Saturday, April 1, 2023

Difficulties affecting the banking process

Official reports show that in the Dominican Republic banking access is around 51%. In other words, of every hundred Dominicans with the possibility of obtaining a bank account, only 51 have one or more, while 49 have not accessed their benefits.

This situation, which should be of more concern to government authorities and private sector entities, is the result of the high level of informality in the Dominican economy, both in terms of the production of goods and services and in the workplace.

The monetary authorities, in coordination with the representatives of the national financial sector, have taken steps to increase the number of people with bank accounts, but these are initiatives that have been of little use, especially considering several factors.

One of them is that current regulations, such as the Law against Money Laundering, establish purification requirements that for certain potential clients are exaggerated.

To this are added other impediments imposed by the bad credit history that a citizen may have, which motivates the cancellation of their accounts and their entry into a kind of “black list”, where no other bank gives them access to an account.

Another limitation is the one that weighs on people with a criminal record, who are denied the possibility of having a bank account, while informal workers who have no way to justify their income, generally in cash and without an invoice to support them, also they have the doors closed to a bank account.

Imagine a plumber, who performs work for individuals, both in condominiums and apartment towers, as well as other private and individual homes. He possibly moves income in the order of RD $ 100,000 per month, but he does not have a bank account, that is, he is not banked.

He decides to go to a bank to open an account to be able to receive payments by transfer and to become, at some point, a subject of credit within the financial formality.

But to open the account, the bank requires a letter of proof of work that justifies your income or, failing that, the way to verify, with documents, a constant income for at least three consecutive months. How can you do it, if you charge cash and offer services to people, not formal companies?

Added to this is the fact that an 18-year-old, that is, already of legal age, who does not have a job and is studying, cannot open a bank account with 4,000 thousand or 5,000 pesos, because for this, their Parents, or at least one, must justify through documentation that they are the ones who financially support the young person and provide them with resources.

On the other hand, if a person, who does not have a criminal record and a terrible credit history, gets a formal job, a bank account is immediately opened for the payroll that he will receive from his employer. Perhaps he will earn minimum wage, just under 12,000 pesos a month, but with ample justification of the origin of that money.

What is observed is that the Dominican economy, its private actors, its government authorities and its current regulations, focus on strengthening the formality of those already formalized instead of going after the informal ones to formalize them.

Service products and facilities arise for bank customers, not for those who are not customers for the purpose of becoming one at some point.

The same occurs in the official tax sector, where governments focus on those who pay taxes, because they are already registered in the formal sector, while doing nothing or very little to capture those who generate wealth in the informal sector and therefore they do not contribute with the payment of taxes a part of that income.

If we do not work on some mechanism for attracting informal workers, it will be difficult, very difficult, to reduce this high indicator of 51% of people without access to the financial sector, as well as the worrying proportion of 56% of informal workers in the country’s economic activities and the same percentage in the number of people working in the Dominican Republic; that is, within the labor market.


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