7 An initial target was set of opening 200,000 new savings accounts for poor customers within a three-year timescale.8 IMCA received more than 40 expressions of interest from its members worldwide and after completing the evaluation process, FEDECRÉDITO’s proposal was

approved, it being the only institution to win this project in Latin America, paving the way for the implementation of the project and of the first Network ofNon-Banking Correspondents in El Salvador.

9 Generally speaking, a sustainable network is considered to be the network made up of Non-Banking Correspondents whose services generate sufficient incometo be commercially viable without receiving subsidies from the corresponding financial entity or parent company. In this project, the NBCs receive commissionfor each transaction and are guaranteed a minimum commission by the Partner Entities. Even though many of the NBCs are subsidised by the respective PartnerEntities, it is hoped that, after an initial period, these NBCs will be able to rely solely on the income they have generated on their own.

ii) NBCs, technological requirements, services to be provided and financial structure

Two basic kinds of NBC were considered, one involving a very simple computer terminal capable of offering thecomplete range of financial services covered by the project, and the other which would only use a point of service(POS) system offering a more limited range of services, based on the provision of transaction services, such ascollection of utility payments (cash inflows) and cash payment of family remittances to the end beneficiaries (cashoutflows)10.

The NBCs would be able to provide a wide range of financial services, including:

cash deposits and withdrawals to/from savings accounts, payment of utility bills, transfers of funds betweensavings accounts, payment of family remittances, loan and credit card payments and the provision of lending andsavings accounts information. They would also act as reference channels for the opening of savings accounts andfor the approval of credit by Partner Entities.

In addition, NBCs would provide services in the name and on behalf of the Partner Entities, and would receivecommission for each transaction, thereby guaranteeing them a minimum fixed monthly amount during the initialperiod. In principle, the high number of service payment transactions (cash inflows) and family remittancepayments (cash outflows) appears to offer cash flow equilibrium.

iii) Creation of a regulatory framework and dealings with regulatory bodies

In principle, the NBC network was to operate with Partner Entities which were not regulated by the FinancialSystem Supervisory Authority. Thus, FEDECRÉDITO developed internal rules governing their management andoperation, which were approved by its Governing Board on 30 November 2011 and which came into effect on1 January 2012. Before commencing activity, Partner Entities had to meet the conditions necessary to enablecorrect functioning of the NBCs, including training and the signing of contracts with small businesses which wereto act as NBCs for the respective Partner Entity, and finally, seek the corresponding approval from FEDECRÉDITO.The NBCs are subject to the administrative supervision of the Partner Entity that contracted their services and arealso supervised by FEDECRÉDITO.

The whole framework for working with NBCs, in terms of customer relations, technology, and financial andoperating risks was under the general supervision of FEDECRÉDITO, which would provide participants (PartnerEntities and NBCs) with technical and operational support. In this capacity, each Partner Entity was to sign amanagement contract with FEDECRÉDITO.

It should be pointed out that at the start of the project, the financial entities regulated by the Financial SystemSupervisory Authority were not able to operate through NBCs since there was no financial regulation available tothem to do so. It was not until 2013 that a regulation authorising this kind of operation was approved, which inpractice, gave unregulated Partner Entities of FEDECRÉDITO a certain advantage (almost two years) and, at thesame time, the responsibility of being the first ever group of entities in charge of running an NBC scheme in thecountry.

It should also be mentioned that one of the core features of the project is that, unlike most other such schemesapplied in other countries (where, generally speaking, correspondents operate as part of a network belonging toa large bank regulated by the banking regulator in that particular country), the Salvadoran scheme was made upof small, self-regulated financial entities, which in most cases already had close links with the target populationliving in poor areas to which the NBCs were to provide services.

iv) The search for enthusiastic participation by non-regulated Partner Entities

In addition to the particular features of the scheme described in the preceding section, it was essential to inspirethe directors and managers of Partner Entities to achieve enthusiastic participation, which in practice waspossible by an intensive process of briefing and training programmes, combined with appropriate leadership.(The President of FEDECRÉDITO organised trips with managers of Partner Entities to visit other sites, e.g. IMCAmember institutions in Brazil, Peru and Colombia, to observe the work successfully carried out in othercorrespondent agent networks.)

6 NON-BANKING CORRESPONDENTS IN EL SALVADOR - THE CASE OF FEDECRÉDITO

10 As at 31 December 2014, there are 203 NBCs in operation, which use the computer terminal-based model.

7

b) Implementation phase

i) Search and procurement of resources

FEDECRÉDITO was tasked with finding and procuring the technical resources, which involved not only procuringthe resources to be used by the NBCs (computer terminals and points of service), but also the basic toolsnecessary to operate the system. These included the “transactional switch” and other hardware and softwarecomponents necessary for operation of the central system which would connect the “switch” with the bankingcomputation centre of the system for the end processing of all the transactions carried out. The technologicalcomponents were purchased with technical support from the WSBI and with the financial support ofFEDECRÉDITO and its Partner Entities.

ii) Marketing programme

A regional specialist firm was contracted to carry out consultancy services which included a nation-wide marketstudy and the selection of potential Non-Banking Correspondent sites, with WSBI funding. It was very importantto take into account that the success of the project depended on having access to fairly isolated segments of thepopulation, most of whom lived in small towns/villages and cantons outside the capital which generally meantthose on the lowest incomes, and that NBCs would have to be rolled out primarily in municipalities where therewere no actual banks.

Basically, this meant encouraging the residents to open savings accounts through the Partner Entity thatapproached them with the offer of the financial services, and then to deposit their small savings through thecorrespondent, in order to reduce travel costs and gradually, the cost of the financial transactions themselves.

iii) Identifying suitable sites

The identification of the sites best suited to accommodating the establishment of NBCs, was a very interestingpart of the process, primarily involving the participation of Partner Entities with the support of FEDECRÉDITO.

Since most of the Partner Entities already had a long history of involvement in their respective towns and villages,and their partners were mainly local residents, these close links were exploited to try to identify small-scaleentrepreneurs who might be of use to the project, both in towns/villages and in nearby settlements (cantons).

During the implementation process, small-scale entrepreneurs were identified, of good repute recognised in theneighbourhood, and with an appropriate stable business to operate as an NBC. Thus, the trust of local residentsplaced in the entrepreneur facilitated the execution of minor financial transactions, with greater emphasis on paymentof basic telephone, power and water bills; and besides the payment of family remittances, the bankarisationprocess was started after providing access to these services.

Various basic kinds of NBC can be identified. In urban areas, most NBCs have the basic function of improvingagencies and easing their congestion, i.e. Partner Entities which have a significant turnover delegate a largenumber of simple transactions and operations, conducted with several customers, to the correspondents. In thisway, the biggest transactions are reserved for the head offices and branches.

This kind of NBC accounts for roughly 8% of total agents. Where Partner Entities have a presence in rural areas,most of the NBCs are used to carry out financial services and to facilitate the process of extending bankingservices, i.e. extend the scope of Partner Entities to remote areas and thus create a wider market for very simpletransactions. Many of these NBCs operate in municipalities which previously had no access to financial services.

Lastly, a number of NBCs operate at smaller sites and very isolated settlements within municipalities whichpreviously had no banking services.

RESEARCH PAPER

8 NON-BANKING CORRESPONDENTS IN EL SALVADOR - THE CASE OF FEDECRÉDITO

Picture 1: Fede Neighbour Point at the Letty store in Candelaria de la Frontera, in the Santa Anaadministrative district © Sistema Fedecredito

c) Operating phase

i) Launch of the service in the community

A key factor in the launch of the new channel has been the advertising and promotion of the CorrespondentNetwork. Basically, this was carried out at two levels: a nation-wide advertising campaign was conducted usingmass media with national coverage. To do so, the trade name of FEDE PUNTO VECINO [Fede Neighbour Point]was used, with standard signage and a brand image for all of the Non-Banking Correspondents designed inagreement with the Partner Entities. The advertising campaign evoked elements of proximity and confidence inthe Partner Entities that supplied financial services to the community through neighbourhood trade.

For the specific case of operating a Non-Banking Correspondent in a specific place, each Partner Entity launchesthe services accompanied by advertising and promotion of the Correspondent and of the financial services thelatter will provide, thereby turning the business into one of the most important in the area. The acceptance ofcustomers and partners to carry out financial transactions at Non-Banking Correspondent points quickly provedto be successful, since the services immediately began to be provided, including the handling of deposits, sinceconfidence was placed primarily in the Partner Entity who supported the operations, benefitting the communityby enhancing comfort in the neighbourhood, cutting transaction costs, minimising travel times and generatinggreater security.

ii) Services to be provided at NBC points

The first services to be used and positively perceived by the community were basic transactions, such as paymentof utility bills and collection of family remittances, but these are the majority of the transactions carried outthrough NBCs11.

11 According to FEDECRÉDITO, 846,072 (more than 80%) of the 1,054,288 operations carried out through NBCs between September 2012 and June 2014 weretransaction-type. Cf. FEDECRÉDITO, “Corresponsales no bancarios del FEDECRÉDITOSISTEMA FEDECRÉDITO. Punto Vecino” (Non-banking correspondents ofthe FEDECRÉDITO System. Neighbour Point”), PP presentation, July 2014.

9RESEARCH PAPER

As already mentioned, probably the most importantreason for using NBCs, from the customer’sperspective, was the saving in travel costs since they nolonger had to take the bus to carry out the sametransactions in the closest municipality to gain accessto the financial services. This function of reconcilingcommunities with NBCs has already been successfullyachieved. However, to extend the use of thecorrespondent to other financial services, with levelssimilar to those achieved with purely transactionalservices, it is still necessary to promote credit andsavings products on an ongoing basis amongstpopulations close to the NBCs, which is theresponsibility of the respective Partner Entity and which ispartly supported by the same Correspondent Agent.

With regard to NBCs located in urban areas, there arecases in which the services provided (in most cases,transaction services) are generating significant timeand space savings for the Partner Entities. This factor may be more important for the financial situationof these Partner Entities than for the project in terms of extending and providing financial services to the poorestand most isolated segments of the population in the country.

iii) Balance between inflow and outflow cash transactions

Based on other international experiences12 we know that the transfer of cash was perhaps the most significantoperating cost within the NBC framework. Thus, special attention was devoted to trying to ensure that inflowsand outflows of cash were balanced, in order to minimise this basic cost.

So far, the balance in this project has generally been maintained basically because the service payment amounts(money inflows) and the amounts for collection and payment of family remittances (money outflows), which arethe two main transaction groups which so far have been carried out through NBCs in the project, have been verysimilar, as can be seen by the figures given in the following section. This has made it possible to minimise thecost of transporting cash and taking out insurance, etc., which makes it possible to significantly reduce the costspaid for the services13.

5. GAINS ACHIEVEDSince the start of the project, a network of 203 NBCs has been created (as at December 2014). According to figuresproduced by FEDECRÉDITO14, 95% of the NBCs essentially carry out “bankarisation” tasks.

As at December 2014, 92 of the 173 municipalities previously without financial services can now access them.

A very interesting balance has been reached between cash inflows and outflows, because of the US $ 54.279thousand for transactions carried out through the NBCs to December 2014, around 53% correspond to cash inflowsand 46.6% to cash outflows15. This has enabled the system to achieve a significant reduction in the cost oftransportation and insurance of physical cash.

For the end users, particularly residents in isolated areas (who in many cases were previously unbanked), the mainadvantages are the reduction in the cost of collecting family remittances and savings in the cost of travel to pay publicutility bills and other basis expenses.

12 To learn more about international experience on this subject, the project provided financial and technical support to enable the representatives of FEDECRÉDITOand its members to visit various entities in Brazil, Colombia, Kenya, Peru and Tanzania.

13 According to FEDECRÉDITO (cf. note 12), at this point, a reduction in the average cost per transaction from US$ 5 to US$ 1 is considered realistic.14 Cf. table 1.15 Calculation taken from table 1.

Picture 2: Fede Neighbour Point in the Don Misastore in Santo Domingo, in the administrativedistrict of San Vicente © Sistema Fedecredito

10 NON-BANKING CORRESPONDENTS IN EL SALVADOR - THE CASE OF FEDECRÉDITO

Graph 1: Non-banking correspondents in production (from 17 September 2012 to 31 December 2014)

Source: FEDECRÉDITO. December 2014

Table 1

Source: FEDECRÉDITO. December 2014

220

200

180

160

140

120

100

80

60

40

20

0

Cor

resp

onde

nts

Sep 12

5

Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14

2330

48

107

138

155

173

188

203

Accumulated January - December 2014there are 65 new NBCs operating.

TRANSACTION TYPE NUMBER OF TRANSACTIONS AMOUNT ACCUMULATED IN THOUSAND $

Cash Inflow Transactions 1,469,228 28,761

Cash Inflow Transactions 1,469,228 28,761

Electricity bill payment 771,160 10,680

Telephone bill payment 132,714 2,364

Loan payment 117,828 6,999

Deposit made to savings account 75,987 5,159

Water bill payment (ANDA16) 345,241 2,099

Credit card payment 26,298 1,460

Cash Outflow Transactions 220,615 25,312

Family remittance payment 174,650 22,002

Cash withdrawal from savings account (debit card) 34,297 2,246

FISDL17 subsidies payment 9,149 835

Credit card cash withdrawal 2,519 228

Non-Monetary Transactions 88,322 206

Consultation of savings account statement 83,615 0

Savings account origination management 1,793 0

Loan origination management 1,769 0

Money transfer between savings accounts 1,145 206

TOTAL 1,778,165 54,279

16 Administración Nacional de Acueductos y Alcantarillados (National Aqueduct and Sewer Authority).17 Fondo de Inversión Social para el Desarrollo Local (Social Investment Fund for Local Development).

11RESEARCH PAPER

From the point of view of FEDECRÉDITO, the project (including its three components: ATMs, NBCs and mobilebanking) has generated a significant increase in its visibility at national level and recognition as the country’s bankingorganisation of Salvadoran ownership with the highest coverage of municipalities18. Given that other banks onlyobtained authorisation to operate with NBCs at the end of 2013, and began setting up NBC networks at the end ofthat year, the image of FEDECRÉDITO as a banking organisation close to small communities has, to a large extent,been consolidated.

The Partner Entities have also consolidated their position as basic providers of financial services to the community,particularly in rural and isolated areas, and have significantly increased the provision of transaction-type services.Furthermore, a number of larger Social Partners operating in the San Salvador area and other major cities, have noteda significant rise in revenue thanks to improvements in their ability to provide less costly financial services throughNBCs and the possibility of using more costly branches for more complex transactions19.

As for agents, the main advantages so far are the increased number of visits made by potential customers (additionalproduct sales) and the profit margins that can be achieved from carrying out financial transactions. However, in mostcases, the profit from the transaction does not exceed the fixed minimum level and so is supplemented by theminimum level set by FEDECRÉDITO and each Partner Entity is paid this by the respective Correspondent Agent.Significant exceptions include agents located in popular areas of San Salvador, whose profits have largely exceededthe subsidy level determined by FEDECRÉDITO.

In short, by increasing its presence in rural areas, FEDECRÉDITO has increased the potential to collect savings fromthe poorest segments of the population and the possibility of initiating them in use of electronic payment services.In reality, agents provide their customers primarily with transaction-type services (payment of utility bills, collection ofremittances, etc.) and are also being used by customers to collect state benefits. Furthermore, with respect to acomplete range of formal financial services available to the poor population, there is still a long way to go to find theright solution to make it possible to significantly increase the collection of the small amounts of surplus money heldby the poorest segment of the population to convert it into small savings or electronic payments20.

18 The FEDECRÉDITO SYSTEM is the fifth largest organisation in the country in terms of equity, and the four higher-ranked on the list are foreign companies;it has the highest municipal coverage in the country, with a presence in more than 179 municipalities, including 67 without the presence of any other bankinginstitution.

19 For example, BANCOFIT, a Partner Entity which operates in a popular district of San Salvador, has said that by mid 2013, it had achieved a 48% increase inthe total amount of deposits and a 63% increase only in current account deposits, thanks to transactions conducted through NBCs.

20 With this in mind, FEDECRÉDITO is launching the process to implement low-savings products (Planned Savings and Electronic Savings Account).

12 NON-BANKING CORRESPONDENTS IN EL SALVADOR - THE CASE OF FEDECRÉDITO

LESSONS LEARNED

■ This is one of the few cases in the world where a Network of Non-Banking Correspondents has been created byself-regulated cooperatives, most of which operate outside large metropolitan areas and which are basically madeup of members of the very communities in which they are active, operating with some degree of success takinginto account the total number of transactions carried out to date and the cash flows involved.

■ To achieve these results, it is very important to have the presence of one well-organised coordinator (FEDECRÉDITO)and a clear sense of enthusiastic participation on the part of participating entities. The involvement of self-regulated Partner Entities and small and micro entrepreneurs in each place has been a major factor in promotingthe network of agents exploiting a local presence and their connections .

■ It is essential to create a simple, clear and complete regulatory framework which lends credibility and legal certaintyto the whole scheme.

■ In contrast to what was, at one time, the widely held opinion globally, it is clear that establishing and managinga non-banking correspondent network through entities basically made up of members of the community in whichthey operate, has, in practice proven to be easier than trying to convert cash payment transactions into anintegrated system of virtual payments .

■ Transaction-type operations such as payment of family remittances and basic services are the most appealing tothe poor segments of the population, because the accompanying economic advantages are more obvious.The benefit derived from the savings in travel costs is a key incentive. In addition, it is very important to maintaina good balance between the inflows and outflows of money which means major savings due to the reduced costof provision and collection of physical cash.

■ The opening of savings accounts is costly for the Partner Entities (high initial costs and incentives) and of littleinterest to agents who, at least in principle, are more interested in the profit generated by their increased sales inother products, than in the small commission they receive for more complex services such as collaboration in theopening of accounts.

■ To motivate low-income segments of the population to open savings accounts and to deposit and keep money inthem, other incentives are needed which go beyond simply creating low-cost networks for the provision of basicfinancial services. Even though it needs to be examined in more detail, it is possible that cross selling of otherproducts to new customers would be an easier and more profitable way of collecting formal savings. The recentapproval of a new low-cost savings product in October 2014 designed to serve the poor free of charge seems tobe a step in the right direction.

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14 NON-BANKING CORRESPONDENTS IN EL SALVADOR - THE CASE OF FEDECRÉDITO

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Published by WSBI. © March 2015