Supervision and Regulation of Microfinance Industry in Ecuador - USAID / SALTO Project

This paper presents macroeconomic issues which have an impact on the expansion of microfinance in Ecuador. The demand for microfinancial services in the country is large as there are over 1.5 million micro enterprises, with less than 15% having access to formal sources of finance. The author states that regulated microfinance in Ecuador had largely been non-existent before 2002 and the microfinance institutions (MFIs) were operating within a setting devoid of prudential norms. With the help of USAID supported Strengthening Access to Microfinance and Liberalization Task Order (SALTO) project, prudential norms were drafted and applied in December 2002. The important features of these norms were:

• Definition - loan that finances a micro enterprise whose source of repayments are sales from production, commerce or service activities;
• Size - maximum size for a micro loan fixed at $20,000;
• Provisioning guidelines.

In conclusion, the author presents the challenges and opportunities that the microfinance industry in Ecuador faces:

• Challenges:
  • Institutional and policy impediments such as interest rate ceilings;
  • Lack of autonomy for the superintendency.
• Opportunities:
  • Collaboration with the cooperative sector;
  • Creation of a credit bureau.