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.