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NON-CONVENTIONAL COLLATERALS TO LEVERAGE INNOVATION CAPITAL FOR SMALLHOLDER FARMERS IN BOLIVIA

CIDRE IFD FINAL REPORT

OCTOBER 31, 2019

CIDRE IFD

CONTENTS

FINAL REPORT • NON-CONVENTIONAL COLLATERALS TO LEVERAGE INNOVATION CAPITAL FOR SMALLHOLDER FARMERS IN BOLIVIA CIDRE IFD 2

Contents

INTRODUCTION 4

THE PROBLEM 5

PROJECT DESCRIPTION & SUMMARY 7

LEARNING FROM PAST SUCCESSFUL EXPERIENCES 9MINIMUM VIABLE PRODUCT (MVP): NCC REGISTRATION SYSTEM 10PILOT: EXPERIMENTAL LENDING OPERATIONS 14KEY LEARNINGS ANALYSIS 14

PILOT STAGE 15

PILOT STAGE DESCRIPTION 16EXPERIMENTAL LENDING OPERATIONS 17PILOT STAGE RESULTS 20

MAIN LESSONS LEARNED 26

LENDING PROCESS 27MVP, IT AND ORGANIZATIONAL ISSUES 27PUBLIC-PRIVATE PARTNERSHIP 28LEGAL FRAMEWORK AND SIMILAR EXPERIENCES 28

CLIENTS 31

CONCLUSIONS 29

REFERENCES 43

44APPENDIX: REGISTRATION CERTIFICATES

CIDRE IFD 3FINAL REPORT • NON-CONVENTIONAL COLLATERALS TO LEVERAGE INNOVATION CAPITAL FOR SMALLHOLDER FARMERS IN BOLIVIA

ACKNOWLEDGEMENTS

Author: Paul Villarroel

Editing and Review: Mauricio Moscoso (CIDRE IFD) and Clara Yoon (MEDA)

Design: Queena Li

Photography: Clara Yoon (MEDA)

This work was carried out with the aid of a grant from the International Development Research Centre (IDRC), Ottawa, Canada. The views expressed herein do not necessarily represent those of MEDA, IDRC or their respective Board of Governors.

Acknowledgments

About MEDA

Since 1953, MEDA has been implementing effective market-driven programs globally. MEDA combines innovative private sector solutions with a commitment to the advancement and empowerment of excluded, low-income and disadvantaged communities (including women and youth) with core expertise in market systems and value chains, climate-smart agriculture, financial services, and investment. MEDA partners with local private, public and civil society actors, strengthening individuals, institutions, communities and ecosystems, and thereby contributing to sustainable and inclusive systemic change.

About INNOVATE

INNOVATE – Adoption of Agricultural Innovations through Non-Traditional Financial Services, is a three-year initiative implemented by MEDA and funded by the International Development Research Centre (IDRC). MEDA and its partners are assessing the potential of non-traditional finance to enable large scale adoption of agricultural innovations among women and men smallholder farmers in South Asia, South America and East Africa. The research and learnings will contribute to developing policy and programming recommendations.

Learn more: www.meda.org/innovate

About CIDRE IFD

CIDRE IFD is a private and non-profit social development institution, founded in Cochabamba, Bolivia, in 1981. Its main activity is the provision of financial services and the execution of research projects, with a comprehensive approach that includes social and environmental management. CIDRE IFD’s main objective is to favorably influence the economic and social development of the region. Specifically, its mission has a very particular focus on the sustainable development of small agricultural producers and small and medium enterprises.

Learn more: www.cidre.org.bo

https://meda.org/innovate

https://cidre.org.bo/

https://meda.org/innovate


INTRODUCTION


In March 2018, CIDRE IFD and MEDA signed the agreement for the execution of the project “Non-conventional collaterals to leverage innovation capital for smallholder farmers in Bolivia”. The purpose of the project is to develop, validate and standardize the registration, valuation and monitoring of the assets that have small rural producers and that can be considered and used as non-conventional collateral, as provided by the Bolivian Law 393 on Financial Services.

The project has four main components aimed at achieving the stated objective, the fourth and last components are captured in this report: summarize the implementation process and synthesize the results generated during the pilot.

INTRODUCTION


THE PROBLEM

Access to credit is a widely studied issue in the development literature and has been studied from various perspectives. One of those perspectives and the one that this project focuses on, is on the use of non-conventional collateral to reach a larger part of the population of small scale producers who may not be able to use a house or land to back the loan operations they need to access. In general, a collateral is viewed as a control and risk management measure: if the borrower should fail to make his or her payments with the cash flow of the activity the loan was to finance, the collateral acts as an alternative and last instance form of payment, that allows the lender to collect at least some of the principal given to the borrower.

Following a tradition of lending innovations, the microfinance sector has allowed the use of movable and non-conventional collateral in its credit operations, considering that the absence of traditional collateral is thought to be a restriction to access to credit (Beck et al., 2004 y Demirguc-Kunt et al., 2002). If it had not been through an alternative form of collateral, some groups would completely miss the opportunity to get a loan (Andersen & Nina, 1998; Fedele, 2005). However, such collaterals have not been of much interest to major banks and to the majority of the banking industry, despite its beneficial effects on financial inclusion (Habitan 2016).

THE PROBLEM

THE PROBLEM


The use of non-conventional collateral requires in theory, three main components: a legal framework, a registry system and a market where those assets can be securely traded. In the Bolivian case, only the first component is present and fully functional through Law 393 from 2013, that states:

“The acceptable collaterals to finance rural and non-rural production activities should include alternatives of reassurance that are not conventional and that are usually found in said activities.”

The law proceeds to list all the options for non-conventional collateral that all credit institutions should accept.

The portfolio backed by non-conventional collateral has been steadily growing in Bolivia since the introduction of Law 393 and has experienced a fast growth surge in the last months.

The top used collateral types has remained largely unchanged: documents left for custody is the most common type of non-conventional collateral used, and a portion of cattle and non-registered assets are also non-negligible (see right).

The decreasing use of non-registered assets may be associated with a lack of formal registry, and the ease of use for documents left for custody may explain the composition of the portfolio by type of non-conventional collateral. In this project, we set out to explore whether a registry system could expand access to credit without lengthening loan processing times, after developing and testing a proper registry system.

PORTFOLIO BACKED BY NON-CONVENTIONAL COLLATERAL


THE PROBLEM

The Project was designed based on two main learning goals:

Learning goals

The dissemination of a financial technology that enables the use of Non-Conventional Collateral (NCC) to back innovation capital lending and the implementation of the required legal regulatory setting will enable farmers to access innovation capital.

Hypothesis

i) How to formalize and build an adequate regulatory environment in which smallholder farmers can use Non-Conventional Collateral (NCC) to back lending operations, and

ii) How to make private-public partnerships work and tackle sector-level development challenges.

PARTICIPATION OF NON-CONVENTIONAL COLLATERAL

PROJECT DESCRIPTION & SUMMARY


PROJECT DESCRIPTION AND SUMMARY

• Learning from past successful experiences

• Minimum Viable Product (MVP): NCC registration system

• Pilot: experimental lending operations

• Key learnings analysis



The project “Non-conventional collaterals to leverage innovation capital for smallholder farmers in Bolivia” has four components:

i) Learning from past successful experiences

ii) Minimum Viable Product (MVP) development for NCC registration and management system,

iii) Pilot test or experimental lending operations, and

iv) Key learnings analysis.

Project description and summary

The project period (April 2018 to October 2019), covered a total 19 months; 12 key activities were organized in the four above-mentioned components. The table below shows the performed schedule as reported by CIDRE IFD to MEDA.

CIDRE IFD employed more than 18 people on the project, from different positions, including IT Department and Risk Management personnel, as well as administrative positions in charge of accounting.

PERFORMED SCHEDULE

2018 2019

COD. Activity Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

1 Learning from successful experiences2 Registration and management system3 Experimental lending operations4 Synthesis and uptake



This activity produced two outputs: (1) a report identifying legal aspects on Non-Conventional Collateral (NCC) and reforms in Bolivia, and (2) a report related to successful past experiences that could be taken as a reference for the Bolivian case.

Learning from past successful experiences

LEARNING REPORTS SUMMARY

Report 1 Report 2

The first report reviewed the Bolivian 393 Law on Financial Services, concluding that it is

an important step towards financial inclusion and development, since it legalizes the use of

non-conventional collateral. The author also reviewed the legal environment, including the

Financial Services regulation documents, clarifying the most important legal concepts and

definitions within this field. The report listed the non-conventional collateral recognized by the

law, analyzing case by case the definitions provided by the law. Further, the report listed the

non-conventional collateral considered by the Law 393 and identified the legal requirements for

registration and recovery mechanisms.

Finally, the author provides its main conclusions, pointing out that even though the legal

framework expands the collateral landscape to the use of non-conventional collateral or

movable assets, it seems to be limited at least in what concerns to both the technical and legal

mechanisms for collateral recovery, and the documentation required for a correct registration.

This report scanned previous successful experiences and included related literature in the

quest for previous experiences in the use of non-conventional collateral registries. The report

shares a methodological framework, identifying the problem on why collaterals are needed

to back loans and, ultimately, why non–conventional collateral is important for financial

inclusion. Relevant literature demonstrates empiric analysis on the positive impact of movable

assets in boosting access to finance. Additionally, relevant experiences and cases are shared:

Romania, Colombia, Nigeria, China, and Mexico including discussion on the importance of

legal reforms as the base for registration systems. The report contains a list of success and

failure factors, and provides a brief analysis on the Bolivian situation, including statistics on

the current use of non-conventional collateral by the financial system.

Finally, the author concludes that legal reforms are key to ensure the success of registration

systems, pointing out that Bolivia needs more than the previous reforms to provide sufficient

support for a Non-Conventional Collateral (NCC) registration system.



It is necessary to have a formal registry to systematically register Non-Conventional Collateral (NCC) for a financial institution’s lending operations. A registry helps control for asset-owner-debt linkage identification, asset monitoring and for aspects related to the assignment of ownership over an asset. Ownership is key to evaluate the financial position of a potential borrower; hence, having collateralized assets may help increase the likelihood of being granted access to finance.

To test the main hypothesis of the project (“The dissemination of a financial technology that enables the use of Non-Conventional Collateral (NCC) to back innovation capital lending and the implementation of the required legal regulatory setting will enable farmers to access innovation capital”), CIDRE IFD designed a MVP registry for NCC registration and monitoring.1

Minimum Viable Product (MVP): NCC registration system

The main objective of the MVP registry is to allow users (loan officers) to formally and streamline the registration of non-conventional collateral (NCC), and to request registration information about NCC. Users, in this case, were defined primarily as loan officers of financial institutions and the MVP registry was tested within CIDRE IFD lending operations.

The MVP registry was designed with two main pillars: the registration process and the information request process.

1 Currently, the public bank “Banco de Desarrollo Productivo S.A.M” (BDP) has the legal mandate to register NCC and has been working in the implementation of a solution; however, by the time this project was being evaluated and approved, BDP did not have an applied solution for NCC registration.



The registration process was conceived to register assets following a simple combination of steps that occur during a loan application. Once a client applies for a loan and the financial evaluation takes place, and if the client meets the minimum requirements for acceptance, the assets considered as collaterals begin with the registration process.

Registration process

Once a user is created (i.e. loan officer) and logged in, the system can create owners and up to 21 types of non-conventional assets. Assets are then related to owners.

The asset and owner registration forms allow for geo-referenced data and save the coordinates where the owner lives and where the asset has been seen or is used.

REGISTRATION PROCESS

1.Registration

Process

Log in

(validation)

Fill form to

register

Request

registration

approval

Receive

registration

approval

Print

registration

certificate

OWNER REGISTRATION FORM

EXAMPLE OF AN ASSET REGISTRATION FORM



The information required for registering an asset includes specific asset identification information depending on the type of asset, location, asset images, owners’ information, and debts or liabilities related to the asset.

Once the forms are filled and saved, users require the value appraisal of the asset and approval at different stages. Appraisal can be performed in two ways: by the main user (loan officer) or by sending an invitation to an external appraiser, who can use the registry to send the appraisal.

Two stages of approval exist: The first approval is granted (or rejected) by an internal authority (i.e. Branch Manager) to validate information before formal registration. At a second stage, external approval is granted by a BDP (or any other organization responsible for NCC data base administration) officer. Once external approval has been granted, a certificate is generated.

EXAMPLE OF AN ASSET REGISTRATION CERTIFICATE



The information request process is simpler than the registration process. It mainly consists of requesting information about an already registered asset. Users log in to the system, access the information request module and request information about a specific asset.

Information request process

Finally, an additional feature of the MVP registry system is its mobile application. It is possible to perform two main activities through the application: value appraisals (internal or external) and asset verification (field data collection).

INFORMATION REQUEST PROCESS

2.Info Request

Process

Log in

(validation)

Fill form

to request

information

Request

validation

Receive

information

required

APPLICATION SCREENSHOTS



With the objective of testing its usage and impact, piloting the MVP system involved eleven (11) experimental lending operations backed with Non-Conventional Collateral (NCC) and disbursed by CIDRE IFD primarily to small-holder farmers.

Both the pilot experience and results are further described later in this document.

Pilot: experimental lending operations

The final component of the project is the identification and analysis of key learnings. This report is the product of this final stage of the project and is aimed to synthesize findings and learnings generated from the pilot experience.

Key learnings analysis

PILOT STAGE


PILOT STAGE

• Pilot stage description

• Experimental lending operations

• Pilot stage results


PILOT STAGE

Objective

The pilot main objective is to test the usage and impact of the MVP registry system for non-conventional collateral registration with eleven experimental lending operations.

Design

To meet its main objective, the pilot stage was designed as a set of experimental lending operations with CIDRE’s clients backed with non-conventional collateral, to be used for different monitoring purposes. The intention is to monitor the following aspects: lending process, MVP registry usage, risk perception and access to finance.

Pilot stage description

CIDRE IFD’S LENDING PROCESS

PILOTING PROCESS

Selection

and financial

evaluation

Loan

disbursement

Loan Officer

questionnaire

Information

processingLoan request

Client

questionnaire

The pilot process design included the following stages:

Once a loan request is qualified for the pilot, the lending process begins and is performed by a Loan Officer. During the financial evaluation process, clients are interviewed, and information is gathered for both loan and pilot requirements. The MVP registry was utilized and tested during the lending process, before disbursement of the loan. After the loan was disbursed, Loan Officers are interviewed.

The questionnaires used in the pilot process are shown in appendix 1. Registration certificates, generated by the MVP registry, are shown in appendix 2.

PILOT STAGE


CIDRE IFD has approximately 20% of its portfolio backed-up with non-conventional collateral. Since the beginning of its operations, CIDRE IFD promoted the usage of movable assets as collaterals, having designed a wide array of innovative financial products for this purpose. Nowadays, however, this activity is limited by regulations and the Law 393 of Financial Services define what type of assets are to be considered as non-conventional collateral.

Experimental lending operations

EVOLUTION OF PORTFOLIO BACKED BY NON-CONVENTIONAL COLLATERAL

NON-CONVENTIONAL COLLATERAL BACKED PORTFOLIO COMPOSITION BY LOAN USE

PORTFOLIO COMPOSITION BY TYPE OF COLLATERAL

COMPOSITION OF THE PORTFOLIO BACKED BY NON-CONVENTIONAL COLLATERAL BY TYPE OF COLLATERAL

CIDRE IFD has a loan portfolio of USD 139.1 million with 19,960 clients, a portion of this portfolio is managed on behalf of BDP (USD 34.5 million). The pilot focuses on a non-statistical sample of eleven (11) lending operations selected by demand (operations were selected as credit applications arrived until reaching the desired quota).


PILOT STAGE

The first uses of non-conventional collateral were observed in the agriculture sector; whose share of the non-conventional collateral portfolio was over 60% in early 2014. This participation is now reduced to over 40% due to an increase of use in non-conventional collateral in other sectors, most predominantly in the productive sector (manufacturing industry, housing, and certain portions of the tourism industry), but these types of collaterals have an increased use in the commerce and trade sector.

EVOLUTION OF DELINQUENCY BY TYPE OF COLLATERAL

Regarding the types of non-conventional collateral used, the use of assets not required to be under any registry and documents left under CIDRE’s custody have been those favored by CIDRE’s clients. Most recently, given the growing use of these types of collaterals in the trading sector, a client’s stock of goods is being used to collateralize loans.

A fact worth mentioning is that the risk associated to non-conventional collateral, measured through the 30-day delinquency rate, is not considerably higher than that of the portfolio backed by traditional collateral at CIDRE: from 2014 to 2018, the delinquency rate for loans using non-conventional collateral was lower than the rate for traditional collateral, only since the second half of 2018 this pattern changes, and for the latest available date, the last day of September 2019, both rates are virtually the same, around 3%.

PILOT STAGE


Table 1 below shows main details of experimental loan operations considered for the pilot process. It is important to mention that CIDRE IFD included some operations not related to farming activities, since at the moment of the pilot there was no more demand for agricultural loans backed with non-conventional collaterals. Additionally, eight out of the eleven loans are for milk production activities, one of CIDRE IFD’s main field of specialization.

LEARNING REPORTS SUMMARY

Client gender Loan officer gender Amount (USD) Type of collateral Main activity Branch Loan use

F F 4,300 Cattle Milk production Chimba Purchase of food for cattleF F 5,102 Cattle Milk production Chimba Rent of space to store cattleF M 5,102 Cattle Milk production Chimba Food warehouse constructionM F 5,102 Merchandise Commerce Chimba Purchase of merchandiseF M 2,041 Property documents Commerce Muyurina Purchase of merchandiseF M 2,041 Merchandise Wood crafts Chimba Water tank constructionM F 10,204 Cattle Milk production Muyurina Purchase of cattleM M 5,102 Cattle Milk production Chimba Purchase of food for cattleF M 10,204 Cattle Milk production Chimba Purchase of cattleF M 2,187 Cattle Milk production Chimba Purchase of milking machineF M 4,373 Cattle Milk production Chimba Purchase of food for cattle


PILOT STAGE

The possibility of using non-conventional collaterals should ultimately make a client worthy of a loan, if all other financial and regulatory requirements are met. From CIDRE’s perspective, this directly affects a client’s evaluation and selection: a client who does not own land or a house could be selected for a loan and whose loan application could be successful. When clients were asked about their perception on their current access to financial services, 9 clients claimed the access they had was limited, even though they lived near urban areas where all major banks and microfinance institutions operated.

When asked if the registry of non-conventional collateral would affect their access to loans or other financial services, seven out of eleven clients perceived the effect of the registry would be very small and two claimed that it would not be affected at all. This should not be surprising, since non-conventional collateral have been used in Bolivia for some years now, and its use has been growing in recent years, without a formal registry system and only through the enforcement of regulation.

Pilot stage results

Clients were also asked what hindered their access to financial services, and only one of them replied that it was the lack of proper collateral that restricted his access. All other participants alluded to insufficient payment capacity (five participants, making this the most frequent response) and high financial costs.

These facts are also present when considering the perspective of loan officers: According to nine of them, the registry system has not influenced their client selection process, and not a single loan officer claimed that the registry system would affect a clients’ access to financial services, as half of them seemed to think that the effect of the registry implementation would have absolutely no effect and the other half saw a very small effect on a clients’ access to financial services. When asked about their perception on their clients’ access to financial services, four loan officers were not able to assess their clients’ access, while six of them stated their clients did not have sufficient access to credit. The reasons they provided for the constrained access were related to insufficient income and lack of proper collaterals.

Perceptions of access to financial services and client selection process

PILOT STAGE


After the selection process, the payment capacity evaluation started. The inclusion of the formal registry system could have an effect on the length of the evaluation process and be cumbersome for the loan officer, potentially delaying loan disbursement and ultimately creating an inconvenience for the client. In terms of the overall effect of the registry system on the evaluation process, half of the participants in the loan officer group claimed it did not have any influence on the evaluation process, and four of them saw it actually improved the evaluation process and believed it helped reduce the loans’ risk.

When asked about the difficulty of using the registry system, six of the loan officers claimed it was complicated to use, and four of them did not find it difficult to use. In terms of improvements to the registry system, 3 loan officers did not see a need for any change, while 5 of them believed it could be shortened with revised registry forms. In general terms, the loan officers’ opinions is that it is a “good” system: they were not completely astounded by it, but neither were they completely indifferent (only one loan officer claimed such indifference).

Payment capacity evaluation

Despite the introduction of the registry system into the evaluation process, nine out of the eleven participating clients claimed they did not notice a longer loan processing time, and only one customer perceived a longer processing time. Another aspect that pertains to the loan evaluation is the value given to the asset that will serve as collateral to the loan, and most of the participating clients believed their asset was given a fair value. However, all clients except for one, did suggest that the process could be improved by reducing the number of requirements for the registry process. Seven clients did not know how to respond when asked about information security issues, and four of them claimed that they were not concerned about the confidentiality of their information, even though CIDRE treats all client information and data as confidential, as required by law.


PILOT STAGE

A formal registry for non-conventional collateral should mitigate the risks associated with the use of these types of assets as collateral, however, eight loan officers reported not changing their perceptions regarding the risk associated with loans that were included in the pilot project: such loans are believed to have the same level of risk as all the other loans that use unregistered non-conventional

Risk management

QUESTION 1 - HOW DID THE REGISTRY SYSTEM INFLUENCE THE CLIENT SELECTION PROCESS?

QUESTION 2 - HOW DID THE REGISTRY SYSTEM CHANGE YOUR UNDERSTANDING OR EVALUATION OF A LOAN APPLICATION?

collateral, and this view is also shared by their immediate supervisors. This fact is also suggested by the vast majority of responses regarding questions about the probability of default of the participant loans, which is believed to be unchanged by the formal registry system.

PILOT STAGE


QUESTION 3 - HOW DID THE REGISTRY SYSTEM CHANGE YOUR UNDERSTANDING OF A CLIENT’S FINANCIAL SITUATION/PAYMENT CAPACITY?

QUESTION 4 - WHAT COULD BE IMPROVED IN THE REGISTRY SYSTEM?

QUESTION 5 - HOW WOULD THE REGISTRY SYSTEM HELP IN THE FORMAL COLLATERIZATION PROCESS?

QUESTION 6 - HOW DOES THE REGISTRY SYSTEM AFFECT LOAN PROCESSING TIME?


PILOT STAGE

QUESTION 7 - WHAT IS THE INFLUENCE OF THE FORMAL REGISTRY OF COLLATERALS ON YOUR ACCESS TO CREDIT/FINANCIAL SERVICES?

QUESTION 8 - HOW WOULD YOU RATE YOUR CURRENT ACCESS TO CREDIT?

QUESTION 11 - IS YOUR BUSINESS FAMILY OWNED? QUESTION 14 - IS ANY OF THEM CURRENTLY FUNCTIONING AS A COLLATERAL?

MAIN LESSONS LEARNED



• Lending process

• MVP, IT and organizational issues

• Main Hypothesis: Non-conventional collateral and access to finance

• Public-private partnership

• Legal framework and similar experiences



• Innovation processes are complicated to carry out in organizations, since results and benefits are not immediate or explicit. People tend to hinder the process by distrusting the project, instead of believing in the possibility of success. Strong communication is key.

• Long-run innovation projects require both a solid cultural background and, primarily, a strong message from the top.

• Multidisciplinary coordination has shown to be key to ensure MVP development.

MVP, IT and organizational issues

• Loans backed with non-conventional collateral report similar default rates than loans backed with traditional collateral, when analyzing the entire portfolio.

• The registry system is not perceived to be difficult to use and does not increase loan processing times, meaning a full-scale implementation is feasible, pending improvements after further testing.

• The registry system does not appear to dissuade potential clients from applying for loans, and potential clients do not seem to believe their information is at risk and are willing to share it.

• Issues regarding risk management (changes in perceptions of risk after registering an asset, better collection and principal repayment) need longer testing periods, possibly comprising entire loan cycles.

• Improvements on ease of use of the registry, so It does not make loan processing times longer are crucial to further full-scale testing.

Lending process

• The “Learning from past experiences” process, based on an empirical evidence review, seems to validate the hypothesis. A registry for non-conventional collateral or movable assets appears to be positively related to improved access to credit and

Main Hypothesis: Non-conventional collateral and access to finance



higher investment levels, since it supports an existing regulatory framework that allows the use of non-conventional collateral. No previous experiences have been documented in Bolivia.

• In the case of the pilot stage performed at CIDRE IFD, small clients, including small farmer clients, have declared that accessing to finance for investments and operational expenses would not have been possible without the possibility to back their loans with NCC. In customers’ experience, financial institutions rejected previous loan applications backed with NCC.

• According to CIDRE IFD’s executives, the main limitation for the “collateral type–access to finance” channel are the difficulties imposed by the judicial system and its performance regarding the recovery of capital through the execution of non-conventional collateral. The latter is the reason for which the risk perception of a loan backed with an NCC may not be lower compared to that of a loan without collateral. In this case, as it is the case of CIDRE IFD, the decision to grant loans backed with NCC is based on a missional mandate, product design, and risk appetite.

• Customers enthusiastically perceive innovations that can bring immediate and explicit solutions to their problems.

• Private and public incentives may not necessarily be consistent.

• Trying to align private initiative with public mandate may normally work. However, in this case, both parts seem to move at different paces and depend on incongruent incentives.

Public-private partnership

• However, major reforms are needed to enhance the impact of the formal usage of NCC on access to finance. Reforms in Bolivia are likely to be insufficient. Specifically, reforms are needed on asset recovery for financial institutions.

Legal framework and similar experiences

• Modifying the perception of risk in a credit operation requires not only a good product design, but also a solid and reliable legal framework. Therefore, this may represent an obstacle in the studied relationship between the use of NCC and access to credit.


CONCLUSIONS

CONCLUSIONS

• Project performance

• Learning goals

CONCLUSIONS


The project has been performed within the planned schedule and budget. Expected products have also been successfully delivered, including the development of a Minimum Viable Product (MVP) to register non-conventional collateral.

Project performance

Products have shed some light on main learning goals posed at the beginning of the project, through the following learnings:

Learning goals

1. How to formalize and build an adequate regulatory environment in which smallholder farmers can use Non-Conventional Collateral (NCC) to back lending operations.

• An important limitation seems to be the nature and performance of the legal system, in what concerns to the process of asset recovery and defense of the creditor.

• Deeper reforms need to be taken for the development of sufficient incentives necessary to activate the “NCC-Access to finance” channel.

• Allowing for credit or loan operations to be backed by NCC seems to be positively associated to access to finance and financial inclusion.

• The development and implementation of a formal asset or collateral registry is not a unique condition for non-conventional collaterals’ usage to become a factor of influence on access to finance.

2. How to make private-public partnerships work and tackle sector-level development challenges.

• In the specific subject of this document, private and public incentives may not necessarily be consistent, distorting the goal for tackling sector-level development challenges.

• Due to the complexity and depth of the subject evaluated, public and private alliances must contemplate a wide array of sectors not naturally aligned with the cause.


CLIENTS

CLIENTS

The following eleven profiles showcase the clients who participated in the pilot process as CIDRE used the non-conventional collateral registry for the first time in its lending operations. In total, there were 8 women borrowers, and 3 men borrowers. The primary type of collateral used were cattle (8), the other types used were retail goods (2), and property documents (1). As of October 2019, CIDRE IFD has 18.720 clients, of which 37% are women. 50% of total clients are in rural areas and 20% back their loans with non-conventional collateral.

CLIENTS


How do you think that registering your assets would influence access to credit?

No influence

How would you define your current level of access to credit? Why?

Limited Access. High financial

costs

What is the size of your economic activity? (anual income)

USD 15.000

Do you have additional economic activities?

No.

What are your main assets? Vehicles

Are they being used as collateral backing-up a loan?

No.


CLIENTS


Little influence


Limited Access. Insufficient

income.


USD 15.000


No.

What are your main assets? Cattle


No.

CLIENTS



Little influence


Limited Access. Lack of

collateral


USD 20.000


No.



No.


CLIENTS


No influence


Limited Access. Lack of

collateral


Paid job


No.

What are your main assets? Property


No.

*This loan has been used by CIDRE IFD to test MVP functionality

with different collaterals

CLIENTS



No influence



income


USD 20.000


Yes.

What are your main assets?Agricultural production


No.


CLIENTS


No influence



costs


USD 15.000


No.

What are your main assets? Vehicles


No.

*This loan has been used by CIDRE IFD to test MVP functionality

with different collaterals

CLIENTS



No influence



income


USD 15.000


No.



No.


CLIENTS


I do not know



income


USD 10.000


No.



No.

CLIENTS



Little influence



costs


USD 10.000 – 20.000


Si.

What are your main assets? Hairdressing


No.


CLIENTS


Little influence


I do not know.


USD 15.000


No.



No.

CLIENTS



Little influence


Limited access. Insufficient

income


USD 15.000


No.

What are your main assets?Others: supplies and goods for

sale


No.


REFERENCES

Andersen L. & Nina, O. (1998), “Micro-Credit and Group Lending: The Collateral Effect”, Documento de Trabajo, Instituto de Investigaciones Socio-Económicas, Universidad Católica Boliviana, No. 01/98.

Fedele, A. (2005), “Joint Liability Lending in Microcredit Markets with Adverse Selection: a Survey”, Department of Statistics, University of Milano-Bicocca.

Habitan, T. (2016), “Financial Inclusion and FinTech: The Case of Philippines”, Department of Finance, Philippines.

References


APPENDIX: REGISTRATION CERTIFICATES

Appendix: Registration Certificates

REGISTRATION CERTIFICATE EXAMPLE I


APPENDIX: REGISTRATION CERTIFICATES

REGISTRATION CERTIFICATE EXAMPLE II

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