The implementation of the Financial Services Law, passed in Bolivia in August 2013, has marked the political rhythm of the financial system in the country. The government set the pace for the private banks within its public policy of access to financial services, privileging specific actors, in particular the wage-earners and small and medium enterprises.
The law marked the economic rhythm for the sector, too. The body of macroeconomic policies prioritizing price stability and an exchange rate that strengthened the position of the Bolivian peso compared to the US dollar and other currencies and an external environment of high prices for the commodities the country exports, generated a scenario of liquidity and growth for the financial sector in particular and the economy as a whole. But in spite of that, a substantial tax burden has been imposed on the private banks (50 per cent according to the government, 60 per cent according to the banks), in addition to other restrictions to the use of their profits and the promotion of a social function.
With the new Financial Services Law, the government redefined a regulatory framework for the Bolivian financial system. Through a decree, it established, subject to a period for adaptation, that portfolios of multiple banks will need to include a minimum of 60 per cent of credit for the productive sector, in particular large companies and social interest housing. Particular rules for small and medium enterprises banks require a 50 per cent for the productive sector, in particular small and medium enterprises.
The same decree establishes annual interest rates for social interest housing credits between 5.5, 6 and 6.5 per cent, depending on the value of housing. Another decree sets interest rates for the productive sector at 6 per cent for productive units of medium and large size, 7 per cent for small ones and 11.5 per cent for microenterprise. Other decrees regulated the constitution and functioning of guarantee funds and authorized the Productive Development Bank (BDP by its acronym in Spanish) to set in motion and administer the System of Registry for Non-Conventional Guarantees.
There is no doubt that the government’s goal is to adjust the banking system with the social and productive approach the law features. The ostensible intentions are laudable, as they pursue an impulse to the productive development of the country and diminishing the population’s housing deficit. The measures attempt to facilitate massive access to credit, be it for the productive sector or social interest housing, under conditions extremely advantageous for the borrowers. The financial firms have an obligation to comply with the demands and targets set by the regulation.
However, compliance will depend categorically on the behavior of effective demand for such credits and factors such as financial and social stability. In the case of social interest housing, one of the routes that can contribute to the reduction of the housing deficit is the bridge between “self-building” initiatives by low-income families and financial services and municipal interventions. This is because of the diversity of property law, cadastral and building design issues that surpass the capacities of affected families and call for the involvement of other public actors. Likewise, it is important to coordinate with the state housing programs, promoted by the State Housing Agency, for families that do not fulfill the requisite payment capacity demanded by the financial firms.
In the productive sector, the evolution of the development model is subject to several factors. Credit is one among them, but not the only or even most determinant one. Complexity of the agricultural sector demands different services, investments and public interventions, whether it is export agriculture, family agriculture –linked to fair trade, or small and medium production, linked to food security and sovereignty. While some sectors call for clearer policies for export markets, others call for infrastructure and investment to expand productive capacity and improve sectoral productivity. In all of them, mechanisms of support and technical advice for individual and associated producers, adequate functioning of guarantee funds and agriculture insurance, and the start of the Registry of Non-Conventional Guarantees, are urgent. In this sector the existing banking institutions will make efforts to improve their supply of financial services and products, but it should be noted that the greatest challenge for the agricultural sector is the articulation of a banking sector of and for producers.
The government’s effort to orient a portion of financial services towards demand for housing and productive capital finds limits in the structure of household income. According to the Vice-Minister in charge of the area, 88 per cent of people who contribute to the long term pension system have a monthly income under USD 725, which is the minimal amount that a person must approximately have in order to access credit for social interest housing. This shows that the greatest credit restriction people face is their income, which for the banks corresponds to their repayment capacity.
After a decade of the current government, it is possible to identify a number of policies that seek greater access to credit. But they also show their own limitations as reforms, as they do not affect the property regime, the employment structure, its precariousness and low remuneration.
Javier Gomez is the Executive Director of Center of Studies for Labor and Agrarian Development –CEDLA (Bolivia).