Regulatory Approach to Promote Micro and Small Enterprises financial access The Peruvian case

1. Regulatory Approach to Promote Micro and Small Enterprises financial accessThe Peruvian case FiorellaArbulú Diaz Superintendency of Banking, Insurance Companies and Pension Funds Regional Symposium “Best Practice Regulatory Principles Supporting MSME Access to Finance” June, 2011

2. Peruvian socio-economic context

3. Peru • Population: 29´475,856 inhabitants • Area: 1´285,215 km² • Population density: 23 (/km²)

4. Macroeconomic Context

5. Poverty reveals a downward trend in the last decade Poverty rate (as a percentage of population) Source: National Institute for Statistics and Information (INEI)

6. Peruvian business is predominantly composed by microenterprises. However, a great percentage of these firms is still within the informal sector Compositon of Small & Micro Business according to taxing formality Big & Medium Enterprise Small Enterprise Micro Enterprise Micro Enterprise Small Enterprise SME´s Source: INEI-ENAHO 2007, SUNAT 2007.

7. Peruvian Microcredit Supply

8. Peruvian Microcredit Supply

9. More than 50% of the micro and small enterprise credit supply is explained by specialized institutions * As of March 2011.

10. MFI account for more than 70% of micro and small enterprise debtors * As of March 2011.

11. Recent Trends

12. Micro and Small Enterprise loans have grown significantly

13. During the last five years, the number of micro and small clients has notably increased Source: SBS.

14. Microcredit interest rates have experienced a downward trend MFI: Interest rate for microcredit granted in local currency

15. Role of the Regulator in promoting greater access to financial markets

16. Role of theRegulator in promotingfinancialaccess • Improving transparency of information: • Provides detailed information about interest rates and commissions of credits and deposits, such as characteristics and costs of each product. • Credit bureau. • Supporting consumer protection: • Promotes transparency and diffusion of relevant information regarding contracts (price transparency, fair disclosure). • Promotes an adequate customer service (transparency of information, adequate resolution of consumer complaints). • Determines and corrects unfair contract’s terms.

17. Role of theRegulator in promotingfinancialaccess • Improving the regulatory and supervisory framework: • Municipal Savings and Loan Institutions were allowed to operate in other regions (even in the Capital). • SBS expands the operations undertaken by non-banking institutions. Currently, NBMFI are allowed to offer factoring, leasing, rebates, financial consulting. • Additionally, services of non-banking microfinance institutions were expanded by allowing greater access to capital markets. • Improves prudential regulation. • Promoting the use of new technologies to deliver financial services at lower costs: • Improves financial outreach through banking agents (from 1,689 to 9,204 banking agents in the last years). • Relaxes anti money-laundering conditions for the use of agents to open deposits. • Promotes mobile phone banking (E-money law proposed).

18. Role of theRegulator in promotingfinancialaccess • Promoting financial literacy: • SBS has launched a financial literacy program for training school teachers about the financial and insurance systems and pension funds (in coordination with the Ministry of Education). • Virtual classroom available online.

19. Microfinance Regulation

20. Regulatory Framework for Microfinance Institutions • Equalregulatorytreatmenttoallfinancialinstitutions: • General Law of theFinancial and InsuranceSystems (Law N° 26702). • Rules forevaluation and classification of debtor (SBS Resolution N° 11356-2008). • No specialtreatmentforMicrofinanceIntitutions (create a levelplayingfield). • Regulation of microfinanceactivityinstead of regulation of microfinanceinstitutions.

21. Credit Types (*) Effective since July 2010.

22. Main issues of Prudential Regulation • Entry regulations. • Feasibility study, suitability and solvency of organizers and shareholders. • Minimum regulatory capital required • Financial Intermediation is the only allowed activity. • Requisites for directors and managers (experience, know-how). • Regulation of specific risks: Minimum capital ratio: • Regulatory capital must be greater than 9.8% of total risk-weighted assets and contingents (market, operational and credit risks). • Prudential capital adequacy: 14.3% for NBMFI (10.5% for banks)

23. Main issues of Prudential Regulation • Credit risk: • Debtor classification and loan-loss provisions based on loan status • procyclical provisions • Rules for managing over-indebtedness risk of retailer borrowers (SBS Resolution N° 1237-2006). • Liquidity risk: • Minimumrequirements of liquidity ratios: Nationalcurrency 8%, Foreigncurrency 20% • Reportingrequirements of assets and liabilitiesmismatching, bymaturity, under regular and stress scenarios and a contingencyfunding plan.

24. Main issues of Prudential Regulation • Market risk: • Adequateadministrationsystems of marketrisk • Limitsforforeignexchangeriskexposure: • Long net position < 60% of capital, Short net position < 15% of capital. • Operational risk: • Adequateadministrationsystems of operationalRisk • Specificregulationtomanagetechnologyrisk • Information Safety Plan • Business Continuity Plan toensureanacceptablelevel of operation of criticalprocesses in case majorinternalorexternalfailuresoccur.

25. Thank You www.sbs.gob.pe

26. Entry Regulation Minimum Capital requirement for entry April- June 2011

27. Minimum Capital RatioCapital ratio exceeds international standards and prudential requirements

28. Credit Risk Regulation Debtorrisk rating accordingtothenumber of daysoverdue

29. MFI liquidity ratios remain well above the minimum required by regulation