Microfinance in Latin America – The Risks of the New Populists Mike Goldberg Latin America Region World Bank

Framing the Problem in LAC Region New governments have been elected on a populist platform (Bolivia, Ecuador) – others are likely to be elected soon with similar populist approaches (Peru, Mexico, Brazil, Nicaragua) National Assemblies have the final say on legal and regulatory frameworks, and respond to populist pressures. Nice draft laws can become nightmares through untransparent processes Microfinance interest rates are high compared to commercial rates and are misunderstood, an easy target for populists and the press Governments are promoting first tier state banks (and cite Banco Estado of Chile and Banrural of Guatemala as tenable examples)

What is the possible damage? Administered interest rates (based on old usury laws) that limit cost coverage for MFIs New legal and regulatory frameworks that make it harder for commercially oriented MFIs to compete sustainably First tier public banks – on the rise? Rural finance – access very low in most LAC countries

Some solutions? CGAP taking the lead (building on relationsihps developed during CLEARs) Using existing donor collaboration mechanisms (such as coordination tables for PRSCs, donor roundtables) Lessons from BCEAO interest rate debate in West Africa in the late 1990s? Other cases of similar populist government fallout? A serious study of best practices for state banks for LAC Region (updating the Levy study of apexes for CGAP, expanding on Yaron’s SDI analysis) – this would counteract the publicity being generated by Banrural consultants, for instance. Shoul dinclude govt retail bank disasters of the 1990s