Sa-Dhan Newsletter Volume 3 Issue 2

Microfinance Regulation

NABARD' Study Report on Regulatory and Supervisory

Mechanism for MFIs in Bolivia : A Summary

NABARD undertook a study visit to Bolivia to look at the regulatory mechanism of mFIs in Bolivia and areas of learnings

for the Indian mF sector. The basic objective of the study was to understand the system and dynamics of regulation

and supervision of the mF sector in Bolivia, including issues like capital adequacy, reporting and disclosure norms, along

with credit and savings products of mF sector, training and capacity building of mFIs, and Management Information

System (MIS) at various levels. Various aspects of transformation of mFIs from unregulated to regulated status were also

looked at.

T

the Private Financial Funds (FFPs). Driven by the dictum of

he mFIs in Bolivia have grown under the era of financial

"sustainability first", they tended to focus their business in

sector reforms, liberalization and private sector initiatives.

high density urban areas and to target the upper crust of the

However, at the time of the study, the Bolivian economy was

poor or middle income level clients, engaged mostly in

facing a downturn that had hit the banking sector and even

trading or manufacturing.

the mF sector (indicative of how integral the sector has

become to the economy). The paper reflects some of the

Till 1987, the Central Bank of Bolivia (CBB) was functioning

experiences as well as the developments in the mFI sector as

as: controller of money, inflation and undertaking open

a result of the economic downslide especially with relation to

market operations; agent of the Government of Bolivia (GOB);

the experiences of mFIs in handling their loan portfolios,

regulator of the banks and other regulated financial institutions

measures taken for arresting the fall in loan accounts, and for

(FIs), and manager of the foreign exchange reserves. The

sustaining their operations along with the roles being played

responsibility of regulation and supervision of FIs was divested

by the regulating authorities.

by setting up SBFE (Superintendency of Banks and Financial

Entities) in 1987, which later became an independent authority.

DEVELOPMENT OF THE MICROFINANCE SECTOR

At present, the role of CBB is to issue rules that regulate the

IN BOLIVIA

system and SBFE in turn regulates these rules and ensures

compliance.

Prior to reforms, Bolivia had four State Owned Commercial

Banks (SOCBs) for agriculture, industry, mining and housing.

FINANCIAL SECTOR IN BOLIVIA - THE PRESENT

Poor management of these banks resulting in rampant

SCENARIO

corruption, and very high over dues led to their closure in

1987, when the financial sector was privatized.  As the

First Tier Financial Institutions: The GOB does not have any

commercial banking sector was not well developed, private

banks or financial institutions under its control now. All of

moneylenders became the main source of securing credit for

them are in the private sector. The Financial sector can be

micro-enterprises for the majority of the lower income people.

classified into two broad categories: Commercial Banks

(CBs), both local and foreign; and Non-Banking Financial

In this context, and as a response to the needs of their social

Entities (NBFEs), both regulated and unregulated. Only one

sector clients, a number of NGOs started providing credit

commercial bank provides credit for micro-enterprises (MEs)

services to the poor, particularly in rural areas. The prominent

and that is Banco Sol which is the first commercial bank set

among them were Fundacion para la Promocion y el Desarrollo

up by an NGO (PRODEM) with a focus on serving the poor

de la Microempresa (PRODEM), Pro-Credito (Caja Los Andes),

and the ME sector. There are a variety of financial institutions

Fomento A Initiativas Economicas (Fie) and Agrocapital. The

under the broad category of NBFEs. These are: FFPs, Credit

model of micro banking that came up in Bolivia was influenced

Unions (Closed Cooperatives and Open Cooperatives) and

by an overwhelming volume of "cost-free" funding from

Mutual Savings and Credit Associations (mainly for housing).

international donors who were also influencing the lending

All these institutions are covered under the regulatory and

methodologies of NGOs. In this model, savings received little

supervisory mechanism of the SBFE except NGOs and Closed

or no importance, perhaps due to the relatively lower level of

Cooperatives. The Closed Cooperatives are controlled by

savings in the larger Bolivian economy and due to the free

INALCO, a body similar to the Registrar of Cooperative

availability of donor funds. The more prominent donors have

Societies (RCS) in India, since they are not allowed to

included ACCION International, Commonwealth Development

mobilize public deposits. The Open Cooperatives are allowed

Corporation, SDC, GTZ, and Calmeadow.  Later on, the

to mobilize public deposits and hence are regulated by SBFE.

government allowed the setting up of regulated bodies like

Officially, micro-credit (mC) in Bolivia is defined as "all loans granted to a borrower, a person, entity, or group of borrowers

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under solidarity guarantee, for financing activities of production, commercialization, or services on a small scale, whose principal

source of (re)payment comes from the sales and profits generated by such activities, once adequately verified." This definition

focuses on: target group - a person, an entity or group of borrowers under solidarity guarantee; purpose - for financing

activities like production, commercialization or services on a small scale; and end use - principal source of (re)payment of loan

to come from the sale and profit generated by such activities.

Generally, loans up to US $ 5,000 are considered as microCredit except in the case of FFPs (Private Financial Funds) where

irrespective of the quantum all loans are considered as microCredit, as FFPs have been set up with the purpose of providing

mf services.

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