The global indicator “Doing Business” ranks credit access in Paraguay at a not-too-shabby 122 out of 189 countries. The Western Hemisphere Credit and Loan Reporting Initiative stated that Paraguay‘s economy was ‘improving;’ still, the government’s 2014-2018 initiative, National Financial Inclusion Strategy (ENIF), identified two major issues it wishes to mitigate. Namely, it indicated that micro, small and medium enterprises (MSMEs) needed better access to approved loans and that 17 percent of the population had no access to a bank.
What is the ENIF?
The Paraguayan government — working alongside the World Bank and the FIRST Trust Fund Initiative — created the National Financial Inclusion Strategy (ENIF) as part of Paraguay’s National Development Plan. The main goal of this initiative is reducing poverty and promoting economic growth.
The strategy intends to achieve this goal by creating better credit access in Paraguay, as well as access to other financial services for the entire population. The project’s vision explains it best: “Quality and affordable financial services for all people in Paraguay who want them through a diverse and competitive marketplace.”
In order to achieve this vision, the initiative analyzes the issues with Paraguay‘s current state of financial inclusiveness by comparing the objectives to the gap of the “current financial profile versus the financial needs of the five primary income groups.”
It then creates a strategy for closing this gap by identifying the end goals — the ‘key performance indicators (KPI)’ — and a list of tasks to help achieve this goal. Working groups under each KPI then focus on completing these tasks.
About 69 of the 224 districts in Paraguay with more than 2000 inhabitants (17 percent of the population) have no access to banks, bank agents or ATMs because financial services simply cannot survive in an area with such a tiny client base.
This makes access to financial services for the population living in these rural areas very difficult, if not impossible, to obtain. For the two-thirds of this population that live in extreme poverty, this can also prove quite dangerous. Without access to credit, savings, or even government subsidies they can run out of money to buy food and are ill-equipped to handle an economic shock such as an illness or a death.
The ENIF proposes increasing the use of mobile phones and the coverage of mobile networks in the 69 “financially excluded” districts (with an emphasis on the 17 vulnerable districts) to provide those in need with access to money through mobile financial services.
By coordinating with the working groups in other KPIs, ENIF also wishes to provide such populations with access to financial services such as credit, insurance and savings. Along with this, the working group plans to create financial literacy courses and to design products and initiatives that encourage these vulnerable populations to save their money.
Loan Access for MSMEs
While 64 percent of 1.1 million MSMEs wish to have access to a loan, only 35 percent of MSMEs have had the ability to borrow in order to fund their operations. One-fifth of these firms reported not even applying for loans because they anticipated outright rejection.
To the ENIF, this indicates issues with business credit access in Paraguay and a need to improve the loan system. Improving such access will not only help businesses gain more capital for the country, but it will also improve job growth and increase access to opportunity for those in need.
The ENIF believes that credit risk systems of Paraguay’s main bank, Banco Central de Paraguay (BCP), and the collective savings and credit cooperative institution Instituto Nacional de Cooperativismo (INCOOP) should communicate with each other in order to create a collective credit information system. This partnership would allow for better monitoring of indebtedness and to ensure responsible credit is given.
Along with this, the ENIF will also help in the creation of other regulatory measures such as:
- Speeding up the provisioning of micro-credit loans
- Establishing accuracy, timeliness, disclosure and recourse standards for all institutions
- Exploring the possibility of implementing factoring and leasing products on the market
- Monitoring, coordinating and implementing the progress of these KPIs through the Executive Secretary and Financial Inclusion Team. Each working group will send annual reports to the Executive Secretary and a measurement and evaluation system will track their progress
- Issuing a survey every two years to compare the rates at the individual level to those in 2013
Room to Improve
Hopefully, with a great coordinated effort, the ENIF will see the data of financial inclusion improve and with it, will also see a greater reduction in the number of citizens in poverty. Even with the economy resting at a decent place, a good government knows that its country always has room to improve.
– Elizabeth Frerking