Cablegate: Colombia: Financial Credit Is Available, but at a Cost


DE RUEHBO #3574/01 3131543
R 091543Z NOV 09



E.O. 12958: N/A

REF: 09 BOGOTA 3188

1. (SBU) Summary. Obtaining credit in Colombia is a challenge for
small and medium size enterprises (SME). Many SMEs do not request
credit because of the high interest rates (30 percent), the
formality of the loan process, and the length of time it takes to
receive loans. The GOC, however, has instituted programs to
increase credit availability, with great success. Currently, 54
percent of Colombians have access to credit, according to financial
experts Econoffs consulted. End Summary.

2. (SBU) Herman Verdugo, the lead economist at Correval (a leading
Colombian stock brokerage) told Econoffs that the Colombian banking
sector imposes very conservative lending practices, in part due to
the Colombian financial crisis in the late 1990's when several
banks collapsed because of risky lending and overexposure.
Although these conservative lending practices helped buffer
Colombia from today's financial crisis, the measures also
contributed to a decrease in lending to SMEs.


Bank of Opportunities


3. (U) Noting a lack of access to credit to SMEs, President Uribe
initiated a program in 2006, called "Bank of Opportunities." The
Bank's objective is to expand access to credit to all Colombians,
particularly to low-income households in an effort to reduce
poverty, stimulate development, and create social equality. The
program is administered by the bank of foreign trade (Bancoldex)
and uses a network of "bank of opportunities," such as commercial
banks, microcredit NGOs, commercial finance companies, savings and
credit unions, insurance companies, and family compensation funds.
To increase credit throughout Colombia, microfinance outreach has
been expanded through the establishment of non-banking agents,
which can be commercial establishments, drugstores, post offices,
or other institutions - so long as they establish an alliance with
a regulated financial institution.

4. (U) From August 2006 to August 2009, the Bank of Opportunities
provided 4.5 million lines of credit to SMEs, totaling almost US$ 7
billion. During that same period over 1.2 million SMEs accessed
credit for the first time. The program has more than 480,000
active clients, of which more than 20 percent are Afro-Colombians
and 65 percent are women. USAID also has provided technical
assistance and training in microfinance to 10 commercial banks,
which in turn have established a total of 5,532 non-banking agents
throughout Colombia, as of September 2009. These agents provide
banking services such as micro saving accounts, paying points,
micro insurances, rural and urban microcredit to low-income
families and SMEs.

5. (U) In addition to providing financial services, the program
also educates lenders and borrowers about the credit process, the
available options and how to manage loans. Since 2007, the Bank of
Opportunities has conducted capacity building and training
workshops as well as financial education training for its social
managers under Citibank's program "Money for Change."


Microfinance Institutions


6. (U) Another source of credit for SMEs in Colombia is
microfinance institutions (MFI) that are linked to non-governmental
organizations. The more popular ones are the Women's World Banking
(WWB) microfinance institutions. Colombia's National Association of
Financial Institutions (ANIF) considers the WWB institutions in
Bucaramanga, Cali, and Popayan to be outstanding lending
institutions with a solid reputation in Colombia. Forbes Magazine
ranked the three institutions in the top 10 in its "Top 50
Microfinance Institutions" publication. The majority of loans
provided are for individuals, with a ceiling of about US$ 1,000.
The three institutions combined have more than 600,000 clients and
provide over US$ 500 million in credit (see reftel).


Can't Get Credit


7. (SBU) The high interest rates for SMEs is the leading reason for
reduced access to credit. The GOC has capped interest rates for
microcredit loans at 34 percent. Bancoldex and other lending
institutions charge close to that interest rate, arguing that these
loans are high risk. In conversations with Econoff, local SMEs in
Bogota and Barranquilla noted that 30 percent was the best rate
they could obtain on a loan. A manager of a medium size company
that exported coal said the lowest loan interest rate he ever
received was 20 percent. He indicated his company has a strong
credit history and a solid balance sheet. (Note: According to the
Small Business Administration, the average interest rate for U.S.
micro-loans exceeding US$ 10,000 is 7.75 percent; the rate is 8.5
percent for loans under US$ 10,000. For SME loans of about US$
150,000, the interest rate is the prime rate plus 2.25 to 4.75
percentage points, depending on the loan's term and size. End Note)

8. (SBU) The formal application process, delays in receiving a
loan, and the informality of the SME sector also limit access to
credit. Carlos Rojas, Vice President of ANIF, told Econoff that
according to an ANIF national survey on SMEs, the main obstacle to
accessing credit is the formal application process, which requires
a credit history, balance sheets, a business license, among other
things. Rojas added that the majority of SMEs work in an informal
setting and are not accustomed to using balance sheets or other
formal business tools that would help in bolstering the
credit-worthiness of their business. In this environment, money is
lent in the informal sector with higher interest rates, but with
less paperwork and in a timely fashion.

--------------------------------------------- ----------------------

High Marks for Colombia from an International View

--------------------------------------------- ----------------------

9. (U) According to the Economist's Intelligence Unit's 2009
"Global Microscope on the Microfinance Business Environment"
report, Colombia ranked 8th among 55 countries across the globe.
The report compared the countries in three broad categories:
regulatory framework, investment climate and institutional
development. The study highlighted the strong institutions and
market mechanisms for the development of microcredit in Colombia.
Currently, 54 percent of Colombians have access to credit,
according to Ricardo Avila, Director of Portafolio, a leading
financial newspaper.


Comment: Credit is There, But...


10. (SBU) Access to credit in Colombia is available, but it comes
with a prohibitive 30 percent interest rate for most SME
credit-seekers. To increase the number of SME borrowers, and SME's
return on investments and growth, the GOC is recalculating the
interest rate cap, but it is not expected to decrease by much.

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