Presented by: One of the most important vectors for the creation of an autonomous and powerful regional economy that allows the sustainable exploitation of regional resources, is the financing of development independently of the capital of the Republic.
- Credit intermediation by EDPYMES, Cajas, MIBANCO, COFIDE and, in general, the financial system structured under the concept of Second Floor Banking, does not fulfill the promotional function, neither in coverage nor in reasonable credit costs. they may experience an abundance of funds from Royalties, Canon and Government Transfers, which they will not know how to channel towards public works or development projects. It is necessary to formalize a channel of transfer of returnable funds, from the regional treasury to the private sector. It is a gross fallacy to maintain that necessarily the Development Promotion Bank is doomed to failure because it conducts itself with political criteria and prohibits inefficiency and corruption. Modernly there are management proposals that protect the public contribution,They introduce managerial management with the highest degree of professionalism and prevent corruption from being a factor in bank management. It all depends on the political decision that the government in exercise assumes. Counting on the political proximity of three Regional Governments, that is, Arequipa, Trujillo and Lima Provinces, it would be possible to start with a Pilot Project of Regional Banking for these three constituencies, with a scope of coverage corresponding to their geographical areas and with the possibility of establishing collaborations with other regional governments. In the future they could take advantage of the pilot experience and form autonomous regional entities.It all depends on the political decision that the government in exercise assumes. Counting on the political proximity of three Regional Governments, that is, Arequipa, Trujillo and Lima Provinces, it would be possible to start with a Pilot Project of Regional Banking for these three constituencies, with a scope of coverage corresponding to their geographical areas and with the possibility of establishing collaborations with other regional governments. In the future they could take advantage of the pilot experience and form autonomous regional entities.It all depends on the political decision that the government in exercise assumes. Counting on the political proximity of three Regional Governments, that is, Arequipa, Trujillo and Lima Provinces, it would be possible to start with a Pilot Project of Regional Banking for these three constituencies, with a scope of coverage corresponding to their geographical areas and with the possibility of establishing collaborations with other regional governments. In the future they could take advantage of the pilot experience and form autonomous regional entities.with a scope of coverage corresponding to their geographical areas and with the possibility of establishing collaborations with other regional governments. In the future they could take advantage of the pilot experience and form autonomous regional entities.with a scope of coverage corresponding to their geographical areas and with the possibility of establishing collaborations with other regional governments. In the future they could take advantage of the pilot experience and form autonomous regional entities.
Regional development banking
A Solution to the problem of Financing of Peruvian Micro, Small and Medium Enterprises.
1. Background
The 90s mark the beginning of the liberalization of the Peruvian financial system. The Central Reserve Bank no longer performs the regulatory function of the nominal rate, considering that the interest rate must be determined by "the market".
On December 6, 1992, the government promulgated DL 25897, thus giving birth to the Private Pension System (AFP). Between 1997-1998 the Asian and Russian crises produced devastating effects in economies with a high degree of financial speculation (eg Argentina). In 1999 the devaluation in Brazil and the “phenomenon of the child” occur, which result in the outflow of foreign capital.
The consequences were numerous and not necessarily convenient: Increase in foreign investment through participations in existing institutions and in new banks; excessive growth of the bank SPREAD; arbitrariness in calculating the risk component of the interest rate; Multiple and Consumer Banking without major considerations for the borrowers (limited interest with very high interest rates); crises magnified for the purpose of liquidating state banks and mutual savings and savings promotion; deep crisis and collapse of credit unions, thus eliminating social institutions with greater access to microfinance.
The current Peruvian financial system is made up of: 14 Private Banks, 5 Financial Banks, 12 Rural Savings and Credit Banks, 14 Municipal Savings and Credit Banks, 7 Financial Leasing Companies, 14 EDPYMES, 4 AFP Collective Fund Administrators, 17 Insurance Companies and 4 Boxes and Spills. These institutions operate with high interest rates, artificially increasing the cost of money; Banking interest rate SPREAD remains unchanged and remains higher than in many neighboring countries. Peru is one of the countries (proportionally) with the largest foreign presence in its financial sector.
2. Current operations of the Peruvian Financial System
Peruvian financial institutions distinguish the loan portfolio into 4 types: commercial loans, micro-business loans (MES), consumer loans and mortgage loans for housing. In each case the cost of credit is different.
Thus, we have that the so-called direct and indirect commercial credits (generally accessed by large companies) intended to finance the production and commercialization of goods and services, have a global average annual effective rate (TEA) of 9.08%. Very different from that charged to MYPES, whose average TEAS are:
Source: Superintendency of Banking and Insurance (SBS), as of 04-28-2006. Includes Multiple Banking, Financial Companies, Municipal Savings Banks, Rural Savings Banks and Edpymes.
Note: The TEA is equivalent to the IRR of the financial institution, calculated with the monthly reference fee, which includes the payment of the compensatory interest rate, the return of the principal, credit insurance, freight and disbursement commission.
The notable difference between the TEA of Commercial Loans and Microenterprise Loans (MES) is explained by the fact that the financial entity assumes that the large company (mostly belonging to business groups related to the financial entity) has zero risk and operating costs, while that the small businessman represents high risks with higher operating costs.
The risk or degree of variability and contingency for the return of an investment (one of the three components of the interest rate), is arbitrarily specified.
Risk is a subjective element, based on the premise that the borrower can repay or not repay.
We illustrate the latter with an example: A bank places 1,000 million nuevos soles, in the hands of an association with a high number of borrowers, at an annual rate of 54% with repayment in 12 months. Let us suppose that the risk component of this rate is of the order of 30% and that the repayment will be made in a single installment. Analyzing the single payment, we will find that the interest made up of the billion is equivalent to 695,881,400 of monetary units and of this amount 30% corresponds to the risk component, that is, 208,764,420 of monetary units. Let us also suppose that the debtors pay the loan at 100%, without delay; Given this responsible attitude of the debtors, what does the bank do?
He stays with 208'764,420.
Apart from the high interest rates as a result of exaggerated forecasts regarding placement risk, MES loans have other disadvantages that generally go unnoticed:
- Micro-business loans (MES) should not exceed US $ 30,000 or its equivalent in national currency, while commercial loans have no caps.The TEAs of the Credit to MYPES are excessive due to the inclusion in the current rate of high disbursement commissions, verification fees, administrative expenses and fictitious insurance. These TEAs, equivalent to the IRR, are unknown by the lender when it comes to taking out a loan. Microfinance institutions channel funds from COFIDE with preferential rates and frequently do not extend the benefits of a lower cost of credit to MYPES borrowers. The policy for allocating resources to MYPES is based on the individual evaluation of the borrower and not on the project associated with the line of credit.
Regional governments must promote regional development banks; and, the local governments the Municipal Savings and Credit Banks. Both instances (Regional and Municipal) must adopt a different strategic approach, channeling funds for productive development with rates and terms assimilable by private businesses and aimed at financing viable projects that harmonize the social purpose with the inherent profitability of the private business. Only in this way will we be in a position to face the challenge imposed by the signing of free trade agreements with the US, Europe and Asia.
The funds of this bank must come from COFIDE, from the risk component of bank loans and from the State.
3. The Regional Development Bank
The Bank should be created with the sponsorship of each Regional Government, to expand production credit and serve as a financial lever for MYPES. The central objective of its operation is to make the financing required by the productive apparatus accessible, under reasonable conditions of credit cost and repayment terms.
3.1. Characteristics of the Proposed Institution
A) By political decision that promotes popular participation and the efficient management of State resources, civil society, through its most representative entities (Professional Associations, Business Associations, National Universities and First Level Union Guilds) assumes responsibility to summon, evaluate by merit competition and appoint, the Executive Board that will take over the Administration of the entity, thus avoiding inefficient management, politically interested and liable to corruption.
B) The powers of the representatives of civil society extend to the design of policies framed in the Regional Strategic Plan.
C) Interest rates are set under the concept of positive real rates.
D) Operations are on the first floor.
3.2 The Specific Institutional Objectives are:
- Accessibility to the MYPES Credit Associated Regional Export Financing Cost reduction and improvement of Competitiveness Modernization of production functions Support to the associativity strategy as the axis of development MYPES sustainability
3.3. The Target Sectors for Promotional Financing:
3.4. Administrative Aspects
1. Board of Directors made up of:
- A representative of the Regional Government A representative of the Representative Bodies of the Business Guilds of the Region A representative of the Irrigation Board or similar entity A representative of Union Guilds A representative of the State Universities
2. General Management, hired by Tender
3. Line Managers, hired by Tender:
3.1. Financial products
3.2. Administration and finance
3.3. Guarantee
3.4. Consulting and Viability Certification
