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The IDB and the majority in Latin America and the Caribbean

While Latin America and the Caribbean have seen marked improvements in their social indicators, including life expectancy and education, over the past five decades, the proportion of people living in poverty has not varied greatly. Today some 360 million people – roughly seven out of 10 inhabitants of this region – live with annual incomes of less than the equivalent of $3,260.

These majorities have remained sidelined from the benefits of progress largely because they have no access to the sort of tools and services that help people with better incomes accumulate enough assets to weather or overcome economic downturns.

That is why the IDB last year launched a new initiative called Opportunities for the Majority that supports projects specifically targeting that underserved population, which constitutes a huge potential market of producers and consumers.

To focus its efforts the IDB initiative will concentrate on six areas where the Bank has the potential to make a difference: expanding access to official identification and birth registration; mainstreaming low-income people into the formal financial system; expanding access to housing, public services, basic infrastructure and information and communication technologies; and promoting micro, small and medium-size enterprises and job training.

Over the years the IDB has been actively involved in most of these areas. Under the new initiative it will promote partnerships between governments, the private sector and NGOs to support innovative projects capable of being scaled up if they are successful. The initiative also has a set of concrete and measurable goals.

One of the main objectives of the initiative is mainstreaming access to formal financial services such as credit and savings. In most countries access to such services is still reserved for higher-income people. The IDB is and has long been a supporter of microfinance. While this industry has grown into a professionalized market, less than 10 percent of microentrepreneurs have access to microloans. In order to expand access to microcredit and products such as savings and insurance on a massive scale, the IDB is promoting the process known as “downscaling,” in which commercial banks move into microfinance.                                                   

The IDB also sees remittances as a key to allow millions of people to become clients of formal financial services. Last year Latin American and Caribbean emigrants sent more than $60 billion to their homelands from countries such as the United States, Japan and Spain.

These flows, which are larger than all the official development assistance the region receives and more reliable than foreign direct investment, tend to remain outside of the formal financial system, losing their potential as a multiplier of economic activity.

That’s why the Multilateral Investment Fund promotes the participation of formal financial institutions in the remittances business so they can recruit both people who send remittances from abroad as well as their families in their countries of origin. The MIF also finances innovative projects linking remittances with mortgage lending, such as “binational” mortgages.

Other areas in which the IDB has much experience are micro, small and medium-sized businesses. The IDB has supported microentrepreneurs for nearly three decades and was a pioneer among multilateral agencies in supporting microfinance banks. Initially through its Small Projects Program, now known as the Social Entrepreneurship Program, the IDB finances small operations (usually under $1 million) that combine community development goals with strong business management techniques. Under the Opportunities for the Majority initiative, the IDB will carry out more innovative projects that can be implemented on a larger scale in order to reach more low-income people.