SERVICES 40% OF GDP

Ecuador 2019 | FINANCE | VIP INTERVIEW

TBY talks to Juan Carlos Jácome Ruiz, President Director of Corporacion Financiera Nacional (CFN), on the bank's mandate, financing SMEs, and Ecuador's investment climate.

What is your main mandate as the national development bank, and how does that encourage economic growth in the country?

CFN is a public bank that in its nature has a structural difference as compared to the other private institutions that take part of the entire local financial system. CFN does not depend on deposits in order to provide credit to the market, which means that it is a self-funded institution based on the paybacks of previous credit operations. Moreover, being a public financial institution, CFN has a mandate that is not focused on profit but on providing as much financial resources as possible to economic agents who are willing mainly to increase and renew their capital stock or diversify and explore in other economic activities. All this framework is what allows us to design products that, in addition to satisfy our potential demand, creates signaling in the whole market in order to promote better conditions for interest rates and credit terms; as well as mechanisms that are designed to decrease the barriers to financial access to SMEs, being one of our main objectives. Now, in order to link all previously mentioned with the economic performance of the economy, we can take two approaches into account for this aim: short and long run. Short-run GDP positive fluctuations are commonly associated with increases in money supply, where the multipliers play a relevant role. On the other hand, these kind of fluctuations in the long-run are said to be driven by technological changes and increases of the stock of capital in the economy. Hence, based of this framework, CFN certainly encourages the growth of local economy due to the allocation of financial resources in activities with multipliers of high power and with its particular focus on financing machinery, land, infrastructure, and similar physical assets.

How do you advance SME growth in the country?

We promote SMEs in the financial market in different ways. First, we offer low interest rates, long loan terms and grace periods to this group of enterprises as compared to what they can get from other financial institutions. Thus, we try to reduce the financial weight over their flows in order to increase their likelihood of success. Second, SMEs are still on a growth trend, and therefore in a process of consolidating their business. Hence, SMEs in several cases do not have proper assets to secure financing, facing a clear barrier for accessing to financial markets. In this case, we offer SMEs the opportunity to access credit markets through a fund created by CFN in order to assume the 80% of the guarantees required by other financial institutions, the ones who already decided to work with this fund. In particular, Banco del Pacífico is the unique bank where SMEs could get a line of credit—after all the risk analysis process—without the need of having to present a guarantee. In summary, adequate conditions and increasing access to credit markets are the main tools for reinforcement of SME growth in Ecuador.

What were the main adjustments to make your funding more accessible to entrepreneurs?

We have recently extended the terms for all credits. Before, it used to be 10 years for financing fixed assets, and now it is 15. Working capital used to be financed at most during three years, and we have extended that to five years. In both cases, we also extended the grace period. In addition, in order the provide a better service, efficient and clear, we have established a new procedure for credit applications. This is a very important advance for promoting more access. It used to be hard to get a credit from CFN, and it took a long time. We shortened this period and now take, on average, 15 working days to approve or deny an application once the application is complete and consistent. Moreover, the process was not that transparent before. We have worked to clarify the process and have extended formal communications to potential customers. We want people to have a great experience from a customer service point of view, and we try to reduce the possibility of moral hazard along every part of the chain. Finally, with the aim to amplify the export base of Ecuador and to create incentives for the agricultural industry, a new financial product was designed providing total grace period to non-traditional exportable agricultural production. We seek to create solid incentives to different entrepreneurs in order to promote access to these areas so that Ecuador may broader in the medium-run its inflow of money from abroad and bringing more stability to our dollarized economy.

How have you enlarged the scope of those that are eligible to your financing?

We did not have the opportunity to finance service industry firms before. CFN initially focused on more “hard” industries. However, when you look at the big picture, services are related to 40% of the GDP and 35% of the workforce. We have since introduced this activity into set of activities available to be financed at CFN. Actually, we are currently in the middle of a large communication campaign to make it clear that all the people involved in this activity should look for CFN if there are financial needs for expanding, improving or initiating projects related to the activity of services. We have worked hard to boost and support the economy in a rational way. In this sense, CFN has also created products that are focused on the needs of certain regions. Ecuador suffered a major earthquake a few years ago that destroyed key areas, and despite our recovery efforts, there is a gap that needs to be filled. We have given credit to the businesses located in the regions most affected by the earthquake as well to any project that will take place in these places, allowing them to truly focus on restructuring and developing their businesses and homes.

How has the investment climate developed, and how have entrepreneurs been able to find you?

The goal for 2018 was to provide to credit market of USD645 million. CFN reached that amount on the last day of September, meaning an 89% increase in credit compared to the same period in 2017. This figure can only be explained by two main key factors. One of these two is the business environment, which has been significantly better than last year and has pushed demand forward. The second factor is on the other hand the more efficient process for resolving credit applications. Both elements described above allow to depict undoubtedly a very strong picture of the actual state of the climate and how agents could find us. We are always looking to support different businesses with our credit. However, at the end of the day, we deal with risk management and despite the goodwill and desires of some entrepreneurs, we cannot take risks that are out of scope.