Municipal Savings and Loan Unions (MSLU) are currently regulated under Supreme Decree 157-90-EF, and the General Financial and Insurance System and Banking & Insurance Supervisory Authority Law 26702, with its subsequent amendments.

MSLUs are facing a modernisation process requiring them to:

1. Raise the level of profits that are reinvested by their shareholders (municipalities) and increase MSLU capital requirements, in order to maintain appropriate degrees of operating solvency and/or growth,
2. Put new mechanisms and incentives in place that ensure MSLUs are managed on a professional basis, strengthening their corporate governance,
3. Encourage the gradual incorporation of different shareholders other than their current shareholding body onto MSLUs, in order to strengthen their solvency and access to best practice in financial management,
4. Design and put corporate programmes in place, with the support and involvement of the Federation of Municipal Savings and Loan Unions (FEPCMAC), the Municipal Savings & Loan Union Fund (FOCMAC) and/or local and international bodies, to develop new technologies and management models, which work better with the innovations in the financial system or are designed to generate greater financial resources.

For this reason, the Banking, Insurance and Pension Fund Administrators’ Authority wants to update current legislation to create mechanisms and conditions similar to those applicable to private microfinance institutions, thus consolidating the progress made by the MSLUs themselves. The following are some of the most important regulatory changes proposed:

1. a) Improving MSLUs’ Corporate Governance, specifying the roles and powers of the Annual General Meeting in MSLUs,
2. b)  Widening the range of transactions that MSLUs may conduct and, as a result, increasing the minimum capital requirement,
3. c)  Enhancing the mechanisms that enable MSLUs to reinvest their profits so that they can shore up their asset base,
4. d) Creating mechanisms to protect the MSLU system to make it easier to inject capital into MSLUs that are subject to the supervisory regime,
5. e) Making it easier for third parties to become MSLU shareholders, setting standards for the composition of MSLU boards and for profit sharing,
6. f)   Redefining the roles and powers of the FEPCMAC and FOCMAC.