More People Are Using Banks in Latin America: Does That Mean Greater Prosperity?

Researchers examined data covering 2004–2024 to investigate whether greater use of financial services was associated with higher income per person. They tested whether banking problems, measured through loans that borrowers were failing to repay, changed that relationship.

A bank account can make everyday life easier by giving people a place to save, receive payments and manage their money. Access to credit can help households cover expenses and give businesses the funds they need to expand. The connection between wider banking use and a stronger economy is less certain than those everyday benefits might suggest.

The study "Financial Inclusion and Growth Under Banking Fragility: Dynamic Panel Evidence from Latin America," published in the Journal of Risk and Financial Management, explores that connection across 12 economies. Researchers examined data covering 2004–2024 to investigate whether greater use of financial services was associated with higher income per person. They tested whether banking problems, measured through loans that borrowers were failing to repay, changed that relationship.

The findings challenge the expectation that expanding financial inclusion automatically produces economic growth. Positive links appeared in some models, losing strength or disappearing under tests that accounted for country differences and shared economic movements. Rising income predicted greater use of financial services more clearly than financial inclusion predicted rising income.

Measuring Financial Inclusion Beyond Bank Branches

Financial inclusion expanded considerably across the economies examined, with the median share of adults owning an account rising from 28% in 2011 to 58% in 2024. Private credit increased from a median of 26% to 51% of gross domestic product between 2005 and 2024. These changes show that financial services became more widespread without establishing how much they contributed to economic progress.

The researchers built an index combining deposit accounts per 1,000 adults, loan accounts per 1,000 adults and private credit relative to the economy's size. Scores ran from zero to 100, capturing both account use and the depth of lending. A comparison with Global Findex account ownership surveys produced a moderate correlation of 0.55, giving the index an external check against people's reported access to accounts.

The final dataset contained 201 country-year observations from Argentina, Bolivia, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Panama and Peru. Missing information reduced the original sample of 24 economies, with Brazil excluded because its deposit account series ended in 2013. A separate measure based on branches and cash machines performed poorly against survey evidence, showing why physical banking networks can give an incomplete picture of inclusion.

Why the Apparent Growth Benefits Became Uncertain

The researchers compared models that assumed similar relationships across countries with approaches that allowed national differences and shared economic influences. Their calculations included trade, investment and, in selected models, inflation to account for other factors associated with income. Commodity cycles, global financial conditions and the pandemic mattered because several economies could experience changes in banking activity and income at the same time.

The main pooled models associated a ten-point higher inclusion score with approximately 5.9% to 9.7% higher income per person, using the paper's percentage approximation. Those figures describe relationships within particular models and do not show that increasing account use would deliver those gains. Tests designed to establish a stable long-term relationship failed to confirm one, leaving the estimates dependent on the assumptions behind each calculation.

The positive finding survived checks excluding Mexico or the pandemic years, becoming less convincing with longer time lags, country-specific trends and alternative measures of banking health. Adjusting for shared yearly movements removed clear support for the relationship in the main pooled analysis, and methods allowing country differences usually produced uncertain results. Annual growth models told a similar story, with the estimated association shrinking from about 0.21 percentage points per inclusion point to roughly 0.01 after accounting for year effects.

Banking Problems Did Not Explain the Missing Link

The study measured banking fragility using non-performing loans, expressed as a share of total loans. Higher problem-loan ratios were associated with lower income in most estimates, with convincing evidence appearing in only some models. The findings offered limited support for a direct connection between weaker loan quality and lower income.

The researchers tested whether troubled banks weakened the relationship between financial inclusion and income. Most models did not support that explanation, and one result suggesting such an effect depended on how uncertainty was calculated. Replacing problem loans with the bank capital-to-assets ratio did not establish a dependable moderating effect in the main pooled check.

Tests of predictive direction found that income changes helped forecast financial inclusion, with no comparable evidence running from inclusion to income. Financial inclusion and problem-loan ratios helped predict each other, suggesting that banking use and loan quality need to be examined together. These tests identify patterns over time rather than proving cause and effect, leaving the mechanisms behind those patterns open to further investigation.

What the Findings Mean for Financial Inclusion Policy

The authors argue that account-opening targets alone are unlikely to generate growth without attention to how people and businesses use financial services. Their policy discussion places greater emphasis on productive uses of accounts and credit, supported by supervision that monitors the quality of expanding loan portfolios. National strategies need to be assessed against regional economic conditions that can influence both financial activity and income.

The evidence has clear limits because the sample covers only 12 economies, includes different numbers of years for each country and leaves out Brazil. The inclusion index combines account measures with credit depth, which means it cannot reveal who benefits from borrowing or how effectively funds are used. A commonly used alternative estimation method produced unstable results across software implementations, reinforcing the need to compare methods before drawing firm conclusions.

Future research could include mobile money and non-bank accounts as data coverage improves, giving a fuller picture of financial participation. Studies using local or household-level information could examine how regulation, supervision and the use of credit shape economic outcomes.