The global crisis showed the importance of robust, efficient corporate governance in financial institutions

Roberto Borrás Polanía is the lead partner of the capital markets and banking and finance practices of Garrigues Colombia. He served as Chief Financial Superintendent of Colombia, Director General of the Financial Compliance Unit of the Colombian Ministry of Finance and Public Debt, and Chairman of the Colombian Securities Market Self-Regulatory Body. He also served as Deputy Superintendent for Risks and Superintendent for Conglomerates in the Financial Superintendency of Colombia.

During his practice as a lawyer and legal adviser, he has worked as an international consultant for the World Bank, the Inter-American Development Bank, the Association of Supervisors of Banks of the Americas (ASBA) and USAID.

He served as Chief Negotiator of Financial Services in Colombia during the negotiation of the Free Trade Agreement with Canada and the EFTA countries, and was a member of the negotiating team of the financial services chapter of the Free Trade Agreement with the United States of America.

Between 2011 and 2012 he was a partner in the Financial and Securities Market practice of one of the main law firms in Colombia. His legal practice has focused on commercial and corporate law, financing transactions, banking regulations and capital markets law, as well as on issues related to transactional services and payments. He is an arbitrator of the Bogota Chamber of Commerce in the areas of commercial and financial law.

He has been a professor on the postgraduate program in Banking and Financial Law at Universidad del Rosario, on the capital markets program at Pontificia Universidad Javeriana, on the Masters Degree in Banking and Stock Market Law at Universidad Externado de Colombia, on the Masters Degree in Private Law at Universidad de Los Andes, and at Universidad Sergio Arboleda.

1. Before joining Garrigues Colombia in 2015, you headed the Colombian financial authority for two years. What would you highlight from that experience? What was the biggest challenge you faced there?

But first of all, let me thank the BBVA Microfinance Foundation and Progreso for inviting me to take part in this fascinating conversation.

My time as Superintendent was marked by different challenges at both global and local level. Let me just discuss the two biggest ones. In the first, we had to deal with the fall-out of the Lehman Brother collapse, just weeks before I took over the institution in November 2008, one of the events that triggered the global financial crisis. As supervisors, we had to carefully monitor the complex events impacting key financial systems and capital markets worldwide. And of course, we had to take actions to track the effects this turbulence was having on the Colombian economy –exposed to an extreme shock which led it to contract— and protect the stability of the financial industry there. This required active coordination between government and industry which, along with the limited connection with contagion factors, the strong equity in the financial system and the counter-cyclical measures adopted in the macro economy, enabled our supervisory and regulatory systems to mitigate the effects of an extraordinarily severe situation.

At the same time, in the second half of 2008, Colombia was facing a severe crisis with a proliferation of pyramid schemes to illegally raise capital. As I took office, a state of constitutional exception was declared. The social emergency led the President of the Republic to take over special powers to tackle this unprecedented crisis. The Superintendency had to act in various different parts of the country, detecting these illegal schemes and suspend their activity in an orderly manner.

The fight was tough on both fronts. The Financial Superintendency had a highly committed team, whose skills were vital in overcoming situations that I can describe briefly today, but that entailed months of hard work and some very tricky moments. We learned key lessons, which we tried to inject into stronger regulation and supervision. This has remained in force over the last few years, with ever closer convergence to the Basel standards and other benchmark regulations.

The global crisis showed the importance of robust, efficient corporate governance in financial institutions. This provides the necessary underpinnings for managing them properly. The local crisis ratified the need for more robust financial literacy programs and more intense financial inclusion initiatives.

2. Could you give us your angle on the Colombian economy’s performance over recent years? What do you see as the main challenges facing it?

The country has made progress, but clearly still has several challenges, of which I would focus on two. Firstly, Colombia should be growing faster, and the growth should spread to more of its population. This is a key factor in reducing poverty. It is necessary to foment development by consolidating an environment that eliminates unnecessary burdens when setting up businesses; incentivizes investment; smooths the way for entrepreneurs, and makes it easier to access resources.

A system that encourages businesses to operate in the legal market, in line with labor law, will enable us to make better use of the enormous talent, innovative spirit and energy that characterizes Colombians. It lays the foundations needed to diversify our production, making our products and services more competitive. On this front, I would highlight the enormous challenge in incentivizing rural development, helping small farmers grow their businesses, and making major agribusiness projects into an attractive investment.

Another challenge I would highlight is the need to balance public finances. The fall in oil prices in 2014 hit the Colombian economy hard, substantially reducing State revenues. That goes to show the need for overcoming our dependency on this model of production. Although tax reforms have been brought in recently, there is a broad consensus that end-to-end measures should be adopted to bring about a fiscal equilibrium, improving State revenues, rationalizing public spending and strengthening the tax administration, so that it can harness state-of-the-art technology to optimize its management.

Pension and health reforms are very relevant for society and have a significant fiscal impact. They are also fundamental in consolidating this equilibrium in the medium and long term.

3. Apart from holding high-profile public positions during your career, you have acted as consultant for several multilateral agencies, like IDB, USAID, the World Bank… What role do you think such agencies should play in the development of the finance and microfinance industries?

Government authorities can encounter support in the programs of these multilateral agencies for initiatives that are fundamental for the design and implementation of public policies. The technical experience and skills of the teams working for the agencies has helped to update and elevate supervision and regulatory standards in the financial system. Some of the key regulatory reforms in the sector were preceded with technical assistance programs rolled out by multilateral agencies.

The microfinance industry has been no exception to this positive experience. Multilateral agencies have supported the development of initiatives in regulations, supervision methodologies, portfolio origination techniques and risk management, transactional and payment services and on several other fronts.

Indeed, some multilateral agencies have been shareholders in institutions in the microfinance industry, making their good governance, financial capacity and management more robust.

4. In your opinion, what are the best public or private actions to propitiate financial inclusion in Colombia?

Although Colombia has drawn up some initiative for inclusion that have been successful, a major part of its population still has no access to financial services.

Several studies coincide in that first of all, one needs a genuine financial inclusion policy which, when the State recognizes its importance, propitiates correct coordination of public and private sector policies and defines priorities to take action. The definition of a strategy makes it possible to identify supply-side and demand-side measures so that they can be institutionalized to reach the financial inclusion goals identified.

To start with, for example, a review of regulations applicable to the microfinance business would help identify regulatory factors affecting competition within the sector, or prudential charges that don’t correspond to the nature or risks inherent to the business that are too burdensome.

It’s also necessary to continue to propitiate the expansion of the geographical scope of microfinance institutions, especially in rural or remote areas, facilitating the use of technologies to make it easier to provide services there.

It is imperative to propitiate the formalization of labor and business activities. This is a key fundament in building up an ecosystem that generates information, the principal input for decisions on granting credit or offering other financial services.

The demand for financial education must continue to be a priority. Many Colombians are unaware of the products the microfinance industry is offering or don’t know how they might be tailored to their needs and possibilities. Especially when we’re talking about micro-entrepreneurs, they need a helping hand in the commercial and financial side of things, so they can better define the services they require. This redounds to a better understanding of their obligations and prevents overborrowing.

5. How do you see the current situation of the microfinance industry in Colombia? How advisable is it to draw up a set of specific regulations for microfinance?

The microfinance industry in Colombia has grown at a fast pace. Firstly, I would highlight the process of businesses migrating to become recognized as regulated institutions. In my judgement, this factor has contributed significantly to their consolidation as sound providers of financial services, specialists in origination techniques for their products and adopting increasingly stringent standards in managing their businesses and their risks.

I would also highlight the institutionalization of the industry, the consolidation of Asomicrofinanzas as its trade association and the preservation of the Bank of Opportunities Program.

However, although measures have been adopted to optimize the environment for microfinance business, something recognized by several different studies and indicators, I still think that an in-depth revision of the regulatory standards would enable us to spot elements that don’t correspond to the specific business in this industry and may thus be generating disincentives to do certain things or distorting competition.

6. In your opinion, where do the Colombian institutions stand with respect to applying standards of good corporate governance in their business management?

The adoption of good corporate governance standards in Colombia is on the up. Especially in sectors like the finance industry and in larger companies, you can, in general terms, see how good governance is becoming a priority, propitiated by the demands of supervisors and the motivation coming from shareholders and management alike.

Perhaps the biggest challenge in the application of better standards faces small and medium-sized companies and some family-based organizations that could do more in adopting corporate governance standards.

7. Your capacity to juggle your intense professional activity with lecturing at various universities is admirable. Being in contact with young people is usually enriching. What advice do you give to your students about their future careers?

Indeed, a professorship imposes a duty to keep on studying and stay up to date. It gives you first-hand knowledge of the young people’s worries and expectations, and let’s you learn from them.

Apart from giving my students the curriculum content, I share the experiences that influenced my professional life with them too. Especially the mistakes, as it’s the mistakes that teach us the most important lessons.

The first tip I give them, which is pretty obvious, is to aim for excellence. In an ever more competitive environment, disciplined study and good preparation really makes a difference. Excellent will enable them to be ready to grab those opportunities that arise and can make all the difference to their careers.

I also remind them of the importance of staying true to their principles; to behave ethically, honestly and transparently. Through my professional roles, I’ve come across cases of careers forecast to be brilliant, which were stopped short by ethical misconduct motivated by personal financial interests.

8. Is there any specific achievement from your long career that you feel especially proud of, which you can share with our readers? Or a personal achievement, if you wish?

On the professional side, I feel it has been a real privilege to be able to work in public service, as a consultant at multilateral agencies and now in the private sector, as a partner in a major law-firm. This combination of challenges and experiences has been very special. It is what enables me nowadays to adopt a comprehensive approach to analyzing tasks and problems, considering private interests but also public sensitivities. Now, I must confess, that when I embarked on my career, I never imagined I would become Financial Superintendent in Colombia, let alone manage to be partner in a law-firm with the track record and prestige of Garrigues.

On the personal side, I am filled with pride by the family Adriana, my wife, and I have formed, along with our children, Santiago and María Lucía. They are my constant motivation, my place of peace, where I can ‘recharge batteries’. I also feel very proud of my students. Watching them grow and consolidate their professional lives gives me great joy.

9. And what book would you recommend?

We’ve spoken at length about my country in this interview, so I think it would be pertinent to suggest “Historia Mínima de Colombia”, a minimalist history of Colombia by Jorge Orlando Melo.