Presentation is loading. Please wait.

Presentation is loading. Please wait.

Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia POLICY INITIATIVES TO INCREASE.

Similar presentations


Presentation on theme: "Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia POLICY INITIATIVES TO INCREASE."— Presentation transcript:

1 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia POLICY INITIATIVES TO INCREASE FINANCIAL ACCES IN COLOMBIA Cesar Prado May 31 2006

2 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Colombia has low levels of financial penetration, even compared to its Latin- American counterparts. Micro loans only account for 2% of the total loan portfolio. CURRENT SITUATION Bancarización en América Latina - 2004 56% 42% 35% 28% 27% 23% 20% 19% 17% 11% 0%10%20%30%40%50%60% Chile Bolivia Brasil R. Dominicana Nicaragua Colombia Guatemala Perú México Paraguay Venezuela Argentina Source: Financial Superintendence Loan portfolio/GDP

3 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Loan Portfolio/GDP Source: Financial Superintendence CURRENT SITUATION Despite the economic recovery, current levels of lending are still far below from Colombian own records.

4 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia CURRENT SITUATION Source: Own estimation based on DANE and Financial Superintendence Bank branches coverage Notwithstanding, if Agrarian Bank (state owned) is not taken into account, the rest of the industry (mainly private banks) has presence only in 25% of the municipalities, covering 73% of the population.

5 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia CURRENT SITUATION Source: Survey of financial services Bogotá DANE - World Bank, 2002 Banked population over 18 years of age in Bogota

6 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia SUPPLY SIDE High costs to increase coverage (branches and cash handling). High costs associated to small amount transactions Interest rate ceiling Difficulties in obtaining reliable information and lack of data on credit bureaus Enforcement of secured lending is timely and costly MAIN BARRIERS TO INCREASE FINANCIAL ACCESS DEMAND SIDE High fees for holding an account and per transaction. Tax on financial transactions (4 X 1000) Slow processes to open accounts and hard requirements to have credit access Unsuitable products Self exclusion

7 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Regulatory reforms Creation of the Fund of the Opportunities Allowing banks to have correspondents POLICY PROPOSAL Correspondents Interest rate ceiling Habeas Data Tax reform Creditor rights

8 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Allowing banks to have correspondents - Easiness to implement: government decree which will address issues like risk allocation, responsibilities of both parties, information that should be given to the public, advertisement, operative standards, Financial Superintendence competence, etc. - Good previous and current experience (utilities and credit card payments through non banking networks). - There are in place very good non banking networks (the company which operates the most popular lottery has over 5.000 POS for ticket sales through retail businesses like grocery, bakery, chemists, etc. in more than 400 municipalities). POLICY PROPOSAL

9 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Allowing banks to have correspondents - It enables the banks to expand dramatically at very low cost. - Correspondents will have a broad capability: - Account opening and credit requests - Reception of monies for bill payments - Reception and payment of monies against the customers account - Disbursement of loans and collection of payments on them - Local and foreign remittances - Pension payments POLICY PROPOSAL

10 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Interest rate ceiling - Strong tradition on interest rates intervention. Historical background: the canon law prohibition regarding loans that carry on an interest rate. - Both the Civil and the Commercial Code set up a limit or ceiling on interest rates, which applies to all transactions (whether financial or not). The Criminal Code still includes the crime of usury, which is penalized with prison. - Compounding interest was allowed in 1990 for banks but the Constitutional Court ruled that it was illegal regarding mortgage backed lending when financing housing. The rationale behind the judgment could be extended to other types of lending. POLICY PROPOSAL

11 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Interest rate ceiling - The limit is calculated on a monthly basis as 1,5 times the average of the interest rate the banks are charging for all types of loans. - The limit set by law – even if it is calculated by reference to the market – does not allow the market to fix up the prices for all types of lending, according to their risks and costs. - A law passed a few years ago allowed the banks to charge a management fee of 7,5% on microloans (granted to micro entrepeneurs in an amount below 25 minimum legal wages – USD$4.000). POLICY PROPOSAL

12 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Interest rate ceiling - Current limits (25% annually plus the management fee in case of microloans) do not permit the banks to lend sums below USD$500. - The limit has been justified on the ground of the borrowers protection. However, ironically, it has left the poorest population with no access to credit or exposed to informal lenders who in fact charge exorbitant interest rates (anecdotal evidence indicates that in some segments it could be of 10% or more per day). - Even though commercial and penal limits apply to all type of finance, in fact, informal lenders are not subject to any effective control. POLICY PROPOSAL

13 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Interest rate ceiling - Possible reforms: To abolish the limits (it would require to reform the Civil, Commercial and Criminal Code). To calculate limits per type of loan. To increase the management fee for microloans (perhaps requiring gradual decreases). Redefining the concept of microloan. POLICY PROPOSAL

14 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Habeas Data Legislation - A comprehensive act on credit reporting is going to be submitted before Congress in July. - The proposal includes: 5 year period for maintaining data. Clear rules for access to information. Rules for consumer protection, including means to access their own data, supervision of credit bureaus and dispute resolution mechanisms. Obligation of non financial entities to provide financial information to the credit reporting system (for instance utilities). POLICY PROPOSAL

15 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Tax reform - The government will submit to Congress in July a comprehensive (radical) tax reform, including the likely elimination of the tax on financial transactions. Strengthening creditors rights - An insolvency proposed bill which protects in an adequate manner creditors rights is being discussed in Congress. - Reform the civil procedural code to allow regulated creditors like banks to enforce their security with minimum judicial intervention. POLICY PROPOSAL

16 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Creation of the Fund of the Opportunities - The Government approved a USD$ 50 million appropriation to create a fund which will be in charge of promoting the policy on financial access (the fund will have a very small but highly qualified staff and will be able to spend only the real revenues it generates, in order to guarantee its continuity). Some of its functions will be the following: To propose to the Ministry of Finance legal reforms that could contribute to enhance financial access. To stimulate the spread and usage of sufficient, timely and reliable information on micro-financing issues To design and propose incentives to promote financial access. To develop and stimulate programs of technical assistance in favor of microfinance institutions. POLICY PROPOSAL

17 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia Promoting financial access is a huge challenge and, in a emerging country, a social obligation, as banking access has positive effects on poverty reduction and economic growth. It is necessary to involve actively the relevant constituencies and all microfinance institutions (banks, cooperatives, NGOs). The role of the government must be limited to create the adequate conditions to let microfinance institutions do their job. Solutions should be very imaginative and break old and traditional concepts. The unbanked represent a huge market potential for financial institutions as there is little room to grow with the higher income customers. CONCLUDING REMARKS

18 Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia THANKS FOR YOUR ATTENTION


Download ppt "Ministerio de Hacienda y Crédito Público República de Colombia Ministerio de Hacienda y Crédito Público República de Colombia POLICY INITIATIVES TO INCREASE."

Similar presentations


Ads by Google