Financial access and inclusion through postal networks : evaluating the experience of Brazil ’ s Banco Postal

5.1 INTRODUCTION Can banking systems become less skewed towards those already better off in developing countries? Although this question has become an important item on the overall development agenda, there is still no rigorous analysis of the policies aimed at expanding financial services into largely unbanked areas (with the exception of microfinance) and their actual impact on inclusion. Anecdotic evidence and economic theory often suggest that the development of a country's financial sector is beneficial to its overall economic growth and in reducing income inequalities. Individual consumption can be smoothed in response to a negative income shock, people can insure against risks which, in turn, can be better diversified, and broader investment opportunities become available. As a result, businesses would be created ; employment would increase and individuals' incomes would rise. More broadly, poverty would be reduced in developing countries. While these are the expected effects of such policies, the empirical evidence appearing in the economic literature on financial inclusion policies should be strengthened, particularly for developing countries. Moreover, there has been little comparative evaluation of the different channels of financial inclusion. Until recently, there has generally been no consideration of the possible network effects or of the role that large non-banking networks can play in these policies. In this chapter, we study a financial inclusion policy being applied in Brazil that relies on large non-banking networks like supermarkets, pharmacies, postal or lottery shops. The purpose of this system, called correspondent banking, is to democratize access to financial services for the low-income population and ensure that every municipality has at least one point of access to basic financial services. These policies are also considered to be an economically efficient means by