Microfinance in Peru: Key Findings and Perspectives

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1 2011/GFPN/WKSP/010 Session 3 Microfinance in Peru: Key Findings and Perspectives Submitted by: Profinanzas Workshop on Microfinance Best Practices Ha Noi, Viet Nam 7-8 April 2011

2 Maria Rosa Morán Member of the Board of Directors of PROFINANZAS Microfinance Leaders Association Asomif Perú 1

3 ABOUT US 2 "MICROFINANCE IN PERÚ: Key Findings And Perspectives Presented by: Maria Rosa Morán APEC Summit, April 2011, Vietnam 2

4 AGENDA 1. The Peruvian Socioeconomic Context 1. The Peruvian Socioeconomic Context 2. The Microfinance Demand 2. The Microfinance Demand 3. The Peru Case Study 3. The Peru Case Study 4. Conclusions and Perspectives 4. Conclusions and Perspectives MACROECONOMIC CONTEXT Peru has been a top performer in LA since In 2008, the Peruvian GDP grew by 9.8%, one of the highest growth rates in the world. Peru s outstanding t indicators and solid fiscal position have prompted several international risk classifiers to grant the country an investment grade. 3

Conclusions and Perspectives MACROECONOMIC CONTEXT Peru has been a top performer in LA since 2002. In 2008, the Peruvian GDP grew by 9.

5 MACROECONOMIC CONTEXT GDP Growth 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 000% 0.00% % MACROECONOMIC CONTEXT Nevertheless: 36.2% of Peru s population lives in poverty, 12.6% in extreme poverty. The country is currently working towards a reduction to 11.5 % by 2015; unfortunately, inequalities between urban and rural areas have increased. The highland and jungle areas register the highest percentages of the population in extreme poverty: 37.4% and 20.7% respectively. 4

2% of Peru s population lives in poverty, 12.6% in extreme poverty. The country is currently working towards a reduction to 11.

6 MACROECONOMIC CONTEXT POVERTY LEVELS ARE DECREASING BUT STILL HIGH PERU: POVERTY INCIDENCE (%) MICROFINANCE DEMAND Micro or Small Company (SME s) By the number of workers, employs to 10 or 100 workers. By annual sales, sells or 170,000 Euros approx. Currently the 98.6% of the total number of business are SME s, approx million; they generate 77% of employment and explain the 42.1% of the Peruvian GDP. However, most of the SMEs (72.6%) are in the informal sector, in particular the micro. 5

By annual sales, sells 15000 or 170,000 Euros approx. Currently the 98.6% of the total number of business are SME s, approx. 3.

7 MICROFINANCE DEMAND Micro or Small Company (SME s) Only 18% have Tax Registration Number and 75% has no operating license. They have low productivity. On annual average, a worker in a micro and small business generates 3,870 Euros and 15,390 Euros, respectively, while the average of the medium and large company is around 27,700 Euros. World Bank: 60% of the Peruvian economy is informal. MICROFINANCE DEMAND TWO DIFFERENT WORLDS TRADITIONAL BANKERS MICROENTREPRENEURS 6

On annual average, a worker in a micro and small business generates 3,870 Euros and 15,390 Euros, respectively, while

8 PERUVIAN MODEL Is there a Peruvian Microfinance Model? PERUVIAN MODEL OVERALL MICROFINANCE BUSINESS ENVIRONMENT RANKINGS Rank Country Score Score change Perú Philippines Bolivia Ghana Pakistan Ecuador El Salvado India Kenya

Score Score change 2009 1 Perú 74.3 0.5 2 Philippines 71.8 3.3 3 Bolivia 69.66-2.

9 IMF s CREDIT PORTFOLIO EVOLUTION December 2010 (millions of nuevos soles) Growth 7% 19,258 11,121 15,345 7, Fuente: S.B.S. Elaboración: Área de Estadística Asomif Perú 6 IMF s SAVINGS EVOLUTION December 2010 (millions of nuevos soles) Growth 182%,868 7,413 10,907 5, Fuente: S.B.S. Elaboración: Área de Estadística Asomif Perú 9 8

B.S. Elaboración: Área de Estadística Asomif Perú 6 IMF s SAVINGS EVOLUTION December 2010

10 IMF s OFFICES GROWT December 2010 (percentage) Fuente: S.B.S. Elaboración: Área de Estadística Asomif Perú 21 IMF S JOBS GROWTH December 2010 (Percentage) 27,122 12,542 16,674 22,423 8,435 39% 10,089 19% 24% 33% 35% 18% Crec Fuente: S.B.S. Elaboración: Área de Estadística Asomif Perú 22 9

11 PERUVIAN MODEL PERUVIAN FINANCIAL SYSTEM Number of Assets Companies % Traditional Banks Financial Companies Microfinance Companies no Banks Municipal Institutions Rural Institutions Edpymes State Banking Banco de la Nacion Agrobanco Leasing Companies PERUVIAN MODEL PERU: MICROFINANCE MARKET Traditional Banking System: 88.6% of savings and 84.3% of loans. Microfinance System: 11.4% of savings and 15.6% of loans. Number of borrowers in the financial system: 6, microfinance system serves 42.2% of them!!! 10

4 Banco de la Nacion 1 10.5 Agrobanco 1 0.2 Leasing Companies 5 0.4 62 100 PERUVIAN MODEL PERU: MICROFINANCE MARKET Traditional Banking System: 88.

12 PERUVIAN MODEL WOMEN'S ACCESS TO CREDIT (Dec. 2009) Tradicional Banks: 26% Rural & Municipal Institutions: 38% Edpymes: 58% Fuente: SBS PERUVIAN MODEL 75% OF THE MICROENTREPRENEURS ARE IMFs CLIENTS Deudores por Microcréditos del Sistema Financiero Peruano (%) Junio 2009 Microcredit clients in the Peruvian Finance System Deudores Compartidos 15 % Bancos y financieras no especializadas 11 % Bancos y financieras especializados 24 % Microfinancieras no bancarias 50 % >>Total de deudores por microcréditos del Sistema Financiero Peruano: 1,257,162 Fuente: SBS 11

IMFs CLIENTS Deudores por Microcréditos del Sistema Financiero Peruano (%) Junio 2009 Microcredit clients in the Peruvian Finance System

13 PERUVIAN MODEL Main Features: Commercial approach (self-sustaining), Market Driven Model Individual Credit = Credit Group Urban portfolio (more lucrative) Political Independent No subsides Size of MFIs Products Diversification PERUVIAN MODEL Main Features: Funding Sources Credit culture Enabling regulatory and institutional environment Upgrading & Downscaling Still a unmet demand 12

subsides Size of MFIs Products Diversification PERUVIAN MODEL Main Features: Funding Sources

14 PERUVIAN MODEL Credit Methodology: Analyst Omnipresent Analysis In Situ No collaterals Cash Flow Speed and customer proximity Simple and Friendly Procedures Long Term Relationship 13

16 CONCLUSIONS & PERSPECTIVES MAIN THREATS Higher incidence of Administrative costs scale!!. Population Geographically dispersed. Costs in time and resources due to complexity of legal and regulatory framework. Taxes to credit lines (30% + 19% (Income and Sales Tax)). Collateral reduce risk but increase credit cost. High costs in resolving conflicts due to Peruvian judicial system inefficiencies. CONCLUSIONS & PERSPECTIVES MAIN THREATS Traditional banks Downscaling Entry of participants without expertise in the sector..increased competition can lead to overindebtedness of clients Decreased of low-cost funding Excessive regulation can harm smaller entities Increasing government intervention may affect the sector 15

Collateral reduce risk but increase credit cost. High costs in resolving conflicts due to Peruvian judicial system inefficiencies.

17 CONCLUSIONS & PERSPECTIVES MAIN SUCCESS FACTORS "Double Profit : Profits and social responsibility are compatible!!! Credit portfolio management Products Tailored Decentralized business model Informal sector, tailored to economic swings, flexibility, etc. Atomized portfolio, business model people-intensive, mixed public-private funding CONCLUSIONS & PERSPECTIVES SUCCESS FACTORS " Conservative provisions and uncollectible of default loans Microcredit = Microfinance One stop shop for all finance needs: Microcredit, Savings, Remittances, microinsures Mortgage, vehicles, microleasing, machinery, among others Debit cards, ATM Machines, Micro rural loans Rural structured loans (advised and supervised) Among, others 16

Atomized portfolio, business model people-intensive, mixed public-private funding CONCLUSIONS & PERSPECTIVES SUCCESS FACTORS " Conservative provisions and uncollectible of default

18 CONCLUSIONS & PERSPECTIVES Pervian Microfinance Case Study has shown that supporting Micro and Small enterprises and ensuring broad acces to financial services, is not only a tool to the succes of democratization of credit but also an effective instrument to fight poverty!!! 3 17

to financial services, is not only a tool to the succes of

19 María Rosa Morán 18

FINANCIAL INCLUSION INDICATORS FOR DEVELOPING COUNTRIES: The Peruvian Case

FINANCIAL INCLUSION INDICATORS FOR DEVELOPING COUNTRIES: The Peruvian Case Mrs. Giovanna Priale Reyes Head of the Office of Products and Services to the Consumer [email protected] Superintendency of Banking,