Académique Documents
Professionnel Documents
Culture Documents
June 2009
Roberto H. Crouzel
Argentine lawyer, Senior Partner of Estudio Beccar Varela, and
President of the Comisin Pro Bono del Colegio de Abogados de la
Ciudad de Buenos Aires rcrouzel@ebv.com.ar. As participants of
an exchange program between University of Denver Sturm College
of Law and Estudio Beccar Varela, Conor Filter and Gracie Chisholm
collaborated with the translation of this paper.
INDEX
Introduction ............................................................................................... 3
First Challenge. The Lack of Funding ......................................................... 5
Second Challenge. Lack of Vision and the Difficulties of Formulating
Successful Development Plans: Educating the Authorities .......................... 7
Third Challenge. The High Cost of Taxes .................................................. 11
Fourth Challenge. Legal Obstacles ........................................................... 12
Fifth Challenge. Training, Educating, and Increasing Professionalism in the
Agents of Change ..................................................................................... 15
Sixth Challenge. The Stock Market ........................................................... 17
Seventh Challenge. Acquiring and Holding Client Savings ....................... 19
Conclusion: How Can We Help? ................................................................ 21
Introduction
Although there are examples of micro-credit operations in Argentina from the
1970s and 80s, microfinance, as it is currently understood, received its first
important boost in the 1990s, when various micro-credit lending institutions
emerged. These institutions implemented methodological systems borrowed from
international organizations with extensive experience in Latin America.
Among
others, we might mention the work carried out by the Fundacin Emprender1, by
the Fundacin Banco Mundial de la Mujer en Crdoba, and by the Fundacin Pro
Vivienda Social.
Furthermore, it was at this time that FONCAP was created, a fund to give credit,
technical assistance, and training to the entities that grant micro-credit. The fund
was originally established by the Federal Government (49%), Accin Internacional
(45.5%) and the Fundacin Emprender (5.5%).
The enterprises of this decade were generally small undertakings with limited
financial and human resources, mainly focused on resolving the problem of poverty
in specific locations, rather than constructing an ambitious project that would
concentrate financial and human resources on a larger scale.
The persistent recession and growth of unemployment rates that affected Argentina
in the late 90s, in addition to the significant social and economic crisis that the
country suffered in 2001 and 2002, aggravated the problems associated with
poverty. It was at this time new institutions dedicated to microcredit emerged, and
an acute awareness of the importance of combining resources, articulating common
policies
and
articulating
microfinance
criteria
arose,
with
the
purpose
of
According to the quarterly indicators published by RADIM, in the last three years
the member organizations of the Network increased the number of clients by
181%, the total amount of employees by 197%, the number of agencies by 115%,
and the total portfolio by 372%.3
However, the Network only represents a total of 30,200 active clients, while
research conducted by Andares4 in April, 2007, indicates that in the Buenos Aires
metro area alone there are half a million potential clients who have not yet received
assistance.
One might ask why micro-credit lending has not caught on in Argentina, and while
different reasons for this have been discussed, none of them seems completely
satisfactory to those actually working within the sector.
In the Pro Bono Commission of the Bar Association of Buenos Aires City, we have
had the opportunity to collaborate with several of the institutions dedicated to
micro-credit, including RADIM and several other entities, and we often discuss the
day-to-day
challenges
confronted
by
the
various
institutions
interested
in
The institutions that participated in the formation of the Network (and who presently constitute the core
group of founding members) are: Fundacin Banco Mundial de la Mujer, Entre Todos Asociacin Civil, FIE
Gran Poder S.A., FIS Fondo de Inversin Social S.A., Fundacin Alternativa 3, Fundacin Grameen
Mendoza, Fundacin Progresar and Fundacin Pro Vivienda Social. See Mission and Values at
www.reddemicrocredito.org
3
See Estado de las Microfinanzas en Argentina: la Mirada de los operadores nucleados en RADIM. March
4, 2009.
4
See Demanda Potencial de Microcrdito en el Conurbano Bonaerense at www.fundacionandares.org.
I write
disadvantages to point out that existing regulations were designed to allow credit
distribution to companies and individuals in relation to their work, but they do not
recognize the distinguishing characteristics of microfinance. Microfinances are more
difficult and expensive than other financial industries and therefore compete at a
disadvantage with others who seek credit.
A habitual complaint of Microfinance Institutions (MFIs) relates, quite simply, to
the lack of sufficient funding sources. Presently, the sector is primarily financed by
funds provided by the State,10 international entities,11 and some private donors. 12
There are few lines of credit provided by private Banks and those that have decided
to explore the field have preferred to do so in a direct form (or through
subsidiaries) and with a still uncertain result.13
Argentina, it will be necessary to strengthen the financial market and the stock
market14 as a whole.
In this context, therefore, we can work toward the removal of various obstacles in
order to facilitate development in the field, but larger and faster growth of the
sector will only be obtained when we achieve a more profound development of the
Argentine financial market and stock markets as a whole.
14
Lamentably, the concentration of the banking market in the public bank, the reduction of the stock
market as a consequence of the lack of normalization of Argentinas foreign debt, and the nationalization
of pension funds indicates that the country is headed in the opposite direction.
For that reason, I believe that if we wish to make progress and strengthen the
sector, we must focus on promoting an increase in the availability of credit to those
who are currently excluded from the system, rather than focusing on the nature of
the organizations granting credit or their reasons for doing so.
I say this because a negative viewpoint exists in Argentina towards those interested
in the development of microfinance.
development, and is based on the belief that one cannot and should not make
money at the expense of the poor.
existing
regulations
designed
to
encourage
microfinance
reveal
an
It is also remarkable that the law provides tax benefits for the
micro-entrepreneurs only if the credit comes from this fund. The loans of
impoverished micro-entrepreneurs should be tax-exempt in any case, and not only
when the credit comes from a state fund.
The agreements formed under the framework of this law also demand that
borrowed money have an annual maximum interest rate of 6%, which is far too low
to cover the transaction costs of the granting entity, especially for non-profit
organizations. This reveals an understanding that the subsidy will be exhausted
quickly, thereby hindering growth in the number of placed loans. Further, the size
of the portfolio does not permit the MFIs to be realistically self-sustainable.
The
organizations must also confront the problem of explaining why the interest rate
may vary between 6% and 60% depending on which outside source of financing it
has obtained a fact which has forced several organizations to withdraw from the
program.15
All these problems have both limited the ability to disperse the funds and
diminished the speed and anticipated impact on the individuals who use them. The
Federal Government cant see the forest for the trees, underestimating the
importance of credit access for all people in its concern over the identity of the
lender and the source of their profit.
demonstrates a lack of knowledge in this sector of the social economy, where the
defining characteristic is the different technology necessary to service the sector,
not the profitability or business structure of the company. 17 Just three years later,
after discussing the topic in numerous meetings and conferences organized by
15
It should be noted that the Argentinean legislators did not read the principles formulated and
approved by CGAP and its 33 cooperative members, and by the Group of Eight (G8) during the G8
Summit on June 10, 2004.
16
Since 2005, there has been an obligation, termed encaje, to provide a deposit, in dollars, that is not
remunerated and which lasts for a term of 365 days. It is equal to 30% of the currency revenue in
dollars within the exchange market, based on the concept that whatever produces revenue should not be
excluded from BCRA regulations. Basically, it is a cash reserve requirement to ensure a certain degree
of liquidity.
17
This was repeatedly emphasized by Professor Claudio Gonzlez Vega in the South American Regional
Course, Microfinances: towards an inclusive financial system, in Quito, Ecuador, in February 2007 and
in Mexico City, Mexico, in November of the same year.
BCRA, the regulator issued Circular A 4843, which granted equal benefits to all
organizations, for-profit or non-profit alike, in relation to their microfinance
activities.
During those years BCRA was also lobbied to increase flexibility in some of the
technical qualification requirements, precautions, and computable financial liability
in order to facilitate the granting of micro-credit by the Commercial Banks.
This
was also important so that the loans granted to the MFIs could be considered
lower-risk by the Commercial Bankseven in the event that credit was granted to
nonaccredited (according to BCRA standards) individuals.
These accomplishments are a good indicator of where our efforts can be most
effective.
designed to give the problem visibility within the different public administration
agencies. A good campaign must propagate a broad understanding of the sectors
unique characteristics, and address the regulatory changes that would facilitate its
development.
those sectors generally excluded from such lending, and downplay considerations
about whether the lender is a for-profit or non-profit entity.
In other words, the regulator must emphasize expanding the credit supply to a
greater number of people rather than whether the moneylender hopes to profit or
achieve altruistic ends. After all, the final objective is to ensure that more people
18
Princess Maxima was involved in at least two events dedicated to micro-finances and lobbied through
the mass media, with significant impact, for the repeal of the encaje.
19
UNDP co-financed a series of conferences and meetings for the purpose of furthering the debate on
the sectors weaknesses and on the rapid promotion of microfinance in Argentina.
have
access
to
credit
and
to
encourage
healthy
competition
between
moneylenders, thereby forcing each to improve their product and reduce overall
transaction costs.
10
However, these
20
11
our
country,
there
are
no
regulations
that
recognize
the
23
distinctive
Simply put,
microfinance is beholden to the same rules as any other commercial activity. These
general regulations are often extremely complex and prohibitively expensive for
enterprises
that
entrepreneurs
have
comply
limited
with
capital
the
and
regulations
professional
only
when
resources.
they
Micro-
become
an
insurmountable obstacle and only when they have the adequate economic and
professional resources to do so. The finance of micro-business requires awareness
of this reality. It also requires the agencies to be conscious of which regulations
facilitate the acquisition of loans, especially for undocumented people with no
portfolio, tax identification or assets.
In El Misterio del Capital, Hernando de Soto drew attention to this problem.
De
The team
began to fill out forms like everybody else; they waited in lines, took buses
to the center of the city where the government issues the certification
required to operate a legally registered small business in Peru. Working six
hours a day, the team was finally able to register the business 289 days
later.
worker, the cost of the registration was US$ 1,231.00, or 31 times the
monthly
Peruvian
minimum
wage.
In
another
case,
getting
legal
We also
discovered that the individual operator of a bus, van, or taxi who desires
official recognition of their route generally must set aside 26 months for
bureaucratic red tape.24
23
24
With a few poorly executed exceptions, such as those mentioned previously in the BCRA citations.
Hernando de Soto, El Misterio del Capital, Editorial Sudamericana, p. 36, 2000.
12
A recent work commissioned by the World Bank25 evaluates the difficulty of doing
business in countries around the world.
Consider, for
business purpose was making loans and the collection of interest, it could not be
classified as a Foundation.
25
Doing Business 2009. Country Profile for Argentina. Comparing Regulation in 191 Economies. World
Bank.
26
Microscopio 2008 concerning the Business Environment for Microfinances in Latin America and the
Caribbean, conducted by the Economist Intelligence Unit, with the help of the Banco Interamericano de
Desarrollo
(BID)
and
the
Corporacin
Andina
de
Fomento
(CAF),
October
2008.
http://www.iadb.org/mif/microscope.cfm?language=Spanish
27
Art. 9 of the Financial Entitites Law (Ley Entidades Financieras).
28
Resolucin 052 A/09.
13
acquiring stock in an MFI formed as a Corporation, despite the fact that the annual
profits were limited so that dividends would not be distributed, but would instead
be reinvested for further microfinance activity.
We could continue naming other legal obstacles ad infinitum.
Other frequently
addressed questions include the high cost of labor; the impossibility of a public
offering to participate in trusts which provide micro-credit grants without first
obtaining permission to make such offering; and those challenges related to BCRAs
exchange rate manipulation (which in fact multiplies the cost of remitting money
and impedes the functioning of systems like KIVA), among others.
In summary, this is a curious case29 of simplification and deregulation of a
government framework to benefit the poor, as the current regulatory environment
condemns them to a regime of informality and illegality.
The extreme
complexity of the general banking regime in our country is more than a regulatory
framework there exists a true regulatory barrier that leaves the most
impoverished stuck in a world of illegitality.
29
I describe it as a curious case because in order to integrate the poor into the formal economy, the
best thing we can do is to prevent the application of certain regulations that, ironically, were designed to
protect citizens against possible abuses or illicit practices.
14
of
business
management,
30
vision,
market
analysis,
development
of
products,
poor
including poor training and low salaries. In fact, many companies in the field have
complained of the theft of human resources between MFIs, to the point that most
now subscribe to a code of ethics to avoid the type of conflicts that make it difficult
to develop a strategic industry-wide plan for development.
Nevertheless, it is important to note that in the last several years there have been
various steps towards professionalizing the sector, including those mentioned
below:
The creation of RADIM in 2004 and its clear role as a reference point for
the sector within Argentina.
The creation of Andares,31 a foundation dedicated to the development of
microfinance, which, with the support of the Inter-American Development
Bank (IDB), began a Management Program to train existing human
resources within the sector.
Market entry by new MFIs with extensive experience in other countries in
the region, such as FIE and Pro Mujer, and the capitalization of several
organizations through foreign organizations, as with FIS. 32
The financing of the training of diverse companies in the interior of the
country by the International Development Bank, and supportive training
programs by RADIM as well as various other MFIs.
The organization of self-training programs by various entities, including
FIE, FIS and Pro Mujer.
The standardization and incorporation of information from the MFIs in the
web pages most frequented by donors, investors, and financiers, such as
MixMarket, thus improving the transparency of the sector.
The programs of the United Nations Development Program (UNDP)33,
which provide greater visibility to the sector and aid in a successful
debate, for example, in the sphere of BCRA.
30
See Los microcrditos en la Argentina por que no tienen xito? By Ana Laura Fontana and Mara
Isabel
Negre.
Observatorio
de
la
Economa
Latinoamericana.
www.eumed.net/cursecon/ecolat/ar/2006/fone.html.
31
www.fundacionandares.org.
32
ACPs incarnation in Argentina (see www.grupoacp.com.pe).
33
See http://www.undp.org.ar/programa/microcreditos/index.html.
15
field, the government ought to utilize its funds to finance MFI employee
participation in some of the many available local and international training
programs.
34
See
Los
Principios
Clave
de
la
Microfianzas.
CGAP,
http://www.cgap.org/gm/document-1.9.2752/KeyPrincMicrofinance_spa.pdf.
Principle
No
5.
16
countrys MFIs have reached a volume that would justify entrance into the capital
markets.
public offers.
Both the
within specific parameters according to law 17,811 (the LOP), and must be
supervised by the CNV.37
35
17
financing
or
investors
through
invitations
or
public
solicitation,
limiting
38
It is true that one can lobby the CNV to set certain criteria that would allow MFIs to
look for new sources of funding through the mass media. However, this serves as
another example of how much must be done to secure the advantages of already
existing sources of funding.
38
Including post, email, periodicals, weekly newsmagazines and conferences, Internet advertisement,
etc.
18
It would be
possible to create a Caja de Crdito that centralizes the savings of its clients, or, at
least in its first phase, the savings of the MFIs themselves.
Moreover, these
savings could later be used as loans to the same depositors and/or, if it is deemed
appropriate, to the micro-credit entities, thereby serving as a regulated mechanism
for their funding.
39
See Cmo deberan financiarse las instituciones de microfinanzas?. By Felipe Portocarrero Maisch,
Alvaro Tarazona Soria, & Glenn D. Westley. Lima, Instituto de Estudios Peruanos, Inter-American
Development Bank; 2006.
40
The law of financial entities 21.526 stipulates in article 1 that the following are subject to this Law
and its proscribed regulations, including individuals and private, public or mixed entities of the Nation, its
provinces or municipalities who habitually intermediate between supply and demand of financial
resources. (Unofficial translation from Spanish)
41
See
Los
Principios
Clave
de
las
Microfinanzas.
CAAP,
Principle
No.
5.
http://www.cgap.org/gm/document-1.9.2752/KeyPrincMicrofinance_spa.pdf.
19
For the initial stage, which can be considered an exploratory phase, the entities (at
least those in a financial position to do so) would establish a cooperative that
complies with the general parameters defined in the Financial Entities Law, of which
they would become members. If this step was completed satisfactorily, and the
volume of savings added and loans granted exceed the pre-established guidelines,
the Caja de Crdito would then be transformed into a commercial bank, adopting
the more complex guidelines which govern banks within the system. It is precisely
at this point where BCRA regulation should join the process, assisting in the
development and success of this framework and supervising the evolutionary
process.
Currently,
BCRA
regulates
Cajas
de
Crdito
through
different
regulations,
difficult for MFIs to join together and establish a Caja de Crdito designed to
receive savings deposits from its clients, and still harder to establish a Caja de
Crdito that can serve as a full or partial funding mechanism for their activities.
As it is currently constructed, to be in agreement with Communication A 4712, a
Caja de Crdito must comply with a plethora of regulations: allowing associated
members participation in social capital; a level of minimum participation from
individuals and associates of the area; restrictions on the acquisition and holding of
savings for non-associated clients; limits on financial grants for non-associated
clients; prohibitions on loan grants to MFIs; and limits on financial grants to
individuals. In practice, these limitations would make the stated goal of regulated
microfinance practically impossible.
By limiting their rate of growth, fixing mandatory supervisory guidelines, and,
especially, by ordering the mandatory transformation of these Cajas de Crdito into
commercial banks with clearly defined expectations (volume of deposits, assets,
quantity of clients, etc.), it would be possible for BCRA to both validate and
efficiently protect public savings and at the same time protect and assist the growth
of microfinance.
20
microfinance
sector
before
achieving
higher
growth
and
better
42
Including the Comisin Pro Bono del Colegio de Abogados de la Ciudad de Buenos Aires.
21
to
the
sector,
and
should
be
realized
in
collaboration
with
international
43
22
does it provide a magic solution as to why microfinance markets are not developing
with more success. Instead, the intention of this paper is to present an overview of
the most commonly cited problems, as noted by the MFIs, and to propose a course
of action.
23