By decreasing SMEs' barriers to finance, CFN is filling a much-needed gap otherwise neglected by broader market mechanisms.
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 by nature has a structural difference from private institutions that take part in the local financial system. CFN does not depend on deposits in order to provide credits to the market, meaning 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 satisfying 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, another of our major priorities.
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, 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 and face a clear barrier in accessing financial markets. In this case, we offer SMEs the opportunity to access credit markets through a fund created by CFN, which assumes 80% of the guarantees required by other financial institutions who already decided to work with this fund. In particular, Banco del Pacífico is a unique bank where SMEs could get a line of credit, after all the risk analysis process, without needing to present a guarantee. In summary, adequate conditions and increasing access to credit markets are the main tools for reinforcing 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 take 10 years for financing fixed assets, and now it is 15. Working capital used to be financed at most for three years, which we have now extended to five. In both cases, we also extended the grace period. We have also established a new procedure for credit applications, a very important advance for promoting more access. It used to be hard to get a credit from CFN, and took a long time. We shortened this period to an average 15 working days. Moreover, the process was previously not that transparent. We have now 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 try to reduce the possibility of moral hazard every part of the way. Finally, with the aim of amplifying Ecuador’s export base and creating incentives for the agricultural industry, we designed a new financial product to provide a total grace period to non-traditional exportable agricultural production. We are creating solid incentives for different entrepreneurs to promote access to these areas so that Ecuador can increase its medium-term capital inflows from abroad and help stabilize its dollarized economy.
How have you enlarged the scope of those eligible to your financing?
We did not have the opportunity to finance service industry firms before, having focused on more “hard” industries. However, when you look at the big picture, services are related to 40% of GDP and 35% of the workforce, which is why we started financing them recently.