The Interest Compensation Fund [Fondo de Compensación de Intereses: FECI] was set up under the provisions of Act 4/1994 with the principal purpose of ensuring that all local loans to registered farm enterprises and to agroindustrial businesses exporting non-traditional goods would be entitled to a discount on the rate of interest of loans taken out with a bank or financial institution.

Lenders were compensated with the withholdings that banks and financial institutions carry out on all personal and business loans for sums over USD5,000 being earmarked for allocation to an Interest Compensation Fund (FECI).

The Government has been promoting agri-food production and to that end has made agricultural loans available at zero rates of interest. The large number of applications received in the last year came to over 200% of the funds allocated to the Farming Development Bank [Banco de Desarrollo Agropecuario: BDA].

In response a bill has been drafted that modifies Act 4/1994 in order to:

• Find a solution to the existing financing problem.
• Protect micro, small and medium sized producers, driving improvements in their production and productivity levels.
• Raise financing for farming, increasing the funds allocated, starting a process of recovery in this sector and considering new strategies.
• Guarantee the country’s food security.

Loans at 0%

• The Bill proposes that “loans originated by the Farming Development Bank, by Farming Credit Cooperatives or by any natural or legal person with funds lent by the FECI, will not be subject to the interest rate discounts provided for under Act 4/1994”.

FECI Commission

•  The Bill mentions that the commission for this law (once it has been enacted) will be appointed by another commission called the FECI Commission, to be made up by representatives from the Ministry for the Economy & Finance, the Ministry for Agricultural Development and the Banking Supervisor or the person in whom they delegate this responsibility.

Marlen E. Jiménez M., General Secretary of Banco Adopem

Act 172-13, on personal data protection (the so-called Habeas Data Act) has the purpose of providing full protection over personal data lodged in files, public registers, data banks and other technical means of data handling, designed to generate reports, for both public and private use.

This law has been viewed as unconstitutional ever since it was passed, inasmuch as some of its articles were understood to restrict citizens’ rights. So it is with Article 4, which prevents persons affected by incorrect or false information on the data bases of the State’s intelligence bodies from accessing the same in order to correct or erase this information, as they have the right to do under Articles 44 and 70 of the Republic’s Constitution.

Action of unconstitutionality

On this basis, an appeal on the grounds of a direct action of unconstitutionality was brought by the Fundación Prensa y Derecho Inc., the Dominican Human Rights Council [Consejo Dominicano de Derechos Humanos] and the Civic Alliance for Fundamental Rights [Alianza Ciudadana para los Derechos Fundamentales], against Articles 4.2; 5.6c); 8; 10.4; 25.13; 29; 40 and 88 of the afore-mentioned Habeas Data Law.

The petitioners’ demands in their appeal were as follows:

• That a ruling be made with an interpretation of Articles 4.2; 5.6c); 8; 10.4; 25.13; and 40, to bring them into line with the Constitution;
• That an exhortative, or advisory, sentence be handed down regarding Article 29, so that the functions attributed to the Banking Authority be assigned to an independent institution and conditional upon the protection of fundamental rights;
• That Article 88 be declared unconstitutional, on the grounds that it infringes the principle of criminal legality.

Analysis of the Sentence

Turning to Articles 4.2 and 40 of the Law, the Sentence recognises the right of citizens to access the personal data files created by the Armed Forces and the State’s security bodies, provided that they are not related to a current investigation.

The Constitutional Court has ruled that the restrictions set out in these articles are only applicable if access to personal information may represent an obstacle to carrying out their functions on the part of the State’s investigation and intelligence bodies.

With regard to Articles 10 and 25, regulating the procedure for exercising the right to access information, the Court has decided that the administrative procedure that the data owner follows is optional and, as such, the user will not need to exhaust the administrative process before opting for the judicial one.

Article 88 of the Law was declared legally valid, although an interpretation of the expression “current minimum wages”, used to calculate the fine applicable in the event of infringing the provisions in the law, was considered necessary.  The sentence finds the expression “vague, imprecise and non-specific”, since it is unclear which of the minimum wages should be used to calculate the fine applicable, given that the National Wage Committee has set several minimum wage rates for the private sector, but only one for the public sector.

The Court made the clarification that the fines imposed by a Court awarding a claim based on infringing the Habeas Data Law should use the public sector minimum wage to make the calculation.

With regard to Articles 5.6c); 8 and 29, the Court declared they were constitutionally valid.

Positive legislator

With this interpretative ruling the Constitutional Court has become a positive legislator, inasmuch as it did not limit itself to issuing a ruling about the articles at issue, but has recast them, so that they are in line with the current Constitution. The National Congress will thus not need to modify the Habeas Data Law to adapt its articles to the Court’s decision.

The ruling has been accepted by the different players in the nation’s wider society, since it confirms citizens’ constitutional rights, respects their honour and integrity, and allows them to access their personal data recorded in data banks and by the security services, so that they can demand that this data be rectified, using both administrative and judicial procedures, as necessary. It also enables those judges who are ruling on cases of claiming infringements against the Habeas Data Law to dispense justice with legal certainty.

The Basel Committee on Banking Supervision has published this report in order to set the direction that regulation and supervision should take with those institutions that offer financial inclusion services.

Guide for regulators and supervisors

The guidelines apply to a number of different types of institution (e-money issuers, financial cooperatives, microfinance institutions, deposit entities, non-banking institutions, etc) and cover a wide range of financial products and services, from traditional microloans to other types of innovative projects designed specifically for the most vulnerable. They represent a benchmark both for jurisdictions that are members of the Basel Committee and for those that are not.

Guidelines for 19 principles

Although the document uses the 29 Banking Supervision principles as revised in 2012, it pays particular attention to 19 of these, having resolved that the remaining 10 require no further redrafting.

These 19 principles can be divided into two main blocks:

• Faculties, powers and functions (responsibilities, goals and powers; independence, accountability, supervisors’ resources and legal protection; cooperation and collaboration; permissible activities; criteria for awarding licences; supervisory approach; supervisory techniques and tools; supervisory reports; supervisory powers of correction and sanction; and consolidated supervision).

• Prudential requirements and regulations (corporate governance; risk management process; capital adequacy; credit, liquidity and operational risk; delinquent assets, provisions and reserves; and misuse of financial services.

Corporate governance

Principle 14 establishes that it is the supervisor’s role to verify that institutions have robust corporate governance practices and processes in place that are consistent with the institution’s risk profile and systemic relevance.

The document argues that corporate governance ensures sustainable and responsible financial inclusion, based on a culture that reinforces the values of solvent risk management and equitable treatment of customers.

As such, it requires supervisors to have a sound understanding of these practices and processes and of their impact on institutions’ risk profile. To this end, they must carry out the following, which are applicable to both financial and non-financial companies, in both private and public sectors:

• Provide guidance to institutions on the supervisor’s expectations of corporate good governance, with the obligation of informing  their Boards of these expectations
• Set baseline requirements for the structure of Boards and for the criteria for vetting their members
• Guide institutions in their self-assessments of how well they have complied with corporate governance principles and regulatory requirements, a task which requires a high degree of interaction between the supervisor and the institutions.  
• Check that Boards of Directors set up and divulge corporate culture and values throughout the institution and that, together with senior management, they understand, manage and mitigate risk effectively.  
• Ensure that responses to concerns arising in transactions with related parties are suitably transparent.

Traditional microcredit

There are five appendices to the document, that cover issues relating to financial consumer protection, anti-money laundering and the financing of terrorism. Certain terms are explicitly defined: financial cooperation, deposit institution, microfinancing institution, etc), while the distinguishing characteristics of traditional microcredit and its key specific risks are outlined.

Financial inclusion

The purpose of these guidelines is that the actions of regulators and supervisors should take into consideration the systemic importance and risk profile of regulated institutions. To do this, resources must be allocated effectively and specialised knowledge of the nature and level of risk associated with financial inclusion activity must be applied.

Bill 196-C/2016 extends the purpose of Specialist Deposit and Electronic Payment Companies (SEDPE in the Spanish acronym) to include the authority to grant small loans to cover the financing needs of those currently excluded from the formal financial system.

This Bill, if passed, will add a “c” for “credit” to the acronym, with these companies in future being defined as Specialist Credit, Deposit and Electronic Payment Companies (SECDPE).

Thus SEDPE or SECDPE, whose social purpose had been specified in Act 1735/2014 as exclusively to attract online deposit funds, under the new law would now be able to originate small credit loans, providing they meet the following characteristics:

1.   The credit must be de-centralised, with full cover throughout national territory.
2.   Sums of between 15% of the MMW up to the ceiling set for microloans (120 x MMW).
3.   The usury rate for these loans will be the same as those for microloans.
4.   The payment plan must be flexible, whether this is daily, weekly, monthly or tailor-made to the needs of each debtor.
5.   The criteria and parameters for granting these credits should be flexible.
6.  Sufficient collateral to set against the risk must exist, but this should be interpreted so as to facilitate access to the loan. For example, cooperative credit strategies may be admissible as a collateral mechanism.

In addition to the above, this Bill would require the SECDPE to implement a Credit Risk Management System (CRMS).

The institutions will be able to channel resources allocated by the Colombian government to mitigate risk on the credit transactions conducted by SECDPEs. In addition, the National Guarantee Fund (FNG in the Spanish acronym) will be capacitated to underwrite the borrowing transactions carried out by SECDPEs.

This Bill may arouse a number of concerns for the microfinance sector, given that the institutions set up in 2014 to solve the issue of capturing funds through electronic transfers would now be able to originate small credits without microfinance methodology, at the same interest rate, or even charging MSME fees, which may lead to over-borrowing. Furthermore, if the Bill is passed, it would create a new regulatory arbitrage, inasmuch as SEDPEs that can currently be constituted with capital of COP 6,417 million, will be allowed not only to attract funds but also lend them out. This type of transaction has up to now been restricted to other supervised institutions, such as credit establishments, that have to be set up with minimum capital of COP 85,240 million.

María Mercedes Gómez

The history of Colombia over the last 52 years has been disfigured by the scar of a war that has cut down more than 8 million lives directly as a result of armed conflict, kidnapping, terrorist attacks, forced displacement, anti-personnel mines, sexual crimes, disappearances and murders. Fighting was the cause of death for just over 218,000 people, of whom 81% were civilians and 19% combatants*. In amongst these appalling figures, the number of the displaced is shocking; with most of them coming from the rural areas, more than 5 million two hundred thousand people who worked on the land** were forced to flee. That is why the first clause in the Peace Agreement shaping the post-conflict era focuses on the countryside.

Since the peace agreement negotiations between the Colombian government and the FARC started to show signs of reaching a successful end, important steps have been taken towards consolidating a post-conflict scenario, and the rural environment plays a leading role. The 2014 National Farming census, updated after 40 years, shows that 69.9% of rural productive units have less than 5 hectares of land, which is used for subsistence farming.

To give a dimension to the number of people affected by this post-conflict scenario, we need to take the existing rural population suffering from economic poverty, ie, 4.3 million people***, and add the people displaced by the armed conflict, a further 5.2 million, plus those reinserted between 2003 and 2016: 58 thousand****. The total comes to about 9.6 million, all in critical need of social, productive and financial inclusion.

The natural purpose of microfinance is to contribute to reducing poverty in the world, through financial inclusion models that range from straightforward access to financial transactions at the base of the economic pyramid, to offering sophisticated value proposals that fully support productive development and improved standards of living for those on very low incomes.

This purpose faces tremendous challenges in the post-conflict scenario and, in consequence, huge opportunities too. One of the greatest hurdles is the time it takes to reintegrate populations that have been displaced and demobilised: 6.5 years on average*****, after which opportunities for economic insertion must be secured, whether by making people employable or facilitating entrepreneurial initiatives. Another challenge that is extremely important here is the creation of self-supporting enterprise models and the development of current models for reinforcing microenterprises that we have been nurturing in the BBVA Microfinance Foundation (BBVAMF) group of institutions, adapting these models to our particular needs, those of dealing with the realities and overcoming the obstacles peculiar to farming in Colombia.

For the microfinance industry, the opportunities arising from the post-conflict scenario are linked to the possibility of achieving greater scale and scope, which must be leveraged to achieve higher numbers of entrepreneurial customers who have microenterprises or are self-employed. In order to capitalise on this opportunity, the value proposition needs to be adapted to the new needs that arise as a product of the dynamics of building a stable, long-lasting peace.

This is why microfinance institutions’ capacity to innovate will be the critical factor in differentiating themselves from the competition, innovation that is centred on satisfying human needs, underpinned by technical and financial viability. This anthropological approach requires no less of an internal transformation: to leave behind the supply-side design of products and services and embrace the roll-out of integrated business solutions from the demand perspective. This involves a change of approach, in which in-depth knowledge of the rural population and its inclusion needs, as well as of the post-conflict scenario, lies at the heart, with digital technology its greatest ally in achieving transformation and efficiency. Digital technology is also a prerequisite if we are to gain capillarity, with denser coverage in the rural environment.  

If these populations are really to become leading post-conflict players the age-old barriers to rural development must be overcome: land ownership; lack of technical resources in farming activity; limitations in terms of infrastructure and public resources; lack of protection from agro-climatic risks; price volatility; absence of collateral; near non-existent financial literacy; the informal economy and environmental impact, to name some on the long list. The basis for progress and for surmounting these obstacles is the people, working in teams that use well-developed emotional intelligence: individuals with a spirit of service and cooperation. Their training in Responsible Productive Finance must be comprehensive and continuous.

An essential addition to the above is the roll out of a specialised customer service model for the farming segment, one that gets fully involved in communities’ natural economic circles, with value propositions adapted to the different players, digital channels and alliances with third parties; one that leverages cooperative behaviour so that credit can be effectively distributed and risks mitigated.

Over the last five years, Banco de las Microfinanzas  Bancamía S.A. has been preparing for this moment, establishing its principal strategy of deeper and wider reach over rural Colombia, with key tools such as the Farmworkers’ & Indigenous Peoples’ Mission Map [Mapa Misional Campesino e Indígena]. This sets priorities by area and activity, as well as the model of intervention, and lays out the lines of action for consolidating a value proposition that suits the farm labourer’s situation and way of thinking. All this, together with the use of mobile banking, which has made great progress among rural customers, has allowed the bank to define a road map that contributes to consolidating peace in Colombia.

With the support of the BBVAMF and with hope for the future that we have been building with passion and commitment, Bancamía is working towards integrated financial inclusion to ensure access, usage, quality and welfare. It aspires to being the leading financial intermediary in the post-conflict scenario, backed by its in-depth knowledge of this population group, loyal to the mission and the higher purpose that inspire and motivate us.

Youth and enterprise: the new development drivers in Latin America?

The XI Ibero-American Business Congress was held in Cartagena de Indias on 27th and 28th October 2016, as a forerunner to the XXV Ibero-American Summit of Heads of State and Government. This forum for dialogue, attended by 300 companies, was organised by Colombia’s National Association of Businesspeople (ANDI), The General Ibero-American Secretariat (SEGIB), the Council of Ibero-American Businesspeople (CEIB) and the Inter-American Development Bank. The meeting focused on Youth, Enterprise and Education for Development, drawing on the Economic Outlook for Latin America report written jointly by the OECD, CAF and ECLAC.

Latin America is a region of micro and small entrepreneurs with the second highest percentage of entrepreneurs per capita in the world.

SMEs make up 80% of all companies and account for between 16% and 36% of GDP, depending on the country, but they only receive 12% of all credit. The low productivity of Latin America’s businesses is a sign of the difficulty firms have in generating jobs in general, and value-added ones in particular, which then impacts on the skill levels of the labour force.  Both factors feed into one another, creating a vicious circle of low productivity, lack of job opportunities and a black economy.

We are talking about a region where microenterprises with less than 5 workers employ 40% of all wage earners in the private sector. Their limited size is due to the origin of these businesses which spring up out of need, not opportunity. They are known as “subsistence enterprises”, generally with one person or using family members, who begin their activity with the purpose of earning the income they cannot satisfy with formal employment. This is the reality for 85% of the entrepreneurs in Colombia, 78% of those in Peru and 72% of those in Dominican Republic, according to Global Entrepreneurship Monitor (GEM) figures.

Most of these enterprises suffer from limited and volatile growth that does not enable them either to generate employment or to acquire the skills or know-how that would allow them to graduate to formal employment. In fact, this transition is only viable for 1 in every 4 people, while for the rest their easiest option is to remain in informal firms, with wage levels that are no different from what they earn in their microenterprises. For this reason, they prefer to remain in their low-income occupations. This decision has an impact on the calibre of human capital they acquire and, in most cases, the initial level they had goes down even further.

The result is that the returns from education are perceived as being weak, and higher levels of educational attainment are not perceived to result in additional earnings. In addition, most micro-entrepreneurs have low levels of education, which also affects the incentives to accumulate human capital for those young people who believe, given their family environment and its opinions, that this type of occupation is the only possible option for them.

Most of these entrepreneurs are women with family commitments (being an entrepreneur is compatible with household tasks), who have not completed secondary education, who live in low quality housing, come from disadvantaged family surroundings (parents with little education and low incomes), are involved in trade, have low wages, work in the informal economy, in premises either on the street or in the home, and have a low level of innovation.

Furthermore, they suffer from a low level of financial inclusion: only 54% have a bank account (compared to 49% of those in informal employment, 78% in formal employment and 86% of entrepreneurs in medium and large enterprises).

This is the environment in which 163 million young Latin Americans between the ages of 15 and 29 are looking for a future. 42% are in a vulnerable situation or in poverty. Even though access to education has doubled in the past decade (university entrance places have risen from 22.3% to 44.5%), young people lack the opportunities to get a job in the formal sector because of the very characteristics of the business ecosystem explained above. In addition, 1 in 5 young people is outside the system; they neither study nor work, and of those who are employed, a similar proportion are in the informal economy. The more vulnerable young people are, the more informal is their employment.

Working in the informal economy makes it very difficult to transfer later to a formal job, which ends up perpetuating these young people’s vulnerable circumstances into adulthood. For many of them, becoming an entrepreneur represents a real opportunity for the future, but at the cost of increasing the rates of early school leavers and of their levels of education continuing to be low. In consequence, there is a gap between education and productive needs: while a third completes primary school, only 23% on average completes secondary, and 14% have a university education. In other words, of the 72 million who begin university, only 23 million complete their studies.

For all of these reasons, young people face rate of unemployment and underemployment that are three times as high as those for adults. They have more difficulty in getting a job, especially a good one. Only 50% are employed and of those who finish primary school, only 1 in every 4 or 5 works in the formal economy.

Despite this environment there are opportunities for young people and entrepreneurship to become the drivers of economic development in the region over the next few years. This is the conclusion of the 2017 Latin America Outlook report: “Encouraging youth entrepreneurship can become a driver of productive transformation”. Furthermore, the Development Bank of Latin America (CAF) believes: “There is scope for enormous productivity gains if labour and capital are reallocated away from these small establishments towards medium and large companies.” There are possibilities to develop skills enabling entrepreneurs to run their enterprise successfully, so that these people who have been obliged to keep their businesses small out of necessity will become entrepreneurs with real opportunities for growth.

But how can this change be pushed through? The answer seems to lie along 4 main fronts: access to financing, better regulation and public policies that support entrepreneurship, greater digitisation and education that meets market needs.

In the first place, the decision to become an entrepreneur and family wealth seem to be highly correlated, which suggests there are probably restrictions to accessing credit. Whatever the problems of scale, inefficiencies and, at times, poor corporate governance, the financial system, whilst developed, is incapable of smoothing the information asymmetries of customers in the informal economy. These customers have unstable incomes, no collateral as guarantee, no credit history, very little financial knowhow and are far away from financial service providers.  This is why a third of the micro- and small enterprises in the region find that lack of access to financing is their main obstacle to growth. Many of these enterprises start by using their own resources (85% of BBVAMF clients’ assets come from their own patrimony) or informal financing; when the time comes to expand, they frequently go into the “valley of death”.

Secondly, there are state failures in the regulation for creating formal companies (for example, the average time needed to set up a company in the region is 29 days, and the cost is 29% of per capita income, the second highest percentage in the world after Africa). Regulation limits the way in which a company can be set up and managed, with the result that informal mechanisms are used to create them, as the World Bank acknowledges in its latest Doing Business 2017 report. Moreover, tax policies make it difficult for formal companies to grow and raise their productivity, at the same time as they create incentives for the survival of microenterprises that only provide employment for the founder and family members, with little added value and frequently operating in the informal sector.

Public policies supporting companies in Latin America tend to focus on the phase of consolidation and sustainability. They are principally based on equity borrowing and support traditional economic sectors, neither of which contributes to a dynamic and thriving corporate base. Policies and programmes promoting entrepreneurship need to be developed that nurture the will to be an entrepreneur, which motivate and develop business management skills as well as supporting implementation and sustainability (financing through accelerators, mentoring, training, etc).

Some best practice case studies from civil society and multilateral bodies are already being looked at by UNDP and the ILO, and may shed light on how to design these policies: Junior Achievement, that encourages the entrepreneurial habit among young people of school age, Values in Action [Valores en Acción] that helps with self-assessment workshops, leadership and life programmes for young people in unfavourable surroundings, YEP, the regional platform created by the Multilateral Investment Fund (MIF) and Youth Business International in 2013 for business training and the creation of entrepreneurial ecosystems for 65,000 low-income young people, as well as Start Up Chile, an accelerator for women’s enterprises, seed capital and escalation.

Thirdly, the technology access divide needs to be narrowed and a Latin American digital market maximised, to harness the economies of scale in an area containing 700 million people. Only half the population is connected to the internet and has a mobile phone, while only 1 of every 4 most popular webpages has been created locally. Although the region is the second biggest consumer worldwide of digital content (78% of the connected population is on social media), internet is not being included in production chains. Digitisation represents an economic opportunity for the region and it must be driven by public policies that support enterprises that are part of the fourth industrial revolution, as well as training young people in digital skills.

Finally, it is crucial to ensure that the incentives for young people to accumulate human capital are not eroded (and that they do not imitate their parents’ employability models). The goal is to make them more employable with first job programmes and work experience, together with training and courses that match productive sector demands. To design public policies in coordination with the private sector guaranteeing access to education through subsidies and the provision of high quality, public education. To ensure the calibre and relevance of studies, to give job and careers advice, to encourage mobility and to drive a regional labour market; all these are strategies that can offer the right incentives for young people to stay in the educational system.

We should draw attention here to the Ibero-American programme of exchange grants and academic mobility, Campus Iberoamérica, approved during the XXV Ibero-American Summit, which aims to provide 20,000 grants by 2020. Also worthy of mention is the Ibero-American Youth Compact, in which 22 Ibero-American countries have agreed to set up an alliance across governments, civil society, the private sector, the academic world and international cooperation groups to develop policies to help young people. These include the creation of an education package to include employment generators, setting up a regional innovation and digital leadership programme, increasing the role of young people in entrepreneurship and accrediting studies and university qualifications awarded across different countries. Also a creation of an Ibero-American Observatory for Entrepreneurship & Innovation to encourage the exchange of good practices, which will monitor public policies and generate applied knowhow throughout the region.

Another challenge is to reform the educational system so that it properly prepares young people for the productive sector’s future needs. 50% of firms in Latin America claim not to find the workers with the skills they need to carry out their activity. This involves training in new technologies, driving knowledge in the sciences, technology and engineering, as well as improving levels of English, creating shorter training programmes that are linked to formal education. It also involves teaching people the soft skills identified by the World Economic Forum in its document “New vision for Education. Unlocking the Potential of Technology”: teamwork, problem solving, communication, creativity and innovation, working in multi-disciplinary teams, above all. Also on the To-Do list is finding labour intermediation services, both nationally and regionally.

Finally, we should not forget that there is also a gender gap among young people that must be addressed. 30% of young women neither study nor work, against 20% of young men. And those who manage to achieve higher levels of education do not turn that into greater labour participation, nor in higher quality employment or income. According to World Bank figures, the gender gap in entrepreneurship and employment is 14% in Latin America. There is also a training bias. Young women tend to choose studies related to their traditional roles: education, humanities and the arts, rather than engineering or sciences; the former are less well paid and linked to care-giving activities. There are a number of initiatives in place to give young women incentives to pursue scientific, mathematical and technology studies. This dimension was included in the Ibero-American Youth Compact signed at the summit: “to promote the economic empowerment of young women by developing their productive capabilities, as well as with enterprise, microfinance and cooperative programmes.”

Another regional initiative, Laboratoria, develops the socio-economic capabilities of young, low-income women with the potential to become web developers; this hopes to reach 10,000 students by 2010, improving their employability by 85% and multiplying their incomes fourfold.

Latin America faces huge challenges in the area of youth, education and enterprise, all embedded in a complex macroeconomic ecosystem. But facing up to these challenges could turn both young people and enterprise into drivers of opportunities and growth over the next few years. In the words of Rebeca Grynspan, General Secretary of Iberoamericana: “Ibero-America will only succeed in competing on the basis of talent and, in particular, young talent.” The best way of combatting poverty is job creation, which is intrinsically linked to higher education levels. Young people’s skillsets and abilities need to be reinforced so that they can be employed in the formal sector; at the same time public policies must promote and support their business ventures at their initial stages. On the supply side, thousands of microenterprises must be helped to turn into SMEs capable of generating growing opportunities for them. Only by improving corporate productivity and the employability of future generations will it be feasible to transform the current scenario into a virtuous circle of productivity, employment and transparency that activates the region’s economy.

This Research Paper was written for the International Master in Microfinance for Entrepreneurship at the Universidad Autónoma de Madrid, under the direction of Paloma Pérez Castañares (M.Sc.) and Claudio González-Vega (Ph.D.). The research has attempted to answer the question: until what point and in what ways can the supply of indexed insurance at the meso level contribute to financial inclusion in the rural areas of developing countries?

Rural financial deepening in developing countries faces several barriers, leading to imperfect or missing markets. These market failures hinder financial inclusion, rural development, climate change adaptation, and food security. One of the many barriers that explain missing or imperfect markets is related to the challenges of risk management. Indeed, natural catastrophes, such as a flood or a drought, can not only devastate an entire region, but they may also lead to the collapse of local financial institutions.

In this scenario, insurance appears as a tool that, by reducing the farmers’ risk exposure, helps financial institutions in their risk management and diversification. This tool enables the institutions to reduce their operating costs and losses and, therefore, create new matches between the supply and demand of financial services. Traditional insurance does not seem, however, to be most appropriate to ensure this outcome, due to its high operating costs and its inability to cope with covariant risks. For this reason, index insurance, delivered at the meso level, emerges as a potential solution to both high costs and catastrophic risks. Index insurance, by relying on a predetermined index, compensates losses without requiring an assessment of damages in the field. In this way, the insurance institution can significantly reduce its operational costs and offer more affordable premiums to farmers and to financial intermediaries and other parties engaged in risky transactions with farmers. In turn, a supply at the meso level has the potential to allow the insurer to reach sustainability, as it helps institutions to reduce their costs, increase their pool of clients, and diversify their risks better.

While insurance appears as a convenient tool to increase financial deepening, a holistic approach is required to cope with the different challenges faced by rural farmers.  Approaches that also take into account ex ante risk management activities, operating cost reductions, and value chain strengthening have to be considered while developing new schemes. A favorable regulatory framework and the right definition of the role of the state will be critical.

In the public imagination, financial inclusion is still almost exclusively associated with access to finance through instruments such as microlending. Microcredits were the first tool with which some NGOs in Asia and Latin America started experimenting in the eighties of the last century with ways to alleviate the poverty of broad population groups. At the end of the nineties and beginning of the 21st century, the advantages of access to financing were added to for the purpose of ensuring safe and convenient means of formal saving. Today, there are financial inclusion strategies in many countries (Colombia, with its “Pay easy – pay digital” financial inclusion law; the Uruguayan Government’s financial inclusion programme (Programa de Inclusión financiera del gobierno de Uruguay), Peru’s national financial inclusion strategy (Estrategia Nacional de Inclusión Financiera), and Mexico’s National Financial Inclusion Policy (Política Nacional de Inclusión Financiera), to name but a few. These are aligned with the guidelines and recommendations made by institutions such as the World Bank and the Basel Committee on Payments, which identify access and use of online payments as the first step on the difficult path towards financial, and through it, economic and social, inclusion.

As well as making the payment transaction itself efficient –agile, secure, traceable, confirmed, etc– substitution of cash gives further benefits to both parties, the payer and recipient, as well as to society as a whole, insofar as cash is a facilitator of the black economy and of economic and labour informality.

Wide sectors of the population do not have online payment systems and are forced to conduct all their transactions using paper: notes and coins, cheques and IOUs. There are many reasons why this is so: because income from economic activity is paid in cash and not through payment into an account; or because they do not have the necessary systems -payment cards in particular and often no payment account either– to operate online. Frequently also, in the case of card-based payment systems, it is not easy to use them to make payments because they are not widely accepted, either because there are not enough terminals, because there are insufficient incentives for their use to be widespread, or because there is still a preference for cash, for tax or cultural reasons.

Often we mistakenly associate the use of online payment systems with a higher cost for the party making and/or receiving the payment, omitting to consider the numerous invisible costs of only using cash: risk of damage, loss or theft, time and cost of going to get cash (from a bank branch, ATM, etc.), having the foresight to “carry on you” the necessary amounts, etc. In the case of individuals, the belief still exists that the recipient of the payment (the merchant, for example) would prefer to receive cash rather than in alternative, online formats (card payment, for example).

Chile; a case study

As an example, let us look at Chile, where we find an interesting situation.

All Chilean citizens [1] have the right to open a current account (RUT account- Registro Único Tributario, Single Tax Register) with their current national identity card, free of charge in the public state bank BancoEstado (not the case with the other banking institutions, which are not obliged to offer this financial product/service to everyone); on opening the account, a debit card is supplied free of cost[2]. This type of payment card works in ATMs, in the Caja Vecina correspondent banking network and in the POS Redcompra network. It does not have operability, however, in international online commerce, including the smartphone app market (such as Spotify), nor for making transactions in the so-called collaborative economy, inasmuch as these are generally international payment transactions involving global digital platforms, such as  Uber[3] or Airbnb.

By law debit cards are linked to a deposit account that requires the use of a 4-digit PIN to verify the account and its titleholder. Although ATMs and POS in Chile accept the input of these four digits, this is not the case with international merchants’ virtual POS for online or mobile commerce.

There may be a solution to the current situation in which Chileans who do not have a bank credit card are excluded from being able to make transactions in some types of online commerce. This would lie in the ratification of the “Law allowing payment systems to be issued with a provision of funds by non-banking institutions”. This would provide these groups with a prepaid instrument badged with one of the international card brands (Visa or MasterCard, essentially).

Electronic payment systems and the battle against cash

In November we learned about the withdrawal and illegalisation of cash (high denomination notes) by the Indian authorities. Events have shown that the country is not ready for a radical elimination of cash. Only a small percentage of the population has alternatives to cash; most people live in an informal ecosystem with intensive cash use. The situation was chaotic.

In the EU, which is building the Single Digital Market and the Single Payment Market, European Parliament and Council Directive 2014/92/EU, 23rd July 2014, on how to compare fees relating to payment accounts, the transfer of payment accounts and access to basic payment accounts, which in 2014 urged member states to ensure the supply of basic payment accounts, has yet to be passed into the national legislation of most member states, at the date of writing this article. Only Germany, Austria, Bulgaria, Denmark, Slovenia, Slovakia, Hungary, Ireland, Lithuania and United Kingdom did so before the deadline of 18th September 2016.

Ensuring that everyone has a universal electronic payment system (a payment card, preferably linked to a payment account – that handles transfers, direct debits and debit cards, and perhaps, although not necessarily, a pre-payment card) that works in physical and digital establishments and that therefore allows people to pay on both an active and a passive basis (automatic debits or direct debits), is now a public policy challenge. Ensuring that this method is accepted in everyday situations (in the physical and the digital environment) is another.

Conclusion

Identifying which links in the electronic payments chain may be “broken” or missing, that prevent specific types of transactions from taking place (eg. e-commerce transactions) and the consequent failure to access these markets, or being forced to resort to cash, all of them circumstances which affect broad sectors of the population because of how these products have been designed, is the responsibility of the legislator and regulator. It is their job to ensure the best regulatory framework, one that aims for full financial inclusion whilst combatting intensive cash use. In a scenario of digital transformation, we cannot leave behind large swathes of the population – the most vulnerable – in a situation of exclusion from appropriate provision of electronic payment systems.

Analistas Financieros Internacionales, Afi, analyses electronic payment system trends in Spain and Latin America. The recently published 2016 edition of the TECNOCOM Report on trends in payment systems, written by Afi for TECNOCOM, pays particular attention to the pairing of electronic payment systems and financial inclusion.

Verónica López Sabater is a Director of the Afi Foundation and a consultant in Afi’s Innovation & International development area, as well as the Technical Secretary of remEX. She has a degree in Economics from the University of Valencia, a Master’s degree in Economic Policy from Boston University and a Master in Economic Development from QMW University of London.

You may also be interested in:

• National Financial Inclusion Strategy in Mexico, and Peru
• Payment aspects of financial inclusion (World Bank)

The global association Access to Insurance Initiative (A2ii) was set up in 1994 to represent insurance regulators and supervisors in 190 jurisdictions in nearly 140 countries, most of them emerging markets and developing countries, and accounts for 97% of the world’s insurance premiums. The A2ii issues global insurance principles, standards and guidance papers, provides training and support on matters relating to insurance supervision and organises meetings and seminars for insurance supervisors.

In this publication the A2ii examines current trends and challenges facing insurance supervisors, particularly in the areas of formalisation, mass distribution and digital technology.

The A2ii formulates a series of recommendations in this booklet that supervisors should bear in mind:

• Understanding the single-market context of a jurisdiction before developing the regulatory microinsurance framework.
• Bearing in mind the broader legal and regulatory context within which microinsurance regulations are issued.
• Preventing and avoiding the unexpected consequences that might arise from a regulatory microinsurance eco-system.
• Coordinating and cooperating with other authorities that are involved in supervising the provision or distribution of insurance-related products.
• Adopting a structured, evidence-based procedure that is appropriately staged for developing and implementing the regulatory microinsurance framework.
• Applying a proactive and flexible approach of testing and learning when developing and implementing microinsurance regulations.

The Economist Intelligence Unit has published its 2016 Global Microscope, with support from the Multilateral Investment Fund (FOMIN)/the Inter-american Development Bank (IDB), the Center for Financial Inclusion at Acción and the MetLife Foundation.

The document analyses the regulatory ecosystem for financial inclusion and the implementation of the necessary public policies in 55 countries worldwide using 12 indicators that measure regulation, public policies, supervisory systems, governmental capacity, infrastructure and economic stability, among others.

This is the tenth issue of the report , which has become a global benchmark for financial inclusion policies in developing economies.

The most notable aspects of this edition of the Global Microscope, relating to Latin America and the Caribbean, are the following:

• For the tenth year in a row, Peru took first place in the general classification of an environment that is friendly to financial inclusion, sharing the top spot this year with Colombia.
• Two other countries in Latin America and the Caribbean are in the overall Top Ten: Chile, in sixth place, and Mexico, in tenth place. As was the case in last year’s report, Latin America and the Caribbean and East and South Asia tie for the highest overall regional scores.
• There is greater emphasis on the provision and regulation of digital financial services as a tool for financial inclusion (for example, El Salvador’s law to promote financial inclusion has simplified the paperwork and brought down the costs of electronic money and savings accounts).
• The successful launch of financial inclusion strategies in Mexico, El Salvador and Honduras; and the signing of a new microfinance law in Guatemala.
• Significant improvements in the scores for microinsurance regulation in several countries in the region, including Peru, Mexico, Colombia, Brazil and Nicaragua.
• Progress in Jamaica towards developing a new financial inclusion strategy that will probably be launched at the end of 2016.

The World Bank (WB), founded in 1944 and headquartered in Washington, is an international organisation specialising in finance under the United Nations umbrella. It defines itself as a source of financial and technology assistance for developing countries. Its declared purpose is to reduce poverty through low-interest loans, interest-free credits to banks and economic support to developing nations. 189 countries are members.

This document presents a new demographic profile of extreme and moderate poverty, defined as those living on less than USD 1.90 and between USD 1.90 and USD 3.10 a day, respectively, based on household survey data from 89 developing countries. Some of the key findings are:

• 80% of the extreme poor and 75% of the moderate poor live in rural areas.
• Over 45% of the extreme poor are children under 15 years old and nearly 60% of the extreme poor live in households with three or more children.
• Gender differences in poverty rates are muted, and there is scant evidence of gender inequality in poor children’s attainment.
• A sizable share of the extreme and moderate poor, 40 and 50% respectively, have completed primary school.
• Compared with the extreme poor, the moderate poor are significantly more likely to have completed primary school and are less likely to work in agriculture.

The results reinforce the importance of efforts to reduce extreme poverty in rural households and those with a large number of children. They also demonstrate that educational attainment and urbanization contribute to hastening poverty reduction.

The Sustainable Development Goals Fund (SDGF) is a development mechanism created in 2014 by the United Nations Development Programme (UNDP) with funding from the Government of Spain, having the aim of promoting sustainable development through joint, multi-dimensional programmes.

Now that a year has passed since the approval of Agenda 2030, and with work towards the Sustainable Development Goals in progress, the SDG Fund, supported by its Private Sector Advisory group and the UN Global Compact, describes in its new report “Universality and the SDGs; a business perspective”, the different viewpoints of the companies currently working to drive Agenda 2030 and its 17 SDGs.

The report contains interviews and inputs from leading figures in the private sector through workshops in Africa, Latin America, Europe and the US, with over 100 firms representing various regions and industry sectors.

The report provides information as to how companies are addressing development goals and indicates that many firms have acknowledged that they are still in the process of understanding the depth of SDGs and deciding how best to implement them; others have gone ahead with integrating SDGs into their action and business plans and in some cases are already close to achieving one or more goals.

One of the most valuable conclusions of the report is the description of a series of straightforward measures, such as technical training, which would qualify many more companies to sign up to the SDG Agenda and speed up progress towards these important and ambitious global targets for social development and the environment.

You may also be interested in:

• The 2030 Agenda for Sustainable Development (General Assembly United Nations)
• Sustainable Development Goals (United Nations)

IFAD, the International Fund for Agricultural Development, set up in December 1977 and headquartered in Rome, is a specialized agency of the United Nations with the purpose of providing funds and mobilising additional resources for programmes specifically designed to promote the economic advancement of poor inhabitants of rural areas by improving their agricultural production.

Its 2016 Rural Development Report focuses on inclusive rural transformation as a key tool for eliminating poverty and hunger and creating inclusive, sustainable societies.

The report argues that although millions of people in the region have escaped poverty in recent decades, inequality continues to be extraordinarily high in the region, with a quarter of the population in an economically vulnerable situation.

The report makes clear that in order for Latin America and the Caribbean to beat poverty, rural transformation needs to be tackled in an integrated way that goes beyond simply increasing farming productivity. It urges that easier access for smallholder farmers to basic services (land, infrastructure, health, finance) should be made available, and help given to set up stronger local, regional and national institutions.

According to the report, in recent decades major progress has been made in overcoming the traditional opposition between city and countryside, so that now agriculture is not the only economic activity in rural areas, where more and more families combine farming and non-farming activities to earn their living.

This complex reality throws up opportunities and challenges that require policymakers and development professionals to update their approach to rural poverty.

The report says that Bolivia is the only case from all the Latin American countries analysed in which poverty reduction has continued apace even though the transformation of its national and rural economy has been sluggish. The example of Bolivia shows that appropriate, well-targeted policies are efficient in reducing poverty.

McKinsey & Company is a global management-consulting firm that helps some of the world’s leading businesses to improve their performance, whether they operate in the private, public or social sector.

The report assesses the impact of digital finance (Fintech) on emerging economies, based on the conclusions of field trips conducted in seven countries: Brazil, China, Ethiopia, India, Mexico, Nigeria and Pakistan- and on over 150 interviews with experts.

The study looks at how cash is used in these regions and the low degree of financial inclusion, which translates into about two billion unbanked people and 200 million micro, small and medium enterprises with inadequate access to credit.

The report stresses the potential of digital finance to transform emerging market economies. It concludes that adopting and using digital finance would have the following global impact:

• An increase in GDP of USD 3.7 billion by 2025
• The creation of 95 million new jobs
• The inclusion of 1.6 billion more people in the financial system; and
• New deposits worth USD4.2 trillion

The Economic Commission for Latin America and the Caribbean (ECLAC), headquartered in Santiago de Chile, is one of the United Nations’ five regional commissions. It was set up to contribute to Latin America’s economic development, coordinating actions to promote and strengthen countries’ economic relations with one another and with the rest of the world. The commission was subsequently enlarged to include the countries of the Caribbean.

This report focuses on the region’s social inequality matrix and is the response to the mandate conferred by Latin American and Caribbean countries on ECLAC during the Regional Conference on Social Development in the region held in Lima in November 2015.Its starting point is that social inequality is a structural characteristic and a fundamental challenge for Latin America.

The study highlights that in Latin American and Caribbean societies, poverty, vulnerability and inequality are structural problems. It notes that the worsening of some economic and labour market indicators mean that the region is at risk of going into reverse.

The analysis concentrates on the main pillars of social inequality: gender, race, age and/or stage of the life cycle and territory. These different dimensions of inequality are interrelated, hitting certain groups of the population more than others.

Two types of inequality are described in the report:

• Inequality of income, manifested as the social class to which one belongs, which is the root cause and effect of other inequalities in areas such as education, health, work and income.
• Cross-category inequalities, of which it notes that:
  • Poverty and absolute poverty are higher among indigenous peoples and descendants of the African population in all the countries studied, and particularly noticeable among women in these two groups.
  • Poverty rates are higher among children and adolescents.
  • Teenage motherhood is much more widespread in rural areas, which has a direct impact on educational attainment.

From this analysis, the document makes a number of recommendations in its conclusion, among them:

• Economic, productive, labour, social and environmental policies must be coordinated with one another.
• A rights-based focus and an integrated approach are key for the success of policies to fight inequality.
• Institutions must be further empowered and robust social policies must be underpinned by social compacts.
• Social expenditure and tax revenues spent on social development are critical, as is the need to increase statistical capabilities in order to provide visibility for the different dimensions of inequality and to work towards greater understanding of them.
• The importance of moving away from a culture of privilege towards one of equality, which calls for policies oriented towards universal rights that are also sensitive to differences.

The Economic Commission for Latin America and the Caribbean (ECLAC), headquartered in Santiago de Chile, is one of the United Nations’ five regional commissions. It was set up to contribute to Latin America’s economic development, coordinating actions to promote and strengthen countries’ economic relations with one another and with the rest of the world. The commission was subsequently enlarged to include the countries of the Caribbean.

This publication reveals a major challenge facing the region: that of diversifying its economies to embrace science, technology and innovation.

It recognises that innovation plays a central role in a country’s ability to take part in global trade and growth. The publication warns that the indicators for innovation and access to technology are not encouraging. There are structural deficiencies in the absorption of knowledge about new technology paradigms and in participating in the creation of the paradigms.

The report proposes public policies promoting more inclusive, sustainable development to enable the region to meet this challenge, as well as bilateral, multilateral and regional cooperation identifying key areas for working together in science, technology and innovation.

Jordi Roca

Joan, Jordi and Josep Roca, owners of the “El Celler de Can Roca” in Gerona, have been awarded the Spanish Premio Nacional de Gastronomía and their restaurant won a special mention from the British Restaurant Magazine as one of the best in the world.

In January 2016 the Roca brothers were appointed UNDP Goodwill Ambassadors under the UN Development Programme (UNDP), to work hand in hand with the Sustainable Development Goals Fund (SDG Fund). They will be promoting the goals agreed by world leaders for a future in which by 2030 hunger, unemployment, inequality and climate change will be problems of the past*.

 1. What does being a UNDP Goodwill Ambassador entail? What does it mean to be the first such ambassadors to be specifically working on the SDGs?

When we discovered that the United Nations was initiating a new era of development cooperation, with an ambitious proposal for achieving the new Sustainable Development Goals (SDGs), we clearly saw a great opportunity there. Looking at food from the three angles used to work on sustainable development –from the social, economic and environmental viewpoint- helps us to understand many of the challenges we have come across in our culinary travels around the world.  We also feel very proud to be the first UNDP Goodwill Ambassadors since the 2030 Sustainable Development Agenda began. We hope that what we have learnt in our travels can contribute to the work the SDG Fund is already doing, providing access to food, nutrition and the creation of job opportunities in 21 countries.

2. What plans and initiatives do you have as Ambassadors?

Being ambassadors is an opportunity that we should make the most of in our role as cooks. Working from the area we know best, we want to focus on promoting food security and nutrition, working especially on local sourcing of foodstuffs.  We are going to help promote farmers’ markets, with varied, nutritious foods that can cover the local communities’ needs and be a source of decent-quality work.

Our first plan as UNDP ambassadors is to work in Nigeria to fight against food being wasted just because people don’t know how to preserve it. We will create an institute to raise awareness about food security and help farmers from the Kaduna region to promote and sell their produce. Last week, Josep went there with some samples of the work we have done at home on preserving foodstuffs, so that the local farmers could try them and then develop preservation systems tailored to their own needs. If this turns out well, the idea is to spread the project to other African countries.

3. The BBVA Microfinance Foundation BBVA (BBVAMF) has developed a Responsible Business Finance methodology in order to offer financial services to support productive activities and projects in the most vulnerable sectors of the population. From what you have seen in your many trips to support various projects for solidarity, do you consider that microfinance can be like healthy eating, and generate development and well-being?

Microfinance offers a real opportunity to people with not much money to start up their own business. This is always positive, because local businesses don’t just enhance the life of the entrepreneurs, but also encourage the overall development of the regions where they are working. On the trips we used to make before we travelled with BBVA, we visited small local producers who live off what they produce. It is important for such people to have access to the money they need to keep their businesses going, because the well-being and development of their communities depend, precisely, on these small-scale farmer and local producers.  

4. 31% of the BBVAMF Group customers live in rural environments. What three things can a farmer do to improve produce quality?

It’s important for local producers to take care of their food traditions and learn from them. Mastering techniques for preparing, preserving and using foodstuffs and minimising waste is also necessary to develop their output. It would be very positive, too, if they could become more involved in the dialogue and activities to fight hunger and poor nutrition.

5. Many microfinance customers have small spaces devoted to cooking with traditional recipes. What tips would you give them to attract clients?

Traditional cooking, when done with love and care, is a business model that can be really successful.  At the end of the day, people always want to return to their roots, the flavours of their childhood… That is why it’s best to try to attract the people from nearby, who live close to you, who you see every day. These kinds of businesses should develop locally, and make something great out of the local business.

6. New technologies are being very useful to facilitate access to financial services. What do you think the popularisation of technology means for society? And the food business?

New technologies, especially the social networks, are a good way to disseminate the work we do to people who are following us and to keep abreast of what is happening in cooking. They let us to know what is going on, what is being done and how people are responding.

In our case, we are very aware that what goes out over the social media has an enormous impact on the brand. That is why on the El Celler de Can Roca media we are so careful about what we write and how, where and what we are going to communicate. All the passion and hard work we put into creating our reputation needs to be preserved, cared for and disseminated over the social networks. Personally, I am amazed by the immediacy of Twitter or Instagram. In just seconds, you get your message out there to the entire world. You can do really important things over social platforms.

7. Recently you spent a day working with entrepreneurs from the Esperanza Fund, the Chilean entity in the Foundation Group, who wanted to make their living from gastronomy and cooking. What recipe would you give people like them, to make a success of their projects and achieve both social and economic development?

Jordi Roca visits Fondo Emperanza´s entrepreneurs, entity of MFBBVA Group, in Chile.

What’s most important to get a project off the ground is to work hard and work with passion. And you really have to go all out to innovate, to go beyond the merely conventional if you want to set yourself apart. If you are authentic and doing what you enjoy, your possibilities of success increase considerably. In our case, as entrepreneurs, it was fundamental to be totally clear about what we wanted to do. That’s also a key point.  

8. One of the hallmarks of the Foundation Group is that we provide follow-up for our borrowers, accompanying loans with advisory services and training, so that they can develop a robust business and finance culture. The Roca brothers have said that you feel it is your responsibility to society to transfer your know-how. What does that mean in practice?

We are aware that true social change has to come from training. As UNDP Ambassadors, we want to encourage the creation of training institutes for young people so that through cooking, they can find alternative ways of living and sustainable sources of income for their families. Moreover, in El Celler de Can Roca, we also make our own tiny contribution to training young people. Here, the trips we have been making with BBVA over the last three years have given us an excellent opportunity to identify local talent in each of the towns and cities we visited. As we toured around, we got together with several catering schools to give students the opportunity to work with the kind of kitchen equipment and facilities we have and to see how a restaurant really operates.  In every town, we chose two students who had shown skill and passion for cooking and wanted to learn, so that they could come and do an internship at El Celler for four months.

9. “And for dessert…” At what stage of the meal would you include eucalyptus?

A dessert I really enjoy preparing is a green delight, Cromatismo verde: distilling eucalyptus leaves, creamed avocado and a sauce of lime and chartreuse liqueur.

The Republic of Colombia’s Senate is pushing through a bill to extend the scope of application of the Personal Data Protection Law (Act 1581/2012) to cover the processing of personal data by Data Processing Controllers (hereinafter, Controllers) who neither live nor are domiciled in the Republic of Colombia but who, using the internet or any other means, collect, store, use, disseminate and in general conduct any transaction or set of transactions involving the personal data of people who live, are domiciled or located in Colombian territory.

The bill also extends the inspection and oversight powers of the Industry & Trade Authority, the Superintendencia de Industria y Comercio.

This bill aims to protect Colombians from improper use of their personal data by Controllers who neither live nor are domiciled in Colombian territory, as well as to enable Colombian authorities to conduct investigations or fact-finding exercises, on their own initiative or as requested by parties involved, with a view to upholding respect for personal data protection.

Colombia’s House of Representatives is spearheading a project to create a basket of free financial services for holders of savings accounts and credit and debit cards. These services would be provided by institutions authorised to collect deposits from the public that would charge management fees on these products.

The basket in the first draft contained the three most commonly used products and services associated with savings accounts and credit cards, which is the one used by Colombia’s financial authority, the Superintendencia Financiera to calculate the Financial Consumer Price Index [Índice de Precios al Consumidor Financiero (IPCF)]. However, the bill was amended in the committee report for the first reading in the House of Representatives, which removed the Financial Consumer’s Price Index (IPCF) as a benchmark for calculating a typical service basket.  

In its place was a list of the financial services provided when a savings account is opened. The institutions will have to choose three of these to be offered free for customers to whom banks charge account management fees. A similar list was drawn up for debit and credit card holders.

Meanwhile, this Bill makes it mandatory for institutions authorised to collect deposits from the public to inform their users in a clear and timely manner about the composition of the minimum product and/or service package to which the latter will have access at no further cost during that month. Institutions may use their normal channels of communication with customers.

This Ministerial Order has been enacted as part of the Spanish Corporate Social Responsibility Strategy. It picks up on the recommendations made on this subject by the European Union and on other initiatives by organisations and international bodies such as the Organisation for Economic Cooperation and Development (OECD), the United Nations and the International Labour Organisation (ILO), among others.

There are currently a large number of institutions, both public and private, publishing social responsibility reports, annual and otherwise, that inform the market about their good practice or results obtained by applying policies designed to foment environmental sustainability, good governance and responsible consumption.

This order has two goals: to give initiatives and policies developed by undertakings and organisations more visibility; and to enable institutions covered by the scope of Directive 2014/95/EU of the European Parliament and of the Council of 22 October  (hereinafter, the EU Directive) to disclose non-financial and diversity information.

The Order affects companies, organisations, institutions, public and private entities, public administrations and those institutions that have to apply the EU Directive (public interest institutions with more than 500 employees during the financial year, at their reporting date).

PUBLIC FILE

The Order provides for the creation of a public file on line, on the Ministry for Employment & Social Security website, where annual and other reports will be uploaded. The information contained should cover the following:

• Good corporate governance
• Commitment to the environment
• Information on environmental, social and good governance issues (ESG criteria)
• Fight against corruption and bribery
• Improvement in labour relations
• Stakeholder opinions
• Policies of universal access and inclusion of groups at risk of social exclusion
• Diversity and equality policies
• Respect, protection and defence of human rights
• Transparency in the undertaking’s management
• Other areas that demonstrate a commitment to the values and principles of corporate social responsibility and sustainability

REGISTRATION AND PUBLICATION PROCEDURE

A specific procedure for registering and publishing social responsibility and sustainability reports has been defined. Furthermore, companies that are required to apply the EU Directive and follow this procedure will be exempted from having to present non-financial and diversity information in a separate document from the management report.

In order for the undertakings to be able to apply to publish their reports, they should present a statement of responsibility certifying the truth of the information supplied. They should, likewise, specify whether the annual report has been prepared using any particular model, and whether it has been verified or audited by any external body.

The registration and publication procedure will be online and consist of two phases, which are regulated in article 4 of the Order.

COMMITMENT TO SOCIETY

This measure seeks to foment transparency in public and private undertakings, and to support the development of responsible practices, so that they become a significant driver of competitiveness, while encouraging inclusive and sustainable growth in society.

The bill has become necessary because of the changing nature of information exchange under new technologies. Legislation is required to strengthen personal data protection for ordinary citizens and prevent their data being used for illicit purposes.

Following the lead of countries and territories such as Colombia, Paraguay, Dominican Republic and the European Union, which have passed new data protection regulations, Ecuador is joining the endeavour to ensure people’s right to privacy in the collection of their personal data in databases, filing systems, physical or digital archives, in both public and private institutions when this is exclusively for commercial financial ends.

The bill lays out a set of guiding principles that must be respected when creating, administering and managing databases, filing systems, physical and digital archives, and also when third party personal data is being handled. The principles are: legality, relevance, accuracy, informed consent, confidentiality and secrecy.

The bill also recognises that people whose data are being processed have certain rights, such as being able to know, update and correct the data about them, to be informed as to what the data is being used for, to be able to access their data free of charge, etc. Special protection is granted to the rights of children and adolescents.

The text establishes the duties and obligations of those in charge of processing personal data and of the database.

The bill puts the National Personal Data Protection Authority in charge of overseeing and supervising this information, giving it powers to guarantee that the principles, rights, guarantees and legal provisions around personal data collection are safeguarded at all times.

This Authority is required to set up a National Database Registry within one hundred and eighty (180) days after the bill passes into law. During this time all databases, filing systems and archives of all public- and private-sector data-processing entities with exclusively financial and commercial ends must be registered.

Furthermore, the bill prohibits the international transfer of personal data of any kind, to other countries or international bodies that do not provide data protection levels in line with the standards of Ecuador or with those laid down by international law.

Finally, it includes a classification of infractions (minor and serious) and sanctions that will be imposed on those who fail to comply with their duties and obligations under the law, as determined by the National Personal Data Authority depending on the degree of non-compliance and the harm resulting from it.

The law provides for implementing regulations to be drafted for application within 90 days after it is enacted.

Chile’s Social Security Authority has published this draft circular with the aim of promoting good corporate government practice on the part of Employers’ Mutual Societies.

Mutual societies are privately owned non-profit corporations with the purpose of managing social security provision for workplace accidents and illness, an insurance cover that is funded mainly by social security contributions and surpluses. Because of their non-profit nature, the Authority has issued this draft circular in order to promote solid corporate governance structures in the mutual societies; this makes their long term sustainability viable and ensures the effective delivery of medical, monetary and accident prevention provision.

ANNUAL GENERAL MEETING

The draft circular contains the requirement that mutual societies hold an annual general meeting during which member institutions are informed of the most important issues affecting the society’s activity and management.

There will be at least one ordinary general meeting a year, to be convened with a minimum of 15 days’ notice.  Mutual societies’ bylaws will regulate the conditions for convening extraordinary general meetings (quorum for attendance and voting, how meetings are called, etc).

BOARD OF DIRECTORS

The Board is the mutual society’s highest organ of administration. The draft circular calls for a separation between the institution’s administrative direction and its execution, that is, between the Board and senior management, in order to ensure the independence of both functions.

Thus, the Board will have to hold meetings at least once a year without the attendance of senior management, to discuss the internal and external audit reports, as well as to assess the performance of the chief executive officer and other senior executives.

How it works

Board meetings will be held at the request of the Chair, or with the frequency that the Board itself stipulates. A schedule of the meetings throughout the year should be made available to the Board directors, to which they should have regular access so that they have complete, accurate and relevant information about the institution. In any event, board members should receive the information germane to the meetings at least 5 days beforehand, as well as the specific documents about the issues under discussion.

Mutual societies must also have a channel of information so that directors are continually made aware of issues that affect the organisation.

Furthermore, they should have communication channels to keep members and associates of the mutual society informed on a permanent basis about matters concerning the society and its corporate governance (election of board directors, relevant facts, statutory and legal requirements that must be met by the directors, dates of the members’ general meetings, etc).

Composition

The Board should be made up in equal measure of representatives of the Society’s member companies and employees providing services to these companies. Board members will be appointed to their posts for periods of 3 years and may be re-elected for a maximum of 2 consecutive terms.

Alternate directors may be appointed to take part in Board meetings; they will have the right to vote only in the event of the absence of the titular directors. They may also be members of the Board’s supporting committees.

Mutual societies should have formal induction and training procedures and mechanisms in place for their board directors, so that the latter are kept permanently up to date and have the knowledge and basic skillsets to fulfil their position effectively. To this end, a training programme should be drawn up every year identifying the areas to be covered.

Both the Board and its support committees may be advised by in-house or external professionals, as required, who will take part in meetings as guests to respond to directors’ specific needs.

Board directors’ roles and responsibilities

The draft circular defines the director’s functions and responsibilities, separating them into the following areas: strategic issues; entity’s structure; monitoring and control; issues relating to the context and transparency; internal regulatory compliance and legality, among others.

In order to ensure that the Board has the necessary resources to carry out its functions and responsibilities, an annual budget should be approved for it to operate, with provision made for per diems, travel allowances, fees for taking part in the support committees, fees for advisory services as may be necessary, among others.

The draft circular contains a section on conflicts of interest, making explicit the obligation of the Board, the members of management and all other mutual society employees to behave responsibly, faithfully and ethically in the event of such conflicts. Also the Board’s duty to inform and to be informed about conflicts of interest.

Chair

The Chair of the Board should take on a leadership role during meetings and will be responsible for the effective and efficient running of the same. The Chair has the following functions: to set the agenda for each meeting; to ensure that directors fulfil their roles, to set up procedures for handling potential conflicts of interest that may arise, etc. The Chair will have the casting vote in the event of a tie in the adoption of a resolution.

COMMITTEES

In order to inform their decisions, the Board may set up support committees, which will be made up of at least one director representing the member institutions and one representing workers.

The Board committees’ aims, roles, meetings, voting mechanisms etc will be regulated in their own statutes. In any event, the committees should report regularly to the Board of Directors about their work plan and how it is going, as well as presenting an annual synopsis of their achievements and work in progress.

The Board of Directors should set up, at the very least, a Risk Committee, a Prevention Committee, an Audit Committee and an Ethics Committee.

CHIEF EXECUTIVE OFFICER AND SENIOR MANAGEMENT

The CEO of each mutual society will be responsible for the institution’s day-to-day management. He or she will be appointed by the Board and may not hold the post for more than 10 years.

His/her remuneration will be set by the Board. It should be consistent with the institution’s financial situation and reflect his/her personal capabilities. It may consist of a fixed amount and another that is variable, linked to the Manager’s performance and the degree to which the society’s targets are being achieved. A formal, transparent procedure should be followed when deciding remuneration, with a review of the parameters and values used at least every 3 years.

LEGAL, INTERNAL AND EXTERNAL AUDIT

Mutual societies should have a department of legal affairs, led by a chief legal officer, who is answerable only to the Board of Directors. The department’s independence from the institution’s other organs must be guaranteed in order to ensure its impartiality.

The draft circular also describes the roles of Internal Audit and External Audit. The Internal Audit must assess the degree of compliance with the institution’s policies and procedures, and its chief officer will have access to the Board through the Audit Committee. The External Auditor, an external company hired by the mutual society, will audit the entity’s financial statements and report directly to the Board.

ASSESSMENT

Mutual societies should conduct an annual assessment of corporate governance, of the CEO,  the Chief Legal Officer (CLO) and the Internal Auditor Officer.

Specifically, the corporate governance assessment will follow the format shown in Appendix I of the project and may be delegated to an external consultancy. In any event, a report should be prepared with the results of the assessment that will include the action plan that has been designed to mitigate any weaknesses identified. The report will be approved by the Board of the mutual society and submitted to the Authority by the end of March at the latest.

MINIMUM STANDARDS

This Circular endeavours to set a framework of minimum standards to serve as a benchmark for the corporate governance of mutual societies, based on international governance principles.

On 9th August Argentina’s Official Bulletin published Act 27,264 known as the “SME Act”, in Decree 903/2016, which grants tax relief to small and medium enterprises within the scope of the Productive Recovery Programme.

The following is a summary of the new regulatory framework:

• Abolition of the tax on minimum notional income

• Offsetting the banking credit and debit tax: by up to 100% in the case of Micro and Small enterprises; up to 50% in the case of bracket 1 medium enterprises. The category used currently to define a company as an SME depends on the average annual sales in the previous three years, with the cut off figure differing according to the company’s activity sector:

– Farming $100.000.000

– Industry & Mining $360.000.000

– Trade$450.000.000

– Services$125.000.000

– Construction$180.000.000

• Deferring VAT payments

– For Micro and Small enterprises a month’s worth of VAT is payable at 90 days; thus VAT for June is paid in September, July’s in October, etc.Deferring VAT payments

– Tranche 1 medium enterprises accumulate three months before payment, ie. VAT from June, July and August is paid in September, etc.

• When there are credit and debit balances on taxes that cannot be offset under current legislation, the taxpayer may request a refund through a tax rebate, according to a mechanism to be defined by AFIP, the Federal Tax Administration.

Complementary package of SME promotional measures

1. Encouraging investment

SMEs may deduct up to 10% of their investments from their income tax. They may also get a tax refund for the unrecovered VAT from the investments made.

This relief will be increased by between 5% and 15% in the case of SMEs in regional economies.

2. Productive recovery programme

The Ministry of Labour, Employment and Social Security has raised the productive recovery programme to the category of law. The amounts for SMEs have been raised and the simplification of the administrative procedure guaranteed. This programme, which had already been renewed by the government, enables companies going through a critical situation to request a subsidy to pay wages and thus avoid firing staff.

3. Promoting SME competitiveness

The Department of State for Entrepreneurs and SMEs has set up a public-private consultative council to monitor the competitiveness of SMEs. This Council has given the category of law to the SME Competitiveness Institute.

4. More financing options

More guarantees for SMEs (FOGASME) and higher tax rebates for non-financial institutions and SMEs that issue instruments structured as public offerings.

The letter of credit giving SMEs a medium-term funding instrument using the securities market has been improved. To achieve this, a quota-based amortisation system can be set up.

Limited liability companies are allowed to issue negotiable debt securities.

The Act adds a series of sanctions payable if mutual guarantee companies are not compliant.

5. New lines of financing

The credit line for productive investment has been renewed, increasing commercial banks’ lending quota for SMEs from 14% to 15.5%. This means that a further ARS 63 billion is available in the second half of 2016, at an interest rate of 22%.

The percentage allocated to discounting cheques in the credit line for productive investment has been increased so that more SMEs can get access to short-term finance. The Ministry of Production’s Banco de Inversión y Comercio Exterior (BICE) has launched and is promoting its “First SME loan”. This credit line means that those SMEs which could not access banking finance may now do so at preferential rates of 16%.

There are more interest rebates and greater access to financing for working capital, investments and energy efficiency through the Ministry of Production’s programmes. With interest rates at between 9% and 18%, terms of up to 7 years and figures of up to ARS 10 million.

6. Tax relief

The deadline for settling VAT has been deferred to 90 days for micro, small and bracket-1 medium enterprises, improving short-term financing conditions for them. This involves a further ARS 5 billion working capital for SMEs.

SMEs available balances have been reduced by automating the issue of the VAT no-withholding certificate, as well as increasing caps and floors to the tax withholdings against VAT and profits. This means that fewer SMEs are subject to withholdings or have to make them, improving their cash flow and reducing paperwork.

7. SME register

An application has been developed in conjunction with the AFIP, the Federal Tax Administration, so that SMEs can obtain proof of their SME bracket. This app is already available on AFIP’s website through the F. 1272.

The aims of this register are as follows:

• To have updated information on the composition and nature of the Micro, Small and Medium Enterprise segments, so that suitable policies and instruments to support these companies can be designed for them;
• To collate, register, digitise and save the information and documents about companies that want or need to prove their condition of Micro, Small or Medium Enterprise to the relevant authorities or to any other public or private institution to comply with the standards established by those authorities;
• To issue certificates accrediting the category of Micro, Small or Medium Enterprise in response to a request from the company concerned or the requirement of national, provincial and municipal authorities.

The Bill to create “Collective Benefit & Interest” companies (BIC) in the private sector is currently going through Colombia’s Congress. These are equivalent to what is known in the US as “benefit corporations” and any firm will be able to adopt this company structure if it wishes to be identified as a company that pursues not only profits for its shareholders, but also to protect the interest of the local community and the environment.

This would give official recognition to a new purpose for companies, by underpinning their business model with new standards relating to governance, employees, the environment and the community.

To achieve BIC classification, the mission statement of for-profit firms must include the following:

1.       Ethical wages for employees and an analysis of their wage spread.
2.       Subsidised professional training and development for employees and professional redeployment programmes for them.
3.       Share options for employees .
4.       Possibilities for flexi- and tele-working without impact on employees’ wages.
5.       Job options for the structurally unemployed.
6.       Increased diversity in the composition of the board of directors, administrative teams, executives and the company’s other management bodies.
7.       Local sourcing of goods and services.
8.       Annual environmental audits.

Firms that are set up as BIC companies must also submit an impact report to the Annual General Meeting on the collective benefit and interest activities developed by the company.

Furthermore, the Bill stipulates that BIC companies will be subject to inspection and oversight from the Companies Authority.

You may also be interested in:

• New companies promoting social objectives (Puerto Rico)
• Non-financial reporting directive (European Union)

After passing Act 27,264 in July, the Argentine government, which set up the Productive Recovery Programme for micro, small and medium enterprises (MSMEs), by giving them fiscal advantages, has published Decree 1101/2016, exempting those MSMEs whose tax periods begin in January 2017 from the minimum notional income tax.

Furthermore, the sum they have paid in as tax on the credit and debit in their bank accounts (100% in the case of MSMEs and 50% for “bracket 1 medium” industries) will be considered as an interim payment on earnings, with the proviso that the remainder may not be carried forward to the next financial year. They may also defer the payment of the balance resulting from their sworn VAT statement (which still has to be submitted every month) and paying the balance 90 days after invoicing.

The decree also provides for tax concessions with a differential of between 5% and 15% for regional economies; on this the Ministry of Production has yet to prepare a detailed set of provisions.

In order to be eligible for these tax concessions, companies must register as SMEs and upload a sworn statement with a tax password onto the institution’s website (form 1272, applying for a category type and concessions), which must include the applicant’s sales volumes and staffing numbers.

The decree also provides for deducting up to 10% of productive investments paid out from taxable earnings and for reimbursing the VAT on capital goods investments and infrastructure through a tax credit coupon.

It also raises the VAT withholding-exemption threshold by 135%, the earnings threshold by 400%, and enables micro companies to receive their VAT no-withholding certificates automatically.

The concessions will lapse in the event of the company cutting its staff by 5% from the number stated in the previous tax period, in the tax period on which the concession is calculated.

The Bank of Guatemala’s Monetary Board has drawn up 11 regulations (Resolutions JM 93-2016 to 103-2016) making provisions for Decree 25-2016/ May 2016 approving the Microfinance Institutions and non-profit Microfinance Bodies Act.

Their purpose is as follows:

1.    Setting up microfinance institutions (Resolution JM 93-2016)

Sets out the requirements, formalities and procedures for obtaining authorisation to set up microfinance institutions.

2.    Acquisition of shares in microfinance institutions (Resolution JM 94-2016)

Sets out the requirements and formalities that must be followed by natural or legal persons, including non-profit microfinance bodies to obtain authorisation from the Banking Supervisor to acquire shares in microfinance institutions.

3.    Guarantee Fund regulatory provisions for depositors & investors in microfinance institutions (Resolution JM 95-2016)

Regulates areas affecting the Guarantee Fund for depositors and investors in microfinance institutions, as referred to in the Microfinance Act.

4.    Mechanism enabling that the Banking Supervisor to review and set the minimum start-up capital requirements for microfinance institutions (Resolution JM 96-2016)

Establishes the start-up capital requirements for microfinance institutions.

5.    Authorising the transfer of a microfinance institution’s loan portfolio (Resolution JM 97-2016)

Sets out the requirements, formalities and procedures for authorising the transfer of all or part of a microfinance institution’s loan portfolio to one or more other financial entities under the oversight of the Banking Supervisor.

6.    Authorising the merger of microfinance institutions and the acquisition of shares in the same by another similar institution or by a bank (Resolution JM 98-2016)

Sets out the requirements, formalities and procedures for authorising the merger of microfinance institutions and the acquisition of shares in these by a similar institution or by a bank.

7.    Application of sanctions on microfinance institutions (Resolution JM 99-2016)

Regulates matters concerning the severity of infractions and the frequency with which they occur, as well as the number of penalty units to be applied by the Banking Supervisor to sanction the infractions, once the process has been exhausted, committed by microfinance institutions according to their severity.

8.    Conversion of an investment and credit microfinance institution into a savings and credit microfinance institution (Resolution JM 100-2016)

Sets out the requirements, formalities and procedures for converting an investment and credit microfinance institution into a savings and credit microfinance institution.

9.    Assets & Liabilities Exclusion Committee on microfinance institutions (Resolution JM 101-2016)

Sets out the standards applying to microfinance institutions’ Assets & Liabilities Exclusion Committee.

10.  Sale and application of profits from extraordinary assets acquired by banks and microfinance institutions (Resolution JM 102-2016)

Determines matters relating to the sale and application of profits from extraordinary assets acquired by banks and microfinance institutions.

11. Modifications to how ratings agencies register with the bank supervisory body (Resolution JM 103-2016)

Changes certain requisites in the registration process for ratings agencies relative to identification requirements, supporting documents and reasons for refusing entry.

This new regulation allows financial institutions to not require the physical presence of customers in a branch office and that they present certain documents in order to open a Simplified Application Account (SAA).

SAAs are deposit accounts, opened by institutions for natural persons qualified as low risk with a streamlined opening procedure.

Their aim is to widen financial inclusion to segments of the population that have not had access to financial services whilst also promoting the efficient and secure use of the national payments system.

The new regulation was published on 17th August this year and will pass into law in November 2016.

The main changes to SAAs are as follows:

• The financial institution must notify the customer at the outset or during the commercial relationship whether a physical visit is required or not.
• If the customer does not comply, the institution should not open the account, product or service, make the transaction or have a commercial relationship.
• A sworn income tax statement for the most recent tax period will be requested in the case of natural or legal persons with for-profit activities who are required to make a tax statement, high and medium-risk customers, and those who ought to be subject to greater scrutiny.
• The information requirements in the case of low profile customers will be set by each banking institution, and approved by its own organ of administration.

The central bank of Costa Rica, BCCR, forecasts that SAAs will enable 35% of those citizens 15 or older who as of today are not in the formal financial system (1.4 million people) to open an SAA in a financial institution.

The decree exempts the assets of loan management companies that are concerned exclusively with carrying out productive microfinance transactions from Wealth Tax.

The exemption will apply to loan management companies with commercial microfinance portfolios that represent at least 60% of their entire financial activity.

The measure seeks to make access to credit easier for micro-enterprises and family-run producers by making interest rates cheaper.

The decree classifies as micro-enterprises those that, when the credit is originated, have fewer than four employees, and annual revenue of less than 2 million indexed units (IU), equivalent to around UYU 6 million.

Family-farms registered in the Ministry of Farming & Fisheries (MGAP: Ministerio de Ganadería, Agricultura y Pesca) that have chosen to pay the IMEBA Agricultural and Livestock Asset Transfer Tax are also included in this exemption.

The Nicaraguan National Assembly has passed the Secured Transactions Act to enable small and medium enterprises to get credit.

La Secured Transactions Act aims to create the conditions needed for small entrepreneurs to access funding to develop their productive activity.

The law aims to provide credit for small and micro Nicaraguan enterprises. This is a joint initiative agreed between the government, microfinance institutions, commercial banks, the Supreme Court of Justice and SME entrepreneurial organisations.

The regulation has 5 headings and covers all categories of secured transactions; it allows for more goods, rights and acts in Nicaragua to be treated as secured obligations, laying down the standards for determining collateral items, constituting them, advertising and ranking them, their execution, cancellation and other inherent activities.

The Act specifically makes clear that anyone may be a creditor, debtor, guarantor, assigning or assigned party of a current or future obligation if this is backed up by a secured transaction that has been regulated under this law.

The secured transaction is set up with a document signed by the guarantor and the creditor. This collateral agreement is effective on both sides from the moment it is signed, unless the parties concerned have expressly agreed otherwise.

Articles 20-22 lay out each party’s duties and rights:

A. The guarantor or party owning the good or security right must fulfil the following obligations:

1) Exercise reasonable care over the goods and rights being secured and protect them, preventing loss or damage.

2) Inform the creditor immediately in the event of the collateral good being destroyed, damaged or lost, whether through force majeure or chance;

3) Cease to exercise their rights when the creditor, in the event of non-compliance, has demanded payment;

4) Allow the creditor to inspect the collateral goods at the location agreed, to verify their quantity, quality or state of repair;

5) Informing the secured creditor of the location, removal, sale, transformation or transfer of the secured collateral, if the contract permits such actions.

6) Any others as may be agreed by the parties provided they do not contravene this law.

B. When the secured collateral is in the possession of the creditor or third party, they will take on all the obligations stipulated in the Civil Code referring to voluntary deposit.

The secured creditor should:

1) Exercise reasonable care in the custody and preservation of any collateral items in their possession.

2) Keep the collateral items in such a way that they remain identifiable; if these are fungible, retain the same quantity and quality;

3) Use the collateral items in their possession only within the scope provided for in the collateral agreement;

4) Inform third parties in writing, at the debtor’s request, of the balance of the secured obligation and describe the guarantee;

5) Return the collateral when the secured obligation has been fulfilled, being liable for damages in the event of loss or unjustified delay in its return, including in the event of unjustified resistance to receiving payment for the secured obligation and the resulting cancellation of the encumbrance.

C. The debtor may require from the creditor at any time a statement with the balance remaining of the secured obligation. The debtor may include in their request an estimate of the amount so that the creditor can correct or approve this.

Advertising a secured transaction for the purposes of its impact on third parties, is to be conducted by registering it on the Public Secured Transactions Register; the priority of a secured transaction is decided when it is advertised.

All creditors have priority or greater right over the security than a third party, against whom it is enforceable, and over whom they enjoy preference or priority in payment from the moment it is advertised.

A Public Register of Secured Transactions will be created by virtue of this Act, for the purpose of constituting, amending, granting, extending, extinguishing and executing secured transactions and, arising from this, advertising of the same. The Register will form part of the National Register System (SINARE).

The parties in the secured transactions contract may agree on an out-of-court resolution and arbitration procedure as alternative mechanisms for resolving conflicts in the event of non-compliance with the secured obligation. If such procedures have not been agreed upon, the execution will take place through the courts, and processed under the Republic of Nicaragua’s Code of Civil Procedure.  

You may also be interested in:

• New regulations on secured transactions (Colombia)
• New rules for the filing of Real-Estate collateral (Colombia)
• Modernizing the secured transactions system (Panama)
• Bill for a secured transactions act (Peru)

KPMG’s report analyses the development of reporting instruments in the area of sustainability in 71 countries (mostly OECD countries), comparing the results with those from the 2013 report, in order to identify trends over the last 3 years.

The following conclusions were reached on a comparison with the previous report:

• There has been a rise in the number of reporting instruments, up from 180 to nearly 400 instruments with sustainability information. The greatest increase has been in Europe, Asia and Latin America.
• Over 80% of countries have regulations mandating the publication of sustainability reports.
• On the whole, most reporting instruments are mandatory, although the number of voluntary submissions has risen. One in ten instruments adopts a “comply or explain” approach.
• Nearly a third of sustainability reports are published by the major listed firms.

PwC publishes this report every year, using the headline conclusions from a survey carried out with 66 board members of over 80 Spanish companies, many of them on the IBEX 35.

The survey analyses board director activity and how boards are developing their corporate governance (how the Board works, committees, stakeholders, corporate social responsibility, etc.)

Making comparisons with earlier years, the report highlights how the board directors’ function is increasingly proactive and professionalised. Boards now play a key role when companies have to take important decisions. The Board of Directors has become the touchstone for healthy companies and in particular for their long term sustainability.

The report identifies the following areas that need improvement:

• New technologies and their application to companies’ digital transformation  (83% of board members feel that they lack the skillset to supervise technology issues);
• The role of board members in defining and supervising corporate strategy (44% say they only review it once a year, while 6% admit they never do)
• Succession planning for the chief executive officer (CEO) and members of the Board (only 19.1% of board members feel they spend enough time on this).

The report also notes that the vast majority of board members interviewed believe that in the next few years, the key issues will be: the separation between the Chair and the CEO; the role of the lead director, and the significant part played by shareholders in the Annual General Meeting.

You may also be interested in:

• Corporate governance and institutional investors [“El gobierno corporativo y los inversores institucionales”] (Georgeson y Cuatrecasas Gonçalves)

IFC (International Finance Corporation), a member of the World Bank Group, published a guide in October with the most frequent questions asked by senior management in the Middle East and northern Africa about good corporate governance.

The document is divided into the following sections, addressing technical concepts in layman’s language:

• Commitment to Corporate Governance
• Corporate Governance for Small- and Medium-sized Enterprises
• Board of Directors’ Role and Composition
• Functioning of the Board of Directors
• Control environment
• Shareholder issues
• Disclosure issues
• Corporate Governance for family-owned businesses

The responses to these questions provide a straightforward introduction to managing governance best practices in entities, and make it easier to understand complex issues of corporate governance.

The association of Cloud Infrastructure Service Providers in Europe (CISPE), whose members include twenty cloud infrastructure providers with European headquarters, has published the first European code of conduct for the application of the Regulation on data protection in the European Union (“the Regulation”).

The purpose of the code is to define a self-regulating model for cloud infrastructure service providers that are compliant with the European regulations, with the commitment that they will use their customers’ personal data in a conventional manner, and that this data will be processed and stored within EU/EEA  territory.

The code is designed as a certification tool for these providers; if they comply with its guidelines, they can display a “seal of quality” or Trust Mark. This ensures that they comply with European regulations.

Providers with certified compliance must make a statement that they will abide by the code, using one of these options:

• Audit by an independent third party, that verifies and certifies that the provider is bound by the code and complies with its guidelines;
• Self-assessment of compliance with the requirements on the part of the provider itself and the signing of a statement of commitment, using the model supplied in the code.

The statement will trigger the obligation to comply at all times with the provisions laid out in sections 5 and 6 of the code, covering data protection and security requirements, together with those on governance, in section 7.

The study, funded by the Multilateral Investment Fund (MIF), a member of the Inter-American Development Bank (IDB), assessed the replies received to the survey conducted in 136 microfinance institutions (MFI) in Latin America and the Caribbean, about the status of women in companies.

The report contains some revealing information. It shows that only 18% Board Chairs, 31% of Board Directors, and 39% senior management are women.

It describes the virtues of having diversity in companies, where women contribute their points of view from management positions. It provides qualitative information and data about the advantages of diversifying organs of management and comments on the traditional barriers preventing women from rising up to senior management.

It analyses possible measures, programmes and internal policies that companies could implement that would make female talent more visible.

Colombia’s Congress is debating a bill that would require credit establishments to offer at least one way of withdrawing funds from deposits in savings accounts free of charge.

They would be obliged to provide savings-accounts holders whose monthly deposits are less than three times the current minimum wage (about USD 664 in total), at least one secure online method of withdrawing money without being charged.

The bill would require credit institutions to allow account holders at least two (2) free cash withdrawals from ATMs and one balance query a month.

In addition to the above, this Bill stipulates that Colombia’s Financial Authority [Superintendencia Financiera de Colombia: SFC] will supervise banking institutions’ compliance with these obligations, and prioritise complaints about non-compliance presented by financial consumers.

At the close of this edition, this Bill was going through its first debate of four in Congress.

Colombia’s Financial Authority, the SFC, has published draft regulations to update the minimum security and quality procedures required when making transactions, and also to incorporate the terms “face-to-face sale”, “remote sale” and “payment gateway and payment processor administrators”.

These new instructions set the minimum-security requirements that credit establishments and low-value payment system administrators must meet when carrying out remote sales that are linked to merchants’ establishments or to payment gateways and payment processors.

On the subject of these new definitions, this draft regulation indicates that “face-to-face sale” is understood to be one in which the financial consumer and the supplier of goods and/or services are physically present during the commercial transaction. In this case, the transaction data are taken with a credit or debit card or by using the electronic device that hosts them.

The term “remote sale” is defined as one in which the financial consumer and the supplier of goods and/or services do not physically interact with one another during the commercial transaction.

Finally, “payment gateway and payment processor administrators” are defined as institutions that supply electronic trading application services to store, process and/or transmit the corresponding payment to online sales transactions during a remote sale.

The regulations lay down specific minimum-security requirements affecting: i) vulnerability analyses, ii) the communication system, and iii) authentication mechanisms.

All three types of sale have to be carried out by regulated institutions enabling execution of online orders to transfer funds, buy, sell or transfer security titles or issue insurance policies by remote access systems, the internet or mobile devices for customers.

Instant messaging or any other similar means of communication have been added to the list of permissible channels through which financial consumers can be sent confidential information.

The draft regulation indicates that when ATMs and credit-card terminals are used, one of the authentication mechanisms specified in the regulation must be employed, except when using cards that are not required to comply with the EMV standard (chip), in which case a second authentication factor must be established. For transactions made online, strong authentication mechanisms must be applied. Finally, the regulation provides for the use of the Mobile Banking channel through mobile device applications.

Lastly, this set of draft regulations requires contracts between credit establishments and trading outlets and payment gateway administrators, in which the merchants and administrators accept their responsibility to:

• Have PCI.DSS certification, version 3.0 or later
• Have a personal data processing policy
• Adopt mechanisms to authenticate the financial consumer
• Have an anti-money laundering and financing of terrorism risk management policy in place
• Run information campaigns on operational security measures
  
• Inform the financial consumer about the payment procedure before continuing

Colombia’s Financial Authority, the SFC, has announced a regulatory programme to update and complete the provisions protecting financial consumers, focusing on those with disabilities.

The new guidelines require regulated institutions to set up specific measures to serve, protect and respect financial consumers with disabilities as part of their Customer Service Care (CSC). These measures should include a priority service adapted to the needs of these financial consumers.

The programme seeks to use financial literacy programmes and mechanisms to supply information to financial consumers by different means, adapted for their particular disability, with the use of tools such as symbols, signage, sign language, braille and subtitles on corporate videos.

The programme specifies the CSC training plans that should be run for the civil servants involved in financial consumer services, which must include those measures in place for serving disabled persons.  

If the draft is finally passed, it will become law on 1st April 2017.

The Colombian Government’s Ministry of Trade, Industry & Tourism has published a decree  changing the classification of micro, small and medium enterprises (MSMEs) in order to define charges, profits or consequences in line with current legislation, using as its sole criterion annual company income from trading activities.

Whereas the current system is based on the number of company employees and total assets, without distinguishing between different economic segments, the modification aims to create a business classification system based on annual company revenues, dividing companies by three major categories: i) manufacturing sector, ii) services sector, and iii) trade sector (see tables below).

As well as entirely changing Colombia’s business classification system, this draft decree stipulates that this new classification will not apply to the source of fiscal or tax profits. Nor will it be applicable in the event of the law providing for a different category in specific cases.

In addition to the above, in view of the fact that the new business classification will be based on corporate revenues from normal activities, the draft sets out that verification of MSME revenues should be effected by submitting the results of the year prior to the one during which the company is being reclassified under the new system. Companies’ annual income must be reported on the Single Business & Social Register [Registro Único Empresarial y Social: RUES*], which may be counterproductive for microfinance activity, given the difficulty of getting formal accounting information from credit recipients. It is also unhelpful in working towards the Government’s aims of encouraging people into the formal banking system, because of the high rate of informality among micro-enterprises in Colombia.

Current system

• Microenterprise:

• • No. Employees: Under 10
  • Total Assets: <500; < USD 112,237

• Small enterprise

• • No. Employees: Between 11 and 50
  • Total Assets: 501 -< 5000;  USD 112,237 – <1,122,373

• Medium enterprise

• • No. Employees: Between 51 and 200
  • Total Assets :5001 – < 30.000; USD 1.122.373 – < USD 6.734.200

Proposed changes

Annual income from trading activities (MMW)

• Manufacturing Sector

• Microenterprise: < 1.000; < USD 224.400

• Small enterprise: > 1.000 – < 8.700;  > USD 224.400 –  < USD 1.952.900

• Medium enterprise: > 8700 – < 73.700; > USD 1.952.900 – < USD 16.543.700

• Service Sector

• Microenterprise: < 1.400; < USD 314.264

• Small enterprise: > 1.400 – < 5.600; > USD 314.264 – < USD 1.257.000

• Medium enterprise: > 5600 – < 20.500; > USD 1.257.000 – < USD 4.601.700

• Trade Sector

• Microenterprise: < 1.900; < USD 426.500

• Small enterprise: > 1900 – <  18.300; > USD 426.500 – < USD 4.107.800

• Medium enterprise: > 18.300 – <91.700; > USD 4.107.800 –  < USD 20.584.300

* The Single Business & Social Register– RUES – is a national register that merged the Companies Register and the Single Proposers Register (register of the natural and legal persons that want to tender for contracts with the Republic of Colombia) and also the following registers: i) Register of Non-Profit Institutions; ii) National Public Register of Gambling Vendors; iii) Public Register of Citizens’ Oversight Committees; iv) National Register of Tourism; v) Register of foreign private sector non-profit institutions; and vi) Register of Cooperatives

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