This may explain why uptake and usage of financial products is low compared to other countries. Although data sources differ, only 64.5% of adults reported an active usage of their accounts during 2015 (RIF, 2015). World Bank Financial Inclusion (Findex) data finds that the percentage of those with an account increased from 30.4% in 2011 to 39% in 2014.

Table 1 reports summary statistics for all credit and savings products that could have been offered by all 46 financial institutions to the study auditors. For consumer credit loans, Table 1 reports the total annual cost of a loan to be repaid over 12 months with monthly installments.<sup>9</sup> For savings products, Table 1 reports the total annual earnings from a deposit in a term account and in a transaction account.<sup>10</sup> The table presents two different costs (or returns) depending on whether or not usage fees are incurred. The reason for presenting costs and returns this way is that information (or lack thereof) on usage fees is relevant since behavior can be adjusted to avoid incurring them. For example, a well-informed borrower could have borrowed from elsewhere to meet the installment payment obligation and avoid a high late payment fee while a well-informed saver could have timed the deposits and withdrawals from the account to prevent the balance from falling below the minimum thus avoiding the minimum balance fee.

Thus, when the total cost (and return) include only fees that must be incurred to acquire the product (i.e. without usage fees) the cost refers essentially to the annual percentage rate (APR) and annual percentage yield (APY) that had to be disclosed in Colombia. But because usage fees are only incurred if the client engages in certain behavior, the reported cost and returns with usage fees are computed using a hypothetical usage profile suggested by the regulators as typical among low-income consumers. For credit, we assume that the client misses one payment; for fixed term deposit we assume that the client withdraws part of the money before the maturity while keeping the remainder until the end of the year. For the transaction account, we assume that the client is charged for two account inquiries and withdrawals per month, debit card replacement, a month long account inactivity and is penalized because the client maintains an average balance below the minimum required for 2 months per year (ex: avoidable fees).

According to Table 1, the average total cost of the credit product with unavoidable fees only was of 27.34%, similar to the average cost when avoidable fees are included (27.42%). However, mean values are not very informative, as a large variation in these costs was observed, ranging from a minimum of 9.63% to a maximum of over 58 %.<sup>11</sup> Annualized yields for savings products exhibit a similar pattern. Investment accounts yield on average 4.66% without avoidable fees and 4.16% if these fees are included. Transaction accounts have lower (negative) annualized yields averaging 1.30% without avoidable fees, or -0.02% if

> 9 Loan amount was 6,200,000 COP (about 2000 USD using the exchange rates at the time of the study).

> 10 Savings deposits were 1,500,000 COP (around 515 USD).

> 11 One reason for the high observed variation in the costs of credit is due to the heterogeneous rates offered by different types of financial institutions. Banks typically offer the lowest rates; while microfinanance institutions offer a higher interest rates. This results from differences in regulation policies for these types of institutions.

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