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November 5, 2024
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Municipal funds: eliminating tax credit insurance discourages credit to the base of the pyramid

Jorge Solis

The Federation of Municipal Savings and Credit Banks (FEPCMAC) expressed its rejection of the regulatory proposal of the Superintendency of Banking, Insurance and AFP (SBS), which seeks to make credit credit insurance voluntary. According to the union, this measure affects financial inclusion by discouraging the offer of financing to small businesses, which often lack assets to support their loans.

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Jorge Solis, president of the FEPCMAC, warned in a press conference that the elimination of the mandatory credit rating insurance for certain loans will reduce access to formal financing. Solis explained that these insurances offer support that facilitates payment compliance in the event of the death of the debtor, a critical aspect for the segment of microentrepreneurs who serve the municipal funds.

“This approach on the part of the SBS has not considered the problems it will generate for lower-income clients,” commented Solis, who indicated that this measure could lead many people to resort to informal credit or “gota by gota”, which usually be more expensive and risky.

‘Drop by drop’

According to Solis, the measure is nonsense for financial inclusion, because by causing a reduction in formal credit for the low-income segment of the population, it exposes this population to informal credit such as ‘gota a gota’, which It is even more expensive than a loan in the formal sector backed by insurance.

He mentioned that, in the case of municipal savings banks, for example, between 60% and 70% of the credit portfolio does not have the support of guarantees, other than a good credit evaluation and public confidence.

“What is going to happen in the microfinance industry is that credit is going to be more restrictive and the supply of ‘drop by drop’ financing is going to grow, which is what they want to eliminate,” he stressed.

It should be noted that, if the SBS draft standard is approved, those that condition the granting of credit on the contracting of credit credit insurance will be considered an abusive practice in the financial system, except in mortgage loans.

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