Jorge Mogrovejo, has been the Deputy Superintendent of Peru's Banking, Insurance & Private Pension Fund Authority since May 2019.  He holds a master's degree in Economic Policy Management from Columbia University (New York), degrees in Economics and Law from the Pontifical Catholic University of Peru and has extensive experience in both national and international banking supervision.  He was the Senior Financial Sector Specialist at the Financial Stability Institute (FSI) of the Bank of International Settlements (BIS) in Basel, Switzerland, and held roles as Deputy Superintendent of Risk, Deputy Superintendent of International Affairs and Training, as well as Deputy Superintendent of the AFP (Pension Funds Administrators) of Peru.

"The challenge for financial entities post-quarantine will be to confirm the debtor’s situation, their capacity to generate profits again"

1. The coronavirus has guided the legal activity of the SBS in the last few months. Of all the measures adopted, which do you consider has had the highest impact for the microfinance sector?

The measure with the highest impact was to permit financial entities to allow for massive rescheduling of obligations of debtors with good credit rating. In a situation as the one generated by the COVID-19 pandemic, there would have been many debtor breaches of contract caused by social isolation considering many clients are not able to make their payments normally. Those breaches (due to reasons beyond the debtor’s control) would have accrued interest, penalties, and damaged the debtor’s credit rating. Such credits would have been considered as 'refinanced' at a later stage, as debtor’s classification and provision regulations state that rescheduling of credits or amendments on installments has to be considered 'refinanced'.

The Superintendency´s authorization to allow for massive rescheduling made it possible for financial entities to anticipate debtor’s requests for amendments (avoiding converting them to 'refinanced'), allowing a 2 to 3-month grace period, transferring such instalments to the end of the payment schedules (rescheduling) or distributing the amount within the pending installments (without rescheduling). All of this while maintaining the debtor’s credit rating and the financial entity accruing interests during the quarantine period.

The challenge for financial entities post-quarantine will be to confirm the debtor’s situation, their capacity to generate profits again (and continue with debt payments), prepare for refinancing or make provisions, as needed.

2. What other measures are you considering to recover the microfinance sector?

The Government, through the Department of Finance and Economy, has launched a program called 'Fondo de Apoyo Empresarial a la Micro y Pequeña Empresa' (FAE-MYPE) to support micro and small businesses. It funds working capital credits, guaranteed by the State from 90% to 98% of the full credit. That way the microfinance entities would be able to finance their MSE clients going through difficulties due to COVID-19 to restart their business, with a low risk (between 2 -10%), while being funded at very low interest rates by the State Bank. The maximum amount of the credits are twice the amount of working capital supplied by a financial entity in 2019 with a US 8,700 cap. The funding is assigned to the financial entities through a bidding process.

3. This health crisis has shown the need to use technology in many sectors. What measures are being considered in the financial sector to promote the use of technology with an impact in financial inclusion?    

The economic crisis generated by COVID-19 led the government to adopt various social support measures such as cash coupons to vulnerable people and families during the quarantine from March 16th. Its delivery was difficult due to the low level of financial inclusion (43% of adults have a bank account and for the poorest 40% the percentage drops to 27%). That meant that most payments were done in cash at the bank offices, creating long lines and crowds at a time when social distancing is required.

Banked beneficiaries can use payment apps associated with their bank account to receive and make payments. The government, in an effort to increase financial inclusion during this pandemic, issued an Emergency Decree to facilitate the opening of bank accounts massively, without the initial authorization of the owner, so that the payments to beneficiaries of various programs can be done straight away. Moreover, once the consent is given, they can use the account for further transactions.

The beneficiary of the government coupons goes only once to the bank office (to pick up the debit card) or can use apps on their smartphones. Payments of the social coupon using for the first time these new accounts are currently being processed.

4. To face new challenges, are you considering adopting measures to promote innovation, such as those being considered by European authorities, e.g. “innovation hubs” where all interested parties can gather (regulators, financial entities, start-ups…); or measures like sandboxes where technology can be tested as part of a pilot program, where the regulator participates as an observer to analyze the regulatory implications?

Recently, in January 2020, the Government issued the Emergency Decree 013-2020, which included an amendment to the Banking Law introducing the use of sandboxes: “The Superintendency may establish, within the scope of its supervisory duties assigned by this law or others, temporary transactions or activities through innovation methods, issuing applicable regulatory waivers to the people or companies conducting such transactions, as well as other necessary actions needed for its implementation”.

This article of Banking Law makes it possible to regulate procedures more expeditiously in order to launch new products or technologies by method of “trial and error” using a reduced number of clients or small transactions. Such pilot programs are less expensive to implement and allow a better adaptation of the products which have been successful in other jurisdictions but require greater efforts of adaptation.

Unfortunately, the current situation has frozen various innovation projects until economic recovery nears February 2020 levels. It is also true that the pandemic is going to change (end) various business models and create a new focus on the intensive use of technology.

5. In the last few years, we have seen the regulation of new financial strategies. Do you see crowdfunding or crowdlending having a niche market in the microfinance sector?

The previously mentioned Emergency Decree 013-2020 of January 2020, also incorporated crowdfunding under the name of “Financiamiento Participativo Financiero”. The management companies of the crowdfunding platforms are supervised and regulated by the Financial Market Supervisor (Superintendencia del Mercado de Valores).

For this "Financiamiento Participativo Financiero" to occur, as described in the Decree, the beneficiary of the funding should request it by name (either a personal project or entrepreneurial). The projects should be targeted to a variety of investors, have a target of financing and a deadline for accepting the investments. The risk of the investment is disclosed by the notice stating that the management company is not responsible for the success of the project or of its profitability. The same crowdfunding project cannot be published in more than one platform.

Crowdfunding could be a financial alternative for microfinance if the projects group various similar microfinance ventures or if they have vertical integration. In order to raise funds in this modality, the scale of the transaction is important; small and individual microfinance credits are not viable.