The development of a far reaching correspondent banking network is one of the key factors behind Brazil's success story in financial inclusion. Between 2005 and 2011, the number of correspondents approximately doubled to more than 160,000. The Central Bank encouraged financial institutions to reach out to more distant consumers and to communities where they had not previously been active, including lower income areas, through partnerships with a variety of retail establishments including some with public ties such as the post office network and lottery agencies. Regulators have gradually reduced restrictions on correspondent banking, such as individual approval processes, in response to early successes with this program. The legal framework also facilitated healthy expansion by putting the onus on regulated institutions to train and monitor their correspondents. This Technical Note (TN) does not include an analysis of the causes underlying Brazil's continued high credit cost but many of the issues discussed here may be contributing factors. These include the lack of savings and related dependence on credit which may reduce price elasticity in credit markets
information asymmetries which add to the cost of credit evaluation and increase risk for lenders
and competition issues (as with mobile payments and the so-called no-surcharge-rule on payment methods). The Aide Memoire for the FSAP mission provides further discussion of these important issues.