Financial Inclusion for All and Excellence in Operations: El Salvador’s Central Bank Sets the Bar High — for Others to Follow

No Salvadoran should be left unbanked thanks to the bank’s ongoing drive for inclusion…

The Central Reserve Bank of El Salvador (Banco Central de Reserva, or BCR) plays a major role in the Central American country’s economy and financial structure.

The fundamental pillar of the BCR’s management is the promotion of financial inclusion, education, and innovation. It’s winning acknowledgement, recognition, and endorsement from international organisations — whose economic growth stats are remarkably close to the bank’s official projections.

It has earned a reputation for being credible and dependable, and controls the currency rate and issues regulations on economic activities. Once privately owned, it is now under state control. The BCR believes in financial inclusion for all, and — under the guidance of the El Salvadoran president, Nayib Bukele, who sets out statutory laws — contributes to the overall economic and social development of the country.

The bank powered its way to the forefront of issues related to modernising payment systems by promoting a system known as Transfer365. This innovation enables free inter-bank transfers 24/7, 365 days a year — with positive effects on the daily lives of Salvadorans. Time is no longer wasted standing in queues at bank branches, or get stuck in traffic jams to find an ATMs or agency. Transfer365 is the largest network in the country — all financial institutions take part, including co-operative and commercial banks and savings and loans companies.

Since its release Transfer365 benefited the entire Salvadoran population, who collectively saved over US$35m — money they were previously obliged to part with for payment and money transfer commissions. Now, the only limit for their transactions is the balance in their accounts.

Transfer365 Business is one service that has provided solutions to ease the execution of high-value and urgent transfers with greater efficiency, and improved user-friendliness. The system is available for all types of business, from SMEs and micro-companies to large corporations.

During its first year of operation, Transfer365 Business channelled 20,110 transfers, a total amount of US$6,200m.

The Central Reserve Bank of El Salvador guarantees the generation and publication of El Salvador macro-economic statistics on its website and the International Monetary Fund bulletin board. It complies with all guidelines of the Special Data Dissemination Standards (SDDS), issued by the FMI, and develops research-supporting analyses and decision-making for various economic agents.

It again showed its innovative streak by expanding its statistical offer disclosing new information on local account variables and the external sector. This launched El Salvador to a higher stage in national statistical development.

The central bank periodically discloses projections of the expected behaviour of economy and other relevant macro-economic variables. El Salvador’s retired citizens received a direct and immediate benefit in the form of a 30 percent increase in pensions. That windfall was thanks to the approval of the Comprehensive Pension System Law, whose implementation required BCR to issue technical regulations — in just two short weeks.

Another key regulatory role of the central bank was the creation of economic support mechanisms during the pandemic. It approved measures to boost post-pandemic economic recovery, and strengthened the lines of defence for liquidity risk-management, credit, and economic growth.

To complete this strategy, the BCR approved high-impact regulations related to the pension system, credit bureaus, the credit card system, financial education programmes or initiatives, and money-laundering prevention.

One of the central bank’s priorities is to promote and maintain the stability of the financial system. In its role as a Lender of Last Resort, it has managed the renewal of a US$200m credit line with the Central American Bank for Economic Integration (CABEI). It permanently monitors the performance of all institutions in the financial system.

In its drive for financial inclusion, the Central Reserve Bank of El Salvador launched a national policy and an education strategy. The Financial Capabilities Survey, and another on financial products and services, both showed improvements — countrywide. The surveys were conducted with a grant from the Alliance for Financial Inclusion (AFI), which supports developing countries on designing inclusive policies.

The central bank is active in external asset-management. “We are constantly learning new plans of action,” says BCR president Douglas Rodríguez. “This enables us to strategically allocate assets to be implemented within the framework of BCR investment objectives while considering international market conditions.”

A highlight in the BCR’s management of internal assets is the structuring and placement of bonds for US$275m. Special Drawing Rights (SDRs) were issued by the state. BCR also supports negotiations with the International Monetary Fund (IMF) for conversion of SDRs and a transfer of US$365.14m to the Ministry of Finance.

Acting as the State Financial Agent, the BCR has streamlined the process and provides technical advice to the Ministry of Finance for the issuance of securities in the local market. It has also provided support to manage the Eurobond debt in the international capital markets.

When it comes to advocacy and facilitation of foreign trade, the bank makes use of its Centre for Import and Export Procedures (CIEX El Salvador). This implements action to modernise and ease export and import operations — reducing service times to a mere 37 seconds, and extending opening hours to a 24/7, 365 days-a-year format.

The BCR ensures the effective operation of the wordy-but-worthy Management of Asset Money Laundering Risk, Combating the Financing of Terrorism, and Financing Proliferation of Weapons of Mass Destruction (AML/CFT/FPWMD). It consists of an organisational structure, policies, processes and procedures, documentation, control bodies, automated tools, dissemination mechanisms, and training. This is part of the country team dedicated to developing GAFILAT Mutual Evaluation and to implement the National AML/CFT/FPWMD Laundering Risk Assessment in compliance with Recommendation 1 of the Financial Action Task Force (FATF).

BCR insists on excellence and an effective technical capacity. It follows the highest international standards and statistics methods, and from the start of this year, the Central Reserve Bank was entrusted with generating basic statistics in El Salvador.

It complied this task using resources allocated in the National Statistics and Census Office (ONEC), including specialised technical staff, facilities, and state-of-the-art technology. This has guaranteed a continuous process of innovation, quality, and timeliness in the generation and dissemination of stats.

It receives international support and co-operation from organisations such as the United Nations Population Fund (UNFPA), the Economic Commission for Latin America and the Caribbean (ECLAC), the Latin American and Caribbean Demographic Centre (CELADE), the International Monetary Fund (IMF), the Inter-American Development Bank (IDB), the US Census Bureau. BCR leads the preparations of the Nationwide Census Programme.

It is also committed to social responsibility, using initiatives such as “Soy Becado BCR” (“I’m a BCR Scholarship Holder”), which has helped over 5,000 young people on low-incomes to achieve outstanding academic performance via scholarships for technical and university studies.

And, the happy ending: all these institutional efforts have paid off. In 2022, the BCR received the National Award for Decent Work, recognising the highest standards of working conditions, occupational safety, healthcare, and social safety.

Its excellence in social security and the provision of social security services to all employees has also been acknowledged.

Through the efficient, safe, and timely compliance with its legal duties, the Central Reserve Bank of El Salvador promotes excellence, and provides innovative products and services.