Financial inclusion and education in the spotlight in Peru

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Author: Renzo Ricci Cocchella , CEO, Prima AFP

July 19, 2022

When it comes to financial inclusion, Peru has considerable room for improvement. The country falls below the regional average in terms of access to financial products and services, ranking sixth out of seven Latin American countries surveyed in Credicorp’s Financial Inclusion Index for 2021. According to this survey, 52 percent of Peruvians do not possess any financial savings products at all, while 72 percent perceive at least one barrier to having deposit or savings products.

While the financial sector has promoted initiatives over the years aimed at improving access, the single biggest problem is the informal nature of Peru’s labour market. According to data from the National Institute of Statistics and Informatics, the official statistics agency, only 27.3 percent of the country’s employed population is in formal employment. There is also a fundamental lack of knowledge as to how financial products and services work, with the pension system being one of the least well understood areas. We at Prima AFP believe it is important that the private sector and the state share the task of helping the population towards greater participation and understanding. The coronavirus pandemic has only underlined the lack of financial inclusion in Peru.

As a result of the economic crisis caused by COVID-19, 73 percent of Peruvians did not put aside any savings last year, Credicorp’s survey found. Furthermore, in the face of the health emergency, hundreds of thousands of people received financial support from the government in the form of subsidies to lower-income families, but the low level of participation in the banking system complicated this effort. Nevertheless, looking beyond the challenges that the country has had to overcome over the past two years, I take the view that the pandemic can be an important starting point for improving financial inclusion in Peru.

Nurturing the habit of saving
Prima AFP’s own efforts in this area include the development of various products aimed at cultivating and strengthening the habit of saving among Peru’s citizens. These products now have more than 84,000 customers. For example, through the AhorroYa! programme, we have signed business alliances that allow our clients to ‘save through consumption’ when purchasing fuel and household appliances from affiliated organisations. Part of their spending is transferred to the client’s individual capitalisation account, meaning that thousands of customers build up savings without even realising it. Also, our Cuenta Metas and PaMayo products allow for savings for medium-term objectives, with similar returns to those offered by pension funds. These actions demonstrate Prima AFP’s commitment to promoting financial inclusion in society and reducing inequalities.

Understanding pensions
Financial inclusion and financial education are closely linked, and Peru scores poorly on both. According to the OECD’s most recent survey of the issue, Peru has a rate of financial illiteracy that is close to 80 percent. This means that most Peruvians have no knowledge when it comes to the state of their finances and are unaware of how their finances are managed. This lack of understanding also translates into a low level of interest among the population in financial products and services. This is a problem that affects not only Peru, but also other emerging countries around the world. In developed countries, the opposite is true. According to research from Standard & Poor’s, the US is among the countries with the highest financial literacy rates and this is reflected in a greater number of people benefiting from access to financial products and being able to achieve their financial objectives.

The pandemic can be an important starting point for improving financial inclusion in Peru

Prima AFP is committed to strengthening the financial knowledge of both its clients and non-clients. Education in the country’s private pension system (PPS) forms a part of the company’s sustainability pillars. To this end, we continue to work with platforms such as our web-based series El Depa, which addresses PPS concepts in a playful and humorous way. Its 18 episodes, grouped into six seasons, have more than 53 million views on YouTube. We are also set to launch a web page, Ahorrando a Fondo, devised to educate users about basic pension concepts and address the most frequently asked questions.

We are aware that the technical aspects of the PPS can be complicated, but in recent years Prima AFP has been working to improve the transparency and simplicity of the sector. For example, in 2021 we launched Micros Abiertos, the first event for clients and non-clients that sought to answer the main questions that people have about Pension Fund Administrators (Administradoras de Fondo de Pensiones, or AFPs), of which Prima AFP is one. Through initiatives such as Micros Abiertos we have made it clear that we are a company that is willing to listen to its customers. Our aim is to respond in an open manner to all queries about the PPS.

Gender equity in pensions and at work
It is also worth noting that Peru has a gender gap when it comes to pension savings. It is far from alone in this; research published in 2021 found that, for a variety of reasons, women over the age of 65 in OECD member countries take 26 percent less retirement income than men. According to a recent study by the Pontifical Catholic University of Peru, a gender pension gap of 37 percent exists in Peru, and gender gaps are present in each percentile of pension fund distribution. These findings are a reflection of the situation in the Peruvian labour market, where women earn almost a third less than men for doing similar work.

With regard to gender equity among our own employees, at Prima AFP we believe that actions speak louder than words. That is why we have created the Equity Now programme, which operates across various fronts. For example, we have improved our recruitment and selection processes, seeking to have equitable shortlists. We are also working to ensure that variations between salaries, where roles and responsibilities are similar, are not the result of gender bias.

As part of our fight against sexual harassment at work, we have joined the ELSA programme, a digital project developed by GenderLab with support and financing from the Inter-American Development Bank. ELSA (a Spanish acronym that translates to Labour Spaces Without Harassment) helps organisations to implement a culture of prevention with regard to sexual harassment. Among other things, Prima AFP participated in ELSA’s 2021 Workplace Sexual Harassment Survey, together with other companies that have signed up to the programme. We believe in gender equity as a tool that allows for the development of a truly impartial meritocracy.

Meeting responsible investment goals
Prima AFP has highlighted the growing importance of responsible investment in previous articles for World Finance, arguing that it has become integral to all financial decision-making and investment processes. The coronavirus pandemic did not change the execution of our strategy in this area in 2020 and 2021, and we have made progress in accordance with the main goals of our responsible investment plan. We have gone from 52 percent of assets under management with environmental, social and corporate governance (ESG) analysis in 2020 to 73 percent in 2021.

We expect this share to reach 81 percent by the end of 2022 and 100 percent by the end of 2023. As part of the responsible investment plan, we have worked to create and implement our relationship plan, have implemented our climate change plan, and improved ESG integration in the investment processes of third-party funds. We have meanwhile continued to train our risk and investment employees in ESG topics and have maintained our market awareness programmes on responsible investments.

An important part of our strategy in this area is our partnership with the Responsible Investment Programme (which goes by the Spanish acronym of PIR), the local network of investors that encourages good ESG practices. We are also proud to highlight our signature to the Principles for Responsible Investments (PRI), a United Nations-supported initiative put in place by a group of institutional investors to promote responsible investment worldwide.

Going forward, one of the main ESG issues that Prima AFP intends to focus on is climate change. During 2021 we carried out an analysis of our portfolios using information from several data sources on the risks and opportunities related to climate change. We subsequently created our climate change policy. We have discussed the actions needed to build portfolios that are resilient to climate change in the medium term, and the objective we have set for 2022 is to approve and implement these actions in order to support our goals.

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