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Microfinance in Latin America – The Risks of the New Populists

Microfinance in Latin America – The Risks of the New Populists. Mike Goldberg Latin America Region World Bank. Framing the Problem in LAC Region.

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Microfinance in Latin America – The Risks of the New Populists

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  1. Microfinance in Latin America – The Risks of the New Populists Mike Goldberg Latin America Region World Bank

  2. Framing the Problem in LAC Region • New governments have been elected on a populist platform (Bolivia, Ecuador) – others are likely to be elected soon with similar populist approaches (Peru, Mexico, Brazil, Nicaragua) • National Assemblies have the final say on legal and regulatory frameworks, and respond to populist pressures. Nice draft laws can become nightmares through untransparent processes • Microfinance interest rates are high compared to commercial rates and are misunderstood, an easy target for populists and the press • Governments are promoting first tier state banks (and cite Banco Estado of Chile and Banrural of Guatemala as tenable examples)

  3. What is the possible damage? • Administered interest rates (based on old usury laws) that limit cost coverage for MFIs • New legal and regulatory frameworks that make it harder for commercially oriented MFIs to compete sustainably • First tier public banks – on the rise? • Rural finance – access very low in most LAC countries

  4. Some solutions? • CGAP taking the lead (building on relationsihps developed during CLEARs) • Using existing donor collaboration mechanisms (such as coordination tables for PRSCs, donor roundtables) • Lessons from BCEAO interest rate debate in West Africa in the late 1990s? Other cases of similar populist government fallout? • A serious study of best practices for state banks for LAC Region (updating the Levy study of apexes for CGAP, expanding on Yaron’s SDI analysis) – this would counteract the publicity being generated by Banrural consultants, for instance. Shoul dinclude govt retail bank disasters of the 1990s

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