november ‘14

PROGRESOResponsible finance for inclusion and development

Legal news update Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información •

Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas •

Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información • Principios • Cumplimiento • Derechos • Debe-res • Control • Ahorro • Crédito • Experiencia • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance •

Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura •

Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información • Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia •

Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento •

Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información

• Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Competitividad • Ética • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas •

Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información • Principios • Cumplimiento • Derechos • Debe-res • • Ahorro • Crédito • Control • Experiencia• Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance •

Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura •

Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información • Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia •

Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento •

Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información

• Principios • Cumplimiento • Derechos • Deberes • Ahorro • Crédito • Experiencia Control • • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Avance • Inclusión financiera • Competitividad • Mejora • Finanzas Responsables Productivas •

Educación • Compromiso • Responsabilidad • Prevención • Protección • Sostenibilidad • Información • Principios • Cumplimiento • Derechos • Debe-res • Control • Ahorro • Crédito • Experiencia • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance •

Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura •

Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información • Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia •

Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Competitividad • Ética • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento •

Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información

• Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas •

Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información • Principios • Cumplimiento • Derechos • Debe-res • Control • Ahorro • Crédito • Experiencia • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance •

Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura •

Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información • Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia •

Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento •

Derechos • Deberes • Gobierno Corporativo • Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora • Finanzas Responsables Productivas • Educación • Compromiso • Responsabilidad • Sostenibilidad • Prevención • Protección • Información

• Principios • Cumplimiento • Derechos • Deberes • Control • Ahorro • Crédito • Experiencia • Cumplimiento • Conocimiento • Acceso al crédito • Cobertura • Ética • Competitividad • Avance • Mejora • Desarrollo • Reforma • Seguridad • Diligencia • Transparencia • Productos • Servicios • Negocio • Regulación • Liderazgo • Impacto • Sistema financiero • Marco legal • Cumplimiento • Derechos • Deberes • Gobierno Corporativo •

Conocimiento • Acceso al crédito • Cobertura • Inclusión financiera • Competitividad • Avance • Mejora •

Contents

32

1. EditorialBy Manuel Méndez del Río Piovich, Chairman of BBVA Microfinance Foundation

2. Microfinance

2.1 Published legislation and regulations

• COLOMBIANew Regulations on Secured Transactions (movable assets as collateral). Act 1676/2013.

Creation of the Economic & Financial Literacy Commission. Decree 457/2014.

• PANAMAThe new Secured Transactions System, the mortgaging of movable assets, and other provisions.Act 129/2013.

Prudential regulatory framework for Microfinance institutions. Act 130/2013.

• PERUE-money. Act 29985/2013.

E-money regulations. Supreme Decree 090-2013-EF.

Creation of the Multisector Commission on Financial Inclusion. Supreme Decree 029/2014.

Amended regulation on transparency of information and user contracts in the Financial System.Resolution 1801/2014.

Law facilitating heirs’ access to financial, pension and insurance information. Act 30205/2014.

•DOMINICANREPUBLICPersonal Data Protection. Act 172/2013.

• URUGUAYFinancial Inclusion and e-payment channels. Act 19.210/2014.

• SPAINRegulations of Act 10/2010 on the Prevention of Money Laundering and Funding of Terrorism.Royal Decree 304/2014.

Organization, supervision and solvency of credit institutions. Article 5 on protection of creditinstitution customers. Act 10/2014.

2.2 Draft legislation

• COLOMBIABill 181/2014 - SENATE - On financial inclusion through the creation of financial institutions specializingin payments, savings and deposits.

Bill 070/2014 – SENATE – “Instructing banking institutions to facilitate access to microcredit servicesfor people with limited resources who have not had access to such services”.

• CHILEBill for the amendment of Law 18.010, prohibiting the charging of compound interest.

• PERUBill 3578/2013-CR on the opening of a savings account by minors aged between 14 and 18.

Bill 3611/2013-CR for a Secured Transactions Act (movable assets as collateral).

2.3 Jurisprudence

• PERURuling by the Supreme Court of Justice of the Republic of Peru, 29th November 2013 concerning thevalidity of mortgages constituted to secure present and future obligations.

• EUROPEANUNIONRuling by the European Court of Justice of 13 May 2014 concerning the protection of individuals inregard to the processing and the free circulation of their personal data.

2.4 Articles of special interest

• Overindebtedness: A Risk Management Approach. By Barry Firth. Published by: Microfinance CEO Working Group.

• MRAtoassessinputofmicrocredittoGDP.ByIsmailHossain.TheFinancialExpress.Bangladesh.

3. Corporate Governance

3.1 Published legislation and regulations

• COLOMBIANewCountryCodeandImplementationReport–ExternalCircular028/2014issuedbytheColombianfinancial supervisor (SFC)

• PERUCode of Good Corporate Governance for Peruvian Corporations. SMV Directive 008-2014-SMV/01 .

• SPAINOrganization, Supervision & Solvency of Credit Institutions. Act 10/2014, 26th June.

3.2 Draft legislation

• SPAINCorporate Enterprise Act Reform Bill for the improvement of Corporate Governance.

3.3 Opinion article

• CHILEOpinion: Impact of the La Polar case on corporate governance.

3.4 Interesting documents• GuidelinesforaLatin-AmericanCodeofCorporateGovernance.CAF.2013.

4.Interview

5. Mission statement

.................................................................. 4

............................................................................................................................................................................................................................................................. 36

...................................................................................................................................................................................................................... 38

.................................................................................................................................................................................................................................... 6

.................................................................................................................................................................................................. 24

DataasofOctober20th,2014

Contents

32

1. EditorialBy Manuel Méndez del Río Piovich, Chairman of BBVA Microfinance Foundation

2. Microfinance

2.1 Published legislation and regulations

• COLOMBIANew Regulations on Secured Transactions (movable assets as collateral). Act 1676/2013.

Creation of the Economic & Financial Literacy Commission. Decree 457/2014.

• PANAMAThe new Secured Transactions System, the mortgaging of movable assets, and other provisions.Act 129/2013.

Prudential regulatory framework for Microfinance institutions. Act 130/2013.

• PERUE-money. Act 29985/2013.

E-money regulations. Supreme Decree 090-2013-EF.

Creation of the Multisector Commission on Financial Inclusion. Supreme Decree 029/2014.

Amended regulation on transparency of information and user contracts in the Financial System.Resolution 1801/2014.

Law facilitating heirs’ access to financial, pension and insurance information. Act 30205/2014.

•DOMINICANREPUBLICPersonal Data Protection. Act 172/2013.

• URUGUAYFinancial Inclusion and e-payment channels. Act 19.210/2014.

• SPAINRegulations of Act 10/2010 on the Prevention of Money Laundering and Funding of Terrorism.Royal Decree 304/2014.

Organization, supervision and solvency of credit institutions. Article 5 on protection of creditinstitution customers. Act 10/2014.

2.2 Draft legislation

• COLOMBIABill 181/2014 - SENATE - On financial inclusion through the creation of financial institutions specializingin payments, savings and deposits.

Bill 070/2014 – SENATE – “Instructing banking institutions to facilitate access to microcredit servicesfor people with limited resources who have not had access to such services”.

• CHILEBill for the amendment of Law 18.010, prohibiting the charging of compound interest.

• PERUBill 3578/2013-CR on the opening of a savings account by minors aged between 14 and 18.

Bill 3611/2013-CR for a Secured Transactions Act (movable assets as collateral).

2.3 Jurisprudence

• PERURuling by the Supreme Court of Justice of the Republic of Peru, 29th November 2013 concerning thevalidity of mortgages constituted to secure present and future obligations.

• EUROPEANUNIONRuling by the European Court of Justice of 13 May 2014 concerning the protection of individuals inregard to the processing and the free circulation of their personal data.

2.4 Articles of special interest

• Overindebtedness: A Risk Management Approach. By Barry Firth. Published by: Microfinance CEO Working Group.

• MRAtoassessinputofmicrocredittoGDP.ByIsmailHossain.TheFinancialExpress.Bangladesh.

3. Corporate Governance

3.1 Published legislation and regulations

• COLOMBIANewCountryCodeandImplementationReport–ExternalCircular028/2014issuedbytheColombianfinancial supervisor (SFC)

• PERUCode of Good Corporate Governance for Peruvian Corporations. SMV Directive 008-2014-SMV/01 .

• SPAINOrganization, Supervision & Solvency of Credit Institutions. Act 10/2014, 26th June.

3.2 Draft legislation

• SPAINCorporate Enterprise Act Reform Bill for the improvement of Corporate Governance.

3.3 Opinion article

• CHILEOpinion: Impact of the La Polar case on corporate governance.

3.4 Interesting documents• GuidelinesforaLatin-AmericanCodeofCorporateGovernance.CAF.2013.

4.Interview

5. Mission statement

.................................................................. 4

............................................................................................................................................................................................................................................................. 36

...................................................................................................................................................................................................................... 38

.................................................................................................................................................................................................................................... 6

.................................................................................................................................................................................................. 24

DataasofOctober20th,2014

1

Editorial

54

Progreso: a step forward in the third microfinance revolution.

The online publication Progreso is a BBVA Microfinance Foundation (MFBBVA) initiative reporting on microfinance regulation world-wide. Our aim is to bring together the most relevant legislation, jurisprudence, and legal reports and news, providing stakeholders with a clear overview of general tendencies and approaches. We hope this will encourage more informed decision-making in the microfinance industry, as the best way to ensure the healthy growth of this new kind of loanbook, which is the most efficient way to fight against poverty.

The earliest attempts to launch a microcredit industry date back to the mid-20th century and the enactment of programs channeled through national public-sector institutions with the support of multilateral agencies. Sadly, these somewhat one-sided initiatives failed to foster individuals’ productive and entrepreneurial skills.

Insight into these shortcomings inspired the idea of using market drivers as enablers for individuals with little money but with the imagination and capacity to implement sustainable productive activity. The idea was to use a commercial model that could generate sufficient resources to become self-funding, while servicing the financial needs of a segment of the population largely excluded from formal financing.

Manuel Méndez del Río PiovichChairman of MFBBVA

This unleashed a comprehensive overhaul of the methods used to fight poverty. Some called it a philosophical revolution, others simply referred to it as bringing democracy to finance.Throughout the 1970s and ‘80s, microfinance gradually took shape in the hands of non-profit institutions and NGOs who saw their activity expand significantly. From these beginnings, a fledgling industry began to emerge in what some authors have termed “the second microfinance revolution”. As it matured in the 1990s, its distinguishing features were a substantial improvement in procedures and the progressive influx of new players.

In this second decade of the 21st century, the microfinance sector has developed a complexity and professionalism unthinkable a few years ago. More important still, it has undergone significant expansion, albeit only reaching a very small proportion of the disadvantaged population as of yet. While customer numbers for the microfinance sector nowadays are far from negligible, such finance is still only available to a tiny minority of the underprivileged. If its contribution is to be significant, the sector needs to grow rapidly and make exponential gains in scale.

The MFBBVA Group is convinced that microfinance is currently poised to become a driving force in the advancement of society thanks to its accumulation of expertise, its achievements so far and its manifest capacity to rise to challenges.

In this scenario the BBVA Microfinance Foundation is determined to establish best practices in what I would venture to call “the third microfinance revolution”. This online publication will focus on two aspects of microfinance that help the sector expand more efficiently. It will highlight the most significant regulations and detect trends that may affect microfinance institutions. And it will disseminate the principles of excellence in corporate governance in order to spread a culture of transparency and credibility throughout the industry as a whole.

Progreso aims to help diminish the institutional obstacles that impact the market as a whole, such as inefficient enforcement of legal rights, gaps in the rules for foreclosure of guarantees, shortcomings in the legal system, etc. It will also tackle those specific to the individual financial institutions in the sector, such as insufficient or improper credit documentation and the absence of specific regulation, among others.

Progreso will record the latest developments in corporate governance. In the third revolution in this sector, good corporate governance will make a decisive impact on growth.

Despite some tightening of governance standards following the global financial crisis, a significant majority of microfinance institutions display notable shortcomings and very rudimentary systems of corporate governance.

More advanced and certifiable systems of corporate governance are essential for the sector to grow. This transformation will tap more private-sector funding sources, such as customer deposits and bank lending, and also make it possible to raise capital on the open market.

The BBVA Microfinance Foundation is so convinced of the importance of corporate governance that it has taken on the highest standards of excellence for itself, and also altruistically offers governance workshops for managers of other microfinance institutions for the sake of the industry as a whole.

In short, Progreso will provide an over-arching view of the regulations relating to the microfinance sector, which in the absence of its own specific regulations is too often subject to inappropriate, penalizing or distorting general rules that hamper its performance as a driving force for progress and development.

The BBVA Foundation Group has 2.7 billion reasons to exist: the 2.7 billion people excluded from formal financial systems all over the world, especially the 250 million living in Latin America. The launch of our online publication today therefore aims to shed greater light on this industry, which has an enormous under-served potential clientele and enormous capacity to generate development by enabling entrepreneurial initiatives from a segment of society currently overlooked in the formal economy.

1

Editorial

54

Progreso: a step forward in the third microfinance revolution.

The online publication Progreso is a BBVA Microfinance Foundation (MFBBVA) initiative reporting on microfinance regulation world-wide. Our aim is to bring together the most relevant legislation, jurisprudence, and legal reports and news, providing stakeholders with a clear overview of general tendencies and approaches. We hope this will encourage more informed decision-making in the microfinance industry, as the best way to ensure the healthy growth of this new kind of loanbook, which is the most efficient way to fight against poverty.

The earliest attempts to launch a microcredit industry date back to the mid-20th century and the enactment of programs channeled through national public-sector institutions with the support of multilateral agencies. Sadly, these somewhat one-sided initiatives failed to foster individuals’ productive and entrepreneurial skills.

Insight into these shortcomings inspired the idea of using market drivers as enablers for individuals with little money but with the imagination and capacity to implement sustainable productive activity. The idea was to use a commercial model that could generate sufficient resources to become self-funding, while servicing the financial needs of a segment of the population largely excluded from formal financing.

Manuel Méndez del Río PiovichChairman of MFBBVA

This unleashed a comprehensive overhaul of the methods used to fight poverty. Some called it a philosophical revolution, others simply referred to it as bringing democracy to finance.Throughout the 1970s and ‘80s, microfinance gradually took shape in the hands of non-profit institutions and NGOs who saw their activity expand significantly. From these beginnings, a fledgling industry began to emerge in what some authors have termed “the second microfinance revolution”. As it matured in the 1990s, its distinguishing features were a substantial improvement in procedures and the progressive influx of new players.

In this second decade of the 21st century, the microfinance sector has developed a complexity and professionalism unthinkable a few years ago. More important still, it has undergone significant expansion, albeit only reaching a very small proportion of the disadvantaged population as of yet. While customer numbers for the microfinance sector nowadays are far from negligible, such finance is still only available to a tiny minority of the underprivileged. If its contribution is to be significant, the sector needs to grow rapidly and make exponential gains in scale.

The MFBBVA Group is convinced that microfinance is currently poised to become a driving force in the advancement of society thanks to its accumulation of expertise, its achievements so far and its manifest capacity to rise to challenges.

In this scenario the BBVA Microfinance Foundation is determined to establish best practices in what I would venture to call “the third microfinance revolution”. This online publication will focus on two aspects of microfinance that help the sector expand more efficiently. It will highlight the most significant regulations and detect trends that may affect microfinance institutions. And it will disseminate the principles of excellence in corporate governance in order to spread a culture of transparency and credibility throughout the industry as a whole.

Progreso aims to help diminish the institutional obstacles that impact the market as a whole, such as inefficient enforcement of legal rights, gaps in the rules for foreclosure of guarantees, shortcomings in the legal system, etc. It will also tackle those specific to the individual financial institutions in the sector, such as insufficient or improper credit documentation and the absence of specific regulation, among others.

Progreso will record the latest developments in corporate governance. In the third revolution in this sector, good corporate governance will make a decisive impact on growth.

Despite some tightening of governance standards following the global financial crisis, a significant majority of microfinance institutions display notable shortcomings and very rudimentary systems of corporate governance.

More advanced and certifiable systems of corporate governance are essential for the sector to grow. This transformation will tap more private-sector funding sources, such as customer deposits and bank lending, and also make it possible to raise capital on the open market.

The BBVA Microfinance Foundation is so convinced of the importance of corporate governance that it has taken on the highest standards of excellence for itself, and also altruistically offers governance workshops for managers of other microfinance institutions for the sake of the industry as a whole.

In short, Progreso will provide an over-arching view of the regulations relating to the microfinance sector, which in the absence of its own specific regulations is too often subject to inappropriate, penalizing or distorting general rules that hamper its performance as a driving force for progress and development.

The BBVA Foundation Group has 2.7 billion reasons to exist: the 2.7 billion people excluded from formal financial systems all over the world, especially the 250 million living in Latin America. The launch of our online publication today therefore aims to shed greater light on this industry, which has an enormous under-served potential clientele and enormous capacity to generate development by enabling entrepreneurial initiatives from a segment of society currently overlooked in the formal economy.

2

76

Following in the steps of Peru, Chile and Uruguay, the new regulations overhauling the previous secured transactions system came into force in Colombia in February 2014. This new system streamlines the mechanisms to create, record, and foreclose guarantees on movable assets and thus eliminates some antiquated pieces of Colombian legislation prohibiting creditors from seizing assets directly from their debtors (under the so-called pacto pignoraticio or “pledgee agreement”).

The new legislation is based on the OAS Inter-American Model Law on Secured Transactions and the UNCITRAL legislative guidelines. Its benefits include the centralization of information in a single registry administered by the Confederation of Chambers of Commerce, which not only make it possible to file the security or collateral, but also to find out the creditworthiness of persons standing guarantee, thus providing more information to lenders and reducing the cost of access to credit.

Economic and financial literacy is one of the top priorities of the Colombian government. As in other countries in the region (Uruguay and Peru, for example), a National Commission is being created under this law, comprising various influential public-sector bodies, such as the Ministry of Finance and the Colombian financial supervisor, as well as private-sector entities. Its mission is to establish policy, guidelines and tools for implementing the National Strategy for Economic and Financial Literacy.

The involvement of financial institutions in this Commission is vital to its success, given their accumulated expertise and knowledge and their ability to measure the effectiveness of the economic and financial literacy policies established by this Commission. Also noteworthy is the progress in financial inclusion, opening up access to finance for a segment of the population traditionally at a disadvantage and not catered to by the financial system.

Movable assets as collateral. Act 1676/2013 - New Regulations on Secured Transactions.

Financial Literacy. Decree 457/2014 – Creation of the Economic and Financial Literacy Commission.

Colombia

2.1 Published legislation and regulations

Microfinance

2

76

Following in the steps of Peru, Chile and Uruguay, the new regulations overhauling the previous secured transactions system came into force in Colombia in February 2014. This new system streamlines the mechanisms to create, record, and foreclose guarantees on movable assets and thus eliminates some antiquated pieces of Colombian legislation prohibiting creditors from seizing assets directly from their debtors (under the so-called pacto pignoraticio or “pledgee agreement”).

The new legislation is based on the OAS Inter-American Model Law on Secured Transactions and the UNCITRAL legislative guidelines. Its benefits include the centralization of information in a single registry administered by the Confederation of Chambers of Commerce, which not only make it possible to file the security or collateral, but also to find out the creditworthiness of persons standing guarantee, thus providing more information to lenders and reducing the cost of access to credit.

Economic and financial literacy is one of the top priorities of the Colombian government. As in other countries in the region (Uruguay and Peru, for example), a National Commission is being created under this law, comprising various influential public-sector bodies, such as the Ministry of Finance and the Colombian financial supervisor, as well as private-sector entities. Its mission is to establish policy, guidelines and tools for implementing the National Strategy for Economic and Financial Literacy.

The involvement of financial institutions in this Commission is vital to its success, given their accumulated expertise and knowledge and their ability to measure the effectiveness of the economic and financial literacy policies established by this Commission. Also noteworthy is the progress in financial inclusion, opening up access to finance for a segment of the population traditionally at a disadvantage and not catered to by the financial system.

Movable assets as collateral. Act 1676/2013 - New Regulations on Secured Transactions.

Financial Literacy. Decree 457/2014 – Creation of the Economic and Financial Literacy Commission.

Colombia

2.1 Published legislation and regulations

Microfinance

98

In order to improve access to finance among the segment of the population most disadvantaged and not traditionally catered to by the banking industry, in January 2013 the Congress of the Republic of Peru adopted a law on electronic or e-money (Act 29985). This established a minimum regulatory framework for the use of e-money as a payment method, filling an obvious legislative gap on this matter. Its aim is to promote the development of products and services that facilitate financial inclusion, under conditions of safety, transparency and reliability for the benefit of the population.

It regulates a range of matters, including the issuance of e-money; the companies authorized to issue it; the basic specifications and requirements for e-money transactions (payment for goods, conversion and reconversion of e-money, transfer of funds, etc) and contractual requirements for them.

To ensure the safety and reliability of e-money, the law has restricted its provision exclusively to entities under the scope of supervision of the financial oversight system and mainly to those registered as mobile-banking providers. In a country like Peru, where the population is scattered over a wide area and mobile-phone penetration is the highest in the Latam region, the use of (cellular) mobile technology to provide touchpoints for accessing financial services would not only considerably reduce transaction costs but also eliminate entry barriers into the financial system.

This decree provides in-depth regulation of the operating procedures for e-money transactions, as well as the main aspects of the e-money issuers (known by their Spanish acronym as “EEDE” or Empresas Emisoras de Dinero Electrónico).

It defines e-money as a monetary value stored on an electronic device for the sole purpose of payment (payment system). It also sets out that the principal platform for performing any e-money transaction is the cell phone (mobile technology).

2 MicrofinancePublished legislation and regulations

E-money. Act 29985/2013.

E-money. Supreme Decree 090-2013-EF -Regulating e-money.

PeruPanama

This law adopts a mechanism fully in line with market realities. It establishes new rules regarding the mortgaging of movable assets, thereby amending Decree 2/1955, 24th May, which was very useful in its day, but fell into disuse as market requirements changed.

This standard, which was inspired by the OAS Inter-American Model Law on Secured Transactions, seeks to facilitate access to credit by extending the categories of secured transactions to the mortgaging of trade receivables; stocks and shareholdings in any kind of corporation; inventories; property rights; copyright, etc. It streamlines the system of transactions secured by moveable assets, establishing simplified registration procedures;

faster implementation mechanisms and the possibility of successive mortgages, as well as eliminating the unnecessary red tape only too common for this type of operation.

The rule benefits both parties (lenders and borrowers), who, apart from increasing their range of mortgage options, can access operations faster and at lowers costs. This will definitely make banking more attractive. It will also give a boost to the country’s competitiveness as it upgrades the system to meet international standards.

Secured Transactions. Act 129/2013 - Modernizing the Secured Transactions System through the mortgaging of movable assets, and setting forth other provisions.

This law represents a breakthrough in the field of Microfinance as it introduces a prudential regulatory framework based on risk-management; prudential regulations and international accounting standards. This strengthens the oversight of regulated companies, of vital importance, since the country’s financial institutions (apart from the banks) and Non-Governmental Organizations had previously failed to meet international standards on these matters.

Furthermore, a definition of microcredit has been introduced for the first time, distinguishing between microcredit and other types of financing on the basis of the risks involved. The law also focuses on the use of credit technology by microfinance institutions and determines the minimum standards they should use.

Access to the Microfinance Sector. Act 130/2013 - Establishing the prudential regulatory framework for Microfinance institutions.

98

In order to improve access to finance among the segment of the population most disadvantaged and not traditionally catered to by the banking industry, in January 2013 the Congress of the Republic of Peru adopted a law on electronic or e-money (Act 29985). This established a minimum regulatory framework for the use of e-money as a payment method, filling an obvious legislative gap on this matter. Its aim is to promote the development of products and services that facilitate financial inclusion, under conditions of safety, transparency and reliability for the benefit of the population.

It regulates a range of matters, including the issuance of e-money; the companies authorized to issue it; the basic specifications and requirements for e-money transactions (payment for goods, conversion and reconversion of e-money, transfer of funds, etc) and contractual requirements for them.

To ensure the safety and reliability of e-money, the law has restricted its provision exclusively to entities under the scope of supervision of the financial oversight system and mainly to those registered as mobile-banking providers. In a country like Peru, where the population is scattered over a wide area and mobile-phone penetration is the highest in the Latam region, the use of (cellular) mobile technology to provide touchpoints for accessing financial services would not only considerably reduce transaction costs but also eliminate entry barriers into the financial system.

This decree provides in-depth regulation of the operating procedures for e-money transactions, as well as the main aspects of the e-money issuers (known by their Spanish acronym as “EEDE” or Empresas Emisoras de Dinero Electrónico).

It defines e-money as a monetary value stored on an electronic device for the sole purpose of payment (payment system). It also sets out that the principal platform for performing any e-money transaction is the cell phone (mobile technology).

2 MicrofinancePublished legislation and regulations

E-money. Act 29985/2013.

E-money. Supreme Decree 090-2013-EF -Regulating e-money.

PeruPanama

This law adopts a mechanism fully in line with market realities. It establishes new rules regarding the mortgaging of movable assets, thereby amending Decree 2/1955, 24th May, which was very useful in its day, but fell into disuse as market requirements changed.

This standard, which was inspired by the OAS Inter-American Model Law on Secured Transactions, seeks to facilitate access to credit by extending the categories of secured transactions to the mortgaging of trade receivables; stocks and shareholdings in any kind of corporation; inventories; property rights; copyright, etc. It streamlines the system of transactions secured by moveable assets, establishing simplified registration procedures;

faster implementation mechanisms and the possibility of successive mortgages, as well as eliminating the unnecessary red tape only too common for this type of operation.

The rule benefits both parties (lenders and borrowers), who, apart from increasing their range of mortgage options, can access operations faster and at lowers costs. This will definitely make banking more attractive. It will also give a boost to the country’s competitiveness as it upgrades the system to meet international standards.

Secured Transactions. Act 129/2013 - Modernizing the Secured Transactions System through the mortgaging of movable assets, and setting forth other provisions.

This law represents a breakthrough in the field of Microfinance as it introduces a prudential regulatory framework based on risk-management; prudential regulations and international accounting standards. This strengthens the oversight of regulated companies, of vital importance, since the country’s financial institutions (apart from the banks) and Non-Governmental Organizations had previously failed to meet international standards on these matters.

Furthermore, a definition of microcredit has been introduced for the first time, distinguishing between microcredit and other types of financing on the basis of the risks involved. The law also focuses on the use of credit technology by microfinance institutions and determines the minimum standards they should use.

Access to the Microfinance Sector. Act 130/2013 - Establishing the prudential regulatory framework for Microfinance institutions.

1110

Empirical and analytical evidence on the positive relationship between financial development and economic development indicates that one of the obstacles to economic development is the population’s limited access to financial services. In this respect, financial inclusion has become a top priority for the current government in Peru.

It has thus set up a Multisector State Commission responsible for designing and implementing the National Strategy for Financial Inclusion (“ENIF”) under this decree, to make financial products and services more accessible to lower-income brackets, enabling them to break away from the poverty and exclusion they face at present.

This commission comprises representatives of the Ministry of Economy and Finance (MEF); the Ministry of Development and Social Inclusion (MIDIS); the banking, pension-fund and insurance supervisor (SBS); the Central Reserve Bank of Peru; and Bank of the Nation.

The decree details the duties of this Commission and the procedures for its formation and articulation.

Financial Inclusion. Supreme Decree 029/2014 - Creation of the Multisector Commission on Financial Inclusion.

In order to operate with e-money, customers must hold a bank account and use it to make payments and order transfers.. This restriction is intended to boost security and reliability in e-money transactions, since it is more likely that systems operated by entities under the oversight of the financial regulator will properly process e-money transactions. And it also seeks to improve levels of financial inclusion,

given that customers who perform simple e-money transactions and become familiar with this process are more likely to request other financial products or services.

Peru(continue)

This latest amendment to the regulations on transparency of information and contracts with financial system users is intended to oblige financial institutions to justify the level of fees and bank charges agreed with customers.

Thus, fees must be based on proven and effective provision of an additional service supplementing the core service to which the customer has signed up. It is noteworthy that, as a result of this Regulation, financial

entities in Peru can no longer charge fees for the provision of services deemed to be “inherent” to the financial product or service taken out. For example, these entities may not charge for creditworthiness assessments, as these are an inherent part of financial intermediation.

In May 2014 the Congress of the Republic of Peru approved a legal measure facilitating access to financial, pension and insurance information for legal probate.

As a result of this now statutory provision, legal heirs can obtain the information on life insurance policies, private-sector pension funds and deposits or other financial products, which appears on the certified copies of death certificates.

Thus, certified copies or filing information of death certificates issued by the offices of the National Identity and Civil Status Registry (Reniec) include summary and reference information to apprise heirs of the existence of due procedures and a legal framework under which they may exercise their rights.

Transparency and Information. Resolution 1801/2014 – Amending the Regulations on Transparency ofInformation and Contracts with Financial System Users.

Financial and Insurance Information. Act 30205/2014 – Law facilitating heirs’ access to financial, pension and insurance information.

2 MicrofinancePublished legislation and regulations

1110

Empirical and analytical evidence on the positive relationship between financial development and economic development indicates that one of the obstacles to economic development is the population’s limited access to financial services. In this respect, financial inclusion has become a top priority for the current government in Peru.

It has thus set up a Multisector State Commission responsible for designing and implementing the National Strategy for Financial Inclusion (“ENIF”) under this decree, to make financial products and services more accessible to lower-income brackets, enabling them to break away from the poverty and exclusion they face at present.

This commission comprises representatives of the Ministry of Economy and Finance (MEF); the Ministry of Development and Social Inclusion (MIDIS); the banking, pension-fund and insurance supervisor (SBS); the Central Reserve Bank of Peru; and Bank of the Nation.

The decree details the duties of this Commission and the procedures for its formation and articulation.

Financial Inclusion. Supreme Decree 029/2014 - Creation of the Multisector Commission on Financial Inclusion.

In order to operate with e-money, customers must hold a bank account and use it to make payments and order transfers.. This restriction is intended to boost security and reliability in e-money transactions, since it is more likely that systems operated by entities under the oversight of the financial regulator will properly process e-money transactions. And it also seeks to improve levels of financial inclusion,

given that customers who perform simple e-money transactions and become familiar with this process are more likely to request other financial products or services.

Peru(continue)

This latest amendment to the regulations on transparency of information and contracts with financial system users is intended to oblige financial institutions to justify the level of fees and bank charges agreed with customers.

Thus, fees must be based on proven and effective provision of an additional service supplementing the core service to which the customer has signed up. It is noteworthy that, as a result of this Regulation, financial

entities in Peru can no longer charge fees for the provision of services deemed to be “inherent” to the financial product or service taken out. For example, these entities may not charge for creditworthiness assessments, as these are an inherent part of financial intermediation.

In May 2014 the Congress of the Republic of Peru approved a legal measure facilitating access to financial, pension and insurance information for legal probate.

As a result of this now statutory provision, legal heirs can obtain the information on life insurance policies, private-sector pension funds and deposits or other financial products, which appears on the certified copies of death certificates.

Thus, certified copies or filing information of death certificates issued by the offices of the National Identity and Civil Status Registry (Reniec) include summary and reference information to apprise heirs of the existence of due procedures and a legal framework under which they may exercise their rights.

Transparency and Information. Resolution 1801/2014 – Amending the Regulations on Transparency ofInformation and Contracts with Financial System Users.

Financial and Insurance Information. Act 30205/2014 – Law facilitating heirs’ access to financial, pension and insurance information.

2 MicrofinancePublished legislation and regulations

12

DominicanRepublic

Personal Data Protection. Act 172/2013.

13

In the last decade personal data protection has become particularly relevant throughout the world. Latin America has been no exception. Several Latin-American countries have updated their legal systems to guarantee the rights of individuals over their personal data.

With similar content to laws passed in Colombia and Peru, this law provides a set of principles and tools for comprehensive protection of personal data, whether stored in files, public records, databases or other public- or private-sector technology platforms. It also provides mechanisms guaranteeing individuals’ right to honor and privacy.

This law also regulates the establishment, organization, activities, operation and liquidation of credit bureaux known as SICs (Sociedades de Información Crediticia), which are engaged in collecting, organizing, storing,

holding, communicating, transferring and/or transmitting data on consumers, goods or services related to them, and any other information provided by the banking regulator, using automated or manual procedures, in hard-copy, digital or electronic format.

The databases of these entities will be integrated with the information provided directly by the contributors of data on lending and other similar transactions that these give their consumers, in the form and terms in which it is received from the contributors of data and any further information provided by the banking supervisor or other public entities.

To guarantee that people can exercise their rights over their personal information, the law creates a procedure that begins with the information owner being able to submit a claim to the database owner, to update, contrast, rectify or destroy information as well as disciplinary proceedings for entities that fail to comply with the law’s provisions.

Uruguay

This legal provision, as in other countries in the region (Colombia and Peru), seeks to ensure financial inclusion of disadvantaged segments of the population and those who have not been traditionally catered to by banking. It sets forth measures on:

• Establishing mandatory payment of wages and pensions through a bank account using debit cards or e-money (prepaid cards) in the formal financial system

• Free opening and maintenance of accounts for workers and SMEs

• Granting “payroll loans” that can be deducted from wages

• Reduction in value-added tax for card payments

• Restrictions on cash payments

• A savings program for house purchase

• E-money Issuers

Aspects highlighted in this law include constraints on the use of cash, expressly prohibiting its use in certain business transaction, such as the sale of goods or services for a sum equal to or above $5,000 if one of the parties meets the law’s specifications, and in certain transactions with the State.

Financial Inclusion. Act 19.210/2014 – E-payment systems and financial Inclusion for the general public.

2 MicrofinancePublished legislation and regulations

12

DominicanRepublic

Personal Data Protection. Act 172/2013.

13

In the last decade personal data protection has become particularly relevant throughout the world. Latin America has been no exception. Several Latin-American countries have updated their legal systems to guarantee the rights of individuals over their personal data.

With similar content to laws passed in Colombia and Peru, this law provides a set of principles and tools for comprehensive protection of personal data, whether stored in files, public records, databases or other public- or private-sector technology platforms. It also provides mechanisms guaranteeing individuals’ right to honor and privacy.

This law also regulates the establishment, organization, activities, operation and liquidation of credit bureaux known as SICs (Sociedades de Información Crediticia), which are engaged in collecting, organizing, storing,

holding, communicating, transferring and/or transmitting data on consumers, goods or services related to them, and any other information provided by the banking regulator, using automated or manual procedures, in hard-copy, digital or electronic format.

The databases of these entities will be integrated with the information provided directly by the contributors of data on lending and other similar transactions that these give their consumers, in the form and terms in which it is received from the contributors of data and any further information provided by the banking supervisor or other public entities.

To guarantee that people can exercise their rights over their personal information, the law creates a procedure that begins with the information owner being able to submit a claim to the database owner, to update, contrast, rectify or destroy information as well as disciplinary proceedings for entities that fail to comply with the law’s provisions.

Uruguay

This legal provision, as in other countries in the region (Colombia and Peru), seeks to ensure financial inclusion of disadvantaged segments of the population and those who have not been traditionally catered to by banking. It sets forth measures on:

• Establishing mandatory payment of wages and pensions through a bank account using debit cards or e-money (prepaid cards) in the formal financial system

• Free opening and maintenance of accounts for workers and SMEs

• Granting “payroll loans” that can be deducted from wages

• Reduction in value-added tax for card payments

• Restrictions on cash payments

• A savings program for house purchase

• E-money Issuers

Aspects highlighted in this law include constraints on the use of cash, expressly prohibiting its use in certain business transaction, such as the sale of goods or services for a sum equal to or above $5,000 if one of the parties meets the law’s specifications, and in certain transactions with the State.

Financial Inclusion. Act 19.210/2014 – E-payment systems and financial Inclusion for the general public.

2 MicrofinancePublished legislation and regulations

15

This law incorporates the latest recommendations of GAFI, the FATF-style Spanish financial action task force set up by the government to implement international anti-money laundering standards, placing domestic Spanish regulation at the forefront of international best practices, by including the very latest international demands.

The main new feature is the further ramification of the “risk-based approach” that is already established under current law, incorporating the requirement of regulated entities to analyze the main risks they face, in accordance with the type of business, product or customer with which they establish business relationships. On the basis of this analysis, regulated entities have certain obligations of a procedural nature, to ensure a match between the internal policies and procedures and the risk profile of the respective entity.

The law also allows the State Tax Department (Agencia Estatal de Administración Tributaria) to request and obtain the information that regulated entities hold or manage, on the grounds of diligence obligations contained in the law. It also gives the regulated entities discretionary powers to check out the professional or business activity declared by its customers through personal visits to the places where they carry out their business activities.

Asset Laundering. Royal Decree 304/2014 - Regulations of Act 10/2010 on the Prevention of Money-laundering and Funding of Terrorism.

Spain

14

This act transposes regulatory changes in European law into Spanish statutory law by bringing together in one act regulations applicable to credit institutions in areas such as supervision, capital requirements and penalties.

This legal measure thus establishes a single legal framework on solvency and access to the activity of credit institutions, bringing together legislation previously scattered over various different regulations, some very old and all prior to the global financial crisis. It regulates the general aspects of the system enabling lenders to be certified as credit institutions, as well as the operation of its governance bodies, their supervisors and sanctions that can be applied by the authorities, as well as establishing capital and solvency requirements and appropriate risk management.

The inclusion of Article 5, regulating the protection of credit-institution customers is particularly striking. This article empowers the Ministry of Economy & Competitiveness to issue pre-contractual rules on information to be provided to customers, so that they “explicitly and most clearly” reflect the rights and obligations of the parties and the risks stemming from the service and/or product, so that customers are able to analyze whether or not it fits their needs. The Ministry, within the powers granted, may establish basic conditions for banking services and products that must be duly

complied with by entities. It also specifically regulates that fees or expenses can only be charged for services that have been “expressly requested by the customer”.

In reaction to the excesses generated prior to the economic crisis, this law empowers the Ministry to issue rules to ensure that credit institutions perform more robust risk analysis when granting loans. Lenders will be encourage to pay due attention to the customer’s income, the adjusted value of their collateral, the impact of potential changes in interest rates on variable-rate loans, etc. Ultimately the idea is to achieve greater rigour in risk assessment.

Additionally, and in order to avoid the application of arbitrary rates against which variable-interest loans are indexed, the Ministry itself or through the Bank of Spain can now regulate these indices in an official capacity.

Finally, all provisions of Article 5 are reinforced by their treatment as organizational and disciplinary regulations of credit entities, which are thus subject to the supervision of the Bank of Spain and the penalty system reflected by these regulations.

Customer Protection. Act 10/2014 - Credit Institution Organization, Supervision and Solvency Act (Article 5).

2 MicrofinancePublished legislation and regulations

15

This law incorporates the latest recommendations of GAFI, the FATF-style Spanish financial action task force set up by the government to implement international anti-money laundering standards, placing domestic Spanish regulation at the forefront of international best practices, by including the very latest international demands.

The main new feature is the further ramification of the “risk-based approach” that is already established under current law, incorporating the requirement of regulated entities to analyze the main risks they face, in accordance with the type of business, product or customer with which they establish business relationships. On the basis of this analysis, regulated entities have certain obligations of a procedural nature, to ensure a match between the internal policies and procedures and the risk profile of the respective entity.

The law also allows the State Tax Department (Agencia Estatal de Administración Tributaria) to request and obtain the information that regulated entities hold or manage, on the grounds of diligence obligations contained in the law. It also gives the regulated entities discretionary powers to check out the professional or business activity declared by its customers through personal visits to the places where they carry out their business activities.

Asset Laundering. Royal Decree 304/2014 - Regulations of Act 10/2010 on the Prevention of Money-laundering and Funding of Terrorism.

Spain

14

This act transposes regulatory changes in European law into Spanish statutory law by bringing together in one act regulations applicable to credit institutions in areas such as supervision, capital requirements and penalties.

This legal measure thus establishes a single legal framework on solvency and access to the activity of credit institutions, bringing together legislation previously scattered over various different regulations, some very old and all prior to the global financial crisis. It regulates the general aspects of the system enabling lenders to be certified as credit institutions, as well as the operation of its governance bodies, their supervisors and sanctions that can be applied by the authorities, as well as establishing capital and solvency requirements and appropriate risk management.

The inclusion of Article 5, regulating the protection of credit-institution customers is particularly striking. This article empowers the Ministry of Economy & Competitiveness to issue pre-contractual rules on information to be provided to customers, so that they “explicitly and most clearly” reflect the rights and obligations of the parties and the risks stemming from the service and/or product, so that customers are able to analyze whether or not it fits their needs. The Ministry, within the powers granted, may establish basic conditions for banking services and products that must be duly

complied with by entities. It also specifically regulates that fees or expenses can only be charged for services that have been “expressly requested by the customer”.

In reaction to the excesses generated prior to the economic crisis, this law empowers the Ministry to issue rules to ensure that credit institutions perform more robust risk analysis when granting loans. Lenders will be encourage to pay due attention to the customer’s income, the adjusted value of their collateral, the impact of potential changes in interest rates on variable-rate loans, etc. Ultimately the idea is to achieve greater rigour in risk assessment.

Additionally, and in order to avoid the application of arbitrary rates against which variable-interest loans are indexed, the Ministry itself or through the Bank of Spain can now regulate these indices in an official capacity.

Finally, all provisions of Article 5 are reinforced by their treatment as organizational and disciplinary regulations of credit entities, which are thus subject to the supervision of the Bank of Spain and the penalty system reflected by these regulations.

Customer Protection. Act 10/2014 - Credit Institution Organization, Supervision and Solvency Act (Article 5).

2 MicrofinancePublished legislation and regulations

1716

2.2 Draft legislation

Over recent years in Latin America, e-money payments have been on the rise, and the Colombian government is encouraging the use of institutions specializing in the creation of e-money and conducting transactions using e-payment systems, in order to promote the development of products and services to facilitate financial inclusion through electronic devices.

Bill 181/2014 is currently going through Colombia’s Congress. Unlike other such initiatives elsewhere, such as in Peru and Uruguay, this bill is not

focused on regulating “electronic money”, but rather grants a simplified financial license to new companies specializing in electronic deposits and payments, which must comply with some of the rules applicable to traditional financial institutions in order to be able to attract funds from the public and make drafts, transfers and payments using electronic systems.

Through this Bill, the Colombian Congress seeks to oblige banking institutions to offer preferential microcredits for setting up small businesses. This Bill sets minimum percentages for how much microlending must be provided by all institutions in the Colombian financial system. Its provisions include, (i) cost-free processing of credit applications; (ii) assessment and granting of microcredit subject to the applicant’s business plan, and not to the provision of collateral; (iii) monitoring by the Colombian government of the growth

of the microcredit loanbook; and (iv) implementation of programs to promote access to microcredits in the rural sector.

The text of this Bill is identical to that of two previous Bills (Bill 43 of 2013, Chamber, and Bill 218 of 2013 on Microcredits), which were rejected during the corresponding legislative debate and subsequently shelved.

Bill 181/2014 - Senate - on financial inclusion through the creation of financial institutions specializing in payments, savings and deposits.

Bill 070/2014 – Senate – “Instructing banking institutions to facilitate access to microcredit services for people with limited resources who have not had access to such services”.

Colombia2

Microfinance

1716

2.2 Draft legislation

Over recent years in Latin America, e-money payments have been on the rise, and the Colombian government is encouraging the use of institutions specializing in the creation of e-money and conducting transactions using e-payment systems, in order to promote the development of products and services to facilitate financial inclusion through electronic devices.

Bill 181/2014 is currently going through Colombia’s Congress. Unlike other such initiatives elsewhere, such as in Peru and Uruguay, this bill is not

focused on regulating “electronic money”, but rather grants a simplified financial license to new companies specializing in electronic deposits and payments, which must comply with some of the rules applicable to traditional financial institutions in order to be able to attract funds from the public and make drafts, transfers and payments using electronic systems.

Through this Bill, the Colombian Congress seeks to oblige banking institutions to offer preferential microcredits for setting up small businesses. This Bill sets minimum percentages for how much microlending must be provided by all institutions in the Colombian financial system. Its provisions include, (i) cost-free processing of credit applications; (ii) assessment and granting of microcredit subject to the applicant’s business plan, and not to the provision of collateral; (iii) monitoring by the Colombian government of the growth

of the microcredit loanbook; and (iv) implementation of programs to promote access to microcredits in the rural sector.

The text of this Bill is identical to that of two previous Bills (Bill 43 of 2013, Chamber, and Bill 218 of 2013 on Microcredits), which were rejected during the corresponding legislative debate and subsequently shelved.

Bill 181/2014 - Senate - on financial inclusion through the creation of financial institutions specializing in payments, savings and deposits.

Bill 070/2014 – Senate – “Instructing banking institutions to facilitate access to microcredit services for people with limited resources who have not had access to such services”.

Colombia2

Microfinance

1918

In order to imbue Peruvians with a savings culture from an early age, the Executive has proposed that minors aged between 14 and 18, should be able to open bank accounts. The accounts are exclusively for depositing and withdrawing the money they receive from their parents or from third parties as pocket money or small rewards.

This system would only include savings accounts in local currency. Only male and female minors aged between 14 and 18 may be the individual holders of such accounts, and shared ownership is prohibited.

The Bill is currently being debated at Committee stage in the Congress of the Republic.

As part of the package of measures for economic recovery, the Executive has proposed this Bill with the aim of reducing costs in transactions secured by movable assets and extending the scope of such security, in order to facilitate access to credit.

The main amendment proposals include: (i) creation of a Virtual Public Registry to replace the current Movable Property

Contracts Registry; (ii) cost-free access to the Virtual Registry; (iii) immediate foreclosure of collateral without the need to inform the debtor through a notary public; and (iv) the possibility of performing legal acts relating to the collateral through e-mail notifications.

This Bill is currently under review at Committee stage in the Congress of the Republic.

2 MicrofinanceDraftlegislation

Bill for the opening of a savings account for minors aged between 14 and 18. Bill 3578/2013-CR.

Bill for a Secured Transactions Act. Movable assets as collateral. Bill 3611/2013-CR.

PeruChile

Act 18.010/1981, on rules for credit operations and other monetary obligations, sets out that: “Payment of interest on interest payments may be stipulated, and may be capitalized at each maturity or renewal date. Under no circumstances may such interest be capitalized for periods of less than thirty days”.

There are currently two Bills aimed at eliminating these abusive practices. Both are parliamentary initiatives not sponsored by the Executive. One aims to eliminate compounding of interest absolutely and the other aims to eliminate compounding and the clause for shortening terms in financing and refinancing transactions. Both proposals are part of the ongoing efforts seen in recent years in relation to consumer rights protection, particularly in the financial sector.

Bill for the amendment of Act 18.010, prohibiting the charging of compound interest.

1918

In order to imbue Peruvians with a savings culture from an early age, the Executive has proposed that minors aged between 14 and 18, should be able to open bank accounts. The accounts are exclusively for depositing and withdrawing the money they receive from their parents or from third parties as pocket money or small rewards.

This system would only include savings accounts in local currency. Only male and female minors aged between 14 and 18 may be the individual holders of such accounts, and shared ownership is prohibited.

The Bill is currently being debated at Committee stage in the Congress of the Republic.

As part of the package of measures for economic recovery, the Executive has proposed this Bill with the aim of reducing costs in transactions secured by movable assets and extending the scope of such security, in order to facilitate access to credit.

The main amendment proposals include: (i) creation of a Virtual Public Registry to replace the current Movable Property

Contracts Registry; (ii) cost-free access to the Virtual Registry; (iii) immediate foreclosure of collateral without the need to inform the debtor through a notary public; and (iv) the possibility of performing legal acts relating to the collateral through e-mail notifications.

This Bill is currently under review at Committee stage in the Congress of the Republic.

2 MicrofinanceDraftlegislation

Bill for the opening of a savings account for minors aged between 14 and 18. Bill 3578/2013-CR.

Bill for a Secured Transactions Act. Movable assets as collateral. Bill 3611/2013-CR.

PeruChile

Act 18.010/1981, on rules for credit operations and other monetary obligations, sets out that: “Payment of interest on interest payments may be stipulated, and may be capitalized at each maturity or renewal date. Under no circumstances may such interest be capitalized for periods of less than thirty days”.

There are currently two Bills aimed at eliminating these abusive practices. Both are parliamentary initiatives not sponsored by the Executive. One aims to eliminate compounding of interest absolutely and the other aims to eliminate compounding and the clause for shortening terms in financing and refinancing transactions. Both proposals are part of the ongoing efforts seen in recent years in relation to consumer rights protection, particularly in the financial sector.

Bill for the amendment of Act 18.010, prohibiting the charging of compound interest.

21 20

2.3 Jurisprudence

In relation to the protection of individuals in the processing of their personal data and the free movement of such data. With respect to a dispute between Google Spain, S.L. and Google Inc., on the one side, and the Spanish Data Protection Agency and Mr Costeja González, on the other, the Court has resolved that necessary measures should be taken to remove personal data from their index and thus prevent future access to such data.

Thus, when as a result of a search conducted using the name of an individual, links to websites containing information on that person are offered, he or she may contact the search engine manager directly or, if the latter rejects the request, contact the relevant authorities so that those links are deleted from the list of results, under certain conditions.

Ruling of the Supreme Court of Justice of Peru, 29th November 2013.

Ruling of the European Court of Justice (ECJ), 13th May 2014.

Peru

Europe

2

Microfinance

See comment by the SDPASee ruling

In relation to the validity of mortgages established to underwrite present and future obligations, the Supreme Court of Peru has laid down that the mortgage will only cover payment of future obligations arising while the present obligation is in force. Therefore, if the latter obligation is discharged and on its discharge date no other obligation has arisen for the debtor, the mortgage is fully discharged. The Supreme Court has justified this

decision on the basis of the principle whereby an individual cannot be bound contractually for an indefinite period of time, despite the fact that section 1362 of Peru’s Civil Code allows any contract entered into for an indefinite period to be terminated unilaterally.

21 20

2.3 Jurisprudence

In relation to the protection of individuals in the processing of their personal data and the free movement of such data. With respect to a dispute between Google Spain, S.L. and Google Inc., on the one side, and the Spanish Data Protection Agency and Mr Costeja González, on the other, the Court has resolved that necessary measures should be taken to remove personal data from their index and thus prevent future access to such data.

Thus, when as a result of a search conducted using the name of an individual, links to websites containing information on that person are offered, he or she may contact the search engine manager directly or, if the latter rejects the request, contact the relevant authorities so that those links are deleted from the list of results, under certain conditions.

Ruling of the Supreme Court of Justice of Peru, 29th November 2013.

Ruling of the European Court of Justice (ECJ), 13th May 2014.

Peru

Europe

2

Microfinance

See comment by the SDPASee ruling

In relation to the validity of mortgages established to underwrite present and future obligations, the Supreme Court of Peru has laid down that the mortgage will only cover payment of future obligations arising while the present obligation is in force. Therefore, if the latter obligation is discharged and on its discharge date no other obligation has arisen for the debtor, the mortgage is fully discharged. The Supreme Court has justified this

decision on the basis of the principle whereby an individual cannot be bound contractually for an indefinite period of time, despite the fact that section 1362 of Peru’s Civil Code allows any contract entered into for an indefinite period to be terminated unilaterally.

2322

2.4 Articles of interest

Do we know how much the microfinance sector contributes to the country’s gross domestic product (GDP)?

This article analyzes the contribution of the microfinance sector to a country’s economy. Specifically, it analyzes the case of Bangladesh and the impact and contribution of the microfinance sector to the

country’s gross domestic product. It provides in-depth analysis of a study conducted by the Microcredit Regulatory Authority (MRA) of Bangladesh, which has quantified the microfinance sector’s significant input to a country’s economic growth, and highlighted the need to implement future plans and policies to make such input sustainable over time.

By Barry Firth. Published by: Microfinance CEO Working Group.

By Ismail Hossain, The Financial Express. Bangladesh.

Over-indebtedness:a Risk Management Approach.

The MRA to assessinputofmicrocredittoGDP.

2

MicrofinanceIn recent decades some countries have suffered from significant debt crises. Bolivia suffered such a debt overhang in 1999 – 2000, and India in 2010. This article proposes practical measures that microfinance institutions could take into account to reduce the likelihood of over-indebtedness or, should the risk occur, to reduce its impact.

The author analyzes the factors that make over-indebtedness possible, defensive measures, the risks and the resulting consequences. The author also proposes a number of factors that may mitigate both the risk of over-indebtedness and its consequences.

2322

2.4 Articles of interest

Do we know how much the microfinance sector contributes to the country’s gross domestic product (GDP)?

This article analyzes the contribution of the microfinance sector to a country’s economy. Specifically, it analyzes the case of Bangladesh and the impact and contribution of the microfinance sector to the

country’s gross domestic product. It provides in-depth analysis of a study conducted by the Microcredit Regulatory Authority (MRA) of Bangladesh, which has quantified the microfinance sector’s significant input to a country’s economic growth, and highlighted the need to implement future plans and policies to make such input sustainable over time.

By Barry Firth. Published by: Microfinance CEO Working Group.

By Ismail Hossain, The Financial Express. Bangladesh.

Over-indebtedness:a Risk Management Approach.

The MRA to assessinputofmicrocredittoGDP.

2

MicrofinanceIn recent decades some countries have suffered from significant debt crises. Bolivia suffered such a debt overhang in 1999 – 2000, and India in 2010. This article proposes practical measures that microfinance institutions could take into account to reduce the likelihood of over-indebtedness or, should the risk occur, to reduce its impact.

The author analyzes the factors that make over-indebtedness possible, defensive measures, the risks and the resulting consequences. The author also proposes a number of factors that may mitigate both the risk of over-indebtedness and its consequences.

2524

New Country Code and Implementation Report – External Circular 028/2014 issued by the Colombian financial supervisor (SFC).

Code of Good Corporate Governance for Peruvian Corporations. SMV Directive 008-2014-SMV/01.

Colombia

Peru

3

CorporateGovernance

3.1 Published legislation and regulations

The Code of Best Corporate Practices – Country Code, published through External Circular 028/2014, will contain 33 measures with 148 recommendations on: (i) Rights and Equitable Treatment of Shareholders, (ii) General Meeting of Shareholders, (iii) Board of Directors, (iv) Control Architecture, and (v) Transparency and Financial and Non-financial Reporting. The Code’s structure will be based on the “comply or explain” principle and its recommendations are voluntary for securities issuers. For each recommendation, issuers must describe how they have implemented it or why they have not done so. On the first occasion of reporting a recommendation, the institutions must specify the date on which it was adopted.

The Country Code establishes that the institutions’ bylaws must describe their compliance, and the compliance of their directors and employees in general, with the recommendations adopted and how it is monitored. It also sets out the institutions’ duty to submit the results of the implementation report to the Annual General Meeting.

Under this directive, the SMV (the Peruvian securities exchange commission) seeks to ensure that the Corporate Governance information disclosed to the market complies with the new standards set out in the Code of Good Governance for Peruvian Corporations that came into effect in November 2013.

Thus, the Annex to the Annual Report referring to “Information on Compliance with the Principles of Good Governance for Peruvian Corporations” is replaced with the “Statement of Compliance with the Code of Good Corporate Governance for Peruvian Corporations”. In this report, listed Peruvian companies

2524

New Country Code and Implementation Report – External Circular 028/2014 issued by the Colombian financial supervisor (SFC).

Code of Good Corporate Governance for Peruvian Corporations. SMV Directive 008-2014-SMV/01.

Colombia

Peru

3

CorporateGovernance

3.1 Published legislation and regulations

The Code of Best Corporate Practices – Country Code, published through External Circular 028/2014, will contain 33 measures with 148 recommendations on: (i) Rights and Equitable Treatment of Shareholders, (ii) General Meeting of Shareholders, (iii) Board of Directors, (iv) Control Architecture, and (v) Transparency and Financial and Non-financial Reporting. The Code’s structure will be based on the “comply or explain” principle and its recommendations are voluntary for securities issuers. For each recommendation, issuers must describe how they have implemented it or why they have not done so. On the first occasion of reporting a recommendation, the institutions must specify the date on which it was adopted.

The Country Code establishes that the institutions’ bylaws must describe their compliance, and the compliance of their directors and employees in general, with the recommendations adopted and how it is monitored. It also sets out the institutions’ duty to submit the results of the implementation report to the Annual General Meeting.

Under this directive, the SMV (the Peruvian securities exchange commission) seeks to ensure that the Corporate Governance information disclosed to the market complies with the new standards set out in the Code of Good Governance for Peruvian Corporations that came into effect in November 2013.

Thus, the Annex to the Annual Report referring to “Information on Compliance with the Principles of Good Governance for Peruvian Corporations” is replaced with the “Statement of Compliance with the Code of Good Corporate Governance for Peruvian Corporations”. In this report, listed Peruvian companies

2726

Spain

If defines the Board of Directors as the body responsible for developing its own Corporate Governance system, guaranteeing honest, prudent management, through appropriate allocation of functions within the organization, and prevention of conflicts of interest. It also sets forth the functions regarding the Governance system that may not be delegated by the Board. It incorporates the Good Governance principle of separating the Chairman of the Board of Directors and the Chief Executive Officer (CEO), unless otherwise authorized by the Bank of Spain.

Unlike the Bill amending the Corporate Enterprises Act for credit institutions, this law requires two separate committees: one for Appointments and one for Remuneration. It regulates in detail the policy and the principles underpinning remuneration policy, highlighting the mandatory requirement that no incentives should be offered to encourage risks that exceed the level tolerated by the institution.

Unlike the Bill amending the Corporate Enterprises Act, this law establishes that the Bank of Spain may require credit institutions to set up a Risk Committee, in accordance with their scale and complexity. The Committee should be made up of non-executive Board members, a third of whom and the Chairman should be independent.

Organization, Supervision & Solvency of Credit Institutions. Act 10/2014, 26th June.

3 Gobierno CorporativoLegislaciónynormaspublicadas

Peru(continue)

must inform the market each year of the level of compliance with the recommendations made in the Code of Good Corporate Governance, based primarily on five aspects: (a) Shareholder rights, (b) General Meeting of Shareholders (c) Board of Directors & Senior Management, (d) Risk & Compliance, and (e) Transparency of information.

The drafting of this Code is part of a wider process to reform the Peruvian capital market, intended to create a robust culture of Corporate Governance in Peru that improves investor perception of companies, promotes business development and contributes to the creation of value in the Peruvian economy.

Title V of the Act includes 11 sections on Corporate Governance and Remuneration Policy. It puts forward specific regulations for credit institutions, which will be completed later with the enactment of the Bill amending the Corporate Enterprises Act.

As well as setting out the obligation for credit institutions to apply the regulations contained in this section, it defines the corporate

governance system as the creation in the institution of sound procedures to provide it with clear organizational structures, well-defined lines of accountability, effective procedures for identifying and measuring the risks to which the institution is exposed, suitable internal control mechanisms, and remuneration policies and practices that are consistent with appropriate risk management.

2726

Spain

If defines the Board of Directors as the body responsible for developing its own Corporate Governance system, guaranteeing honest, prudent management, through appropriate allocation of functions within the organization, and prevention of conflicts of interest. It also sets forth the functions regarding the Governance system that may not be delegated by the Board. It incorporates the Good Governance principle of separating the Chairman of the Board of Directors and the Chief Executive Officer (CEO), unless otherwise authorized by the Bank of Spain.

Unlike the Bill amending the Corporate Enterprises Act for credit institutions, this law requires two separate committees: one for Appointments and one for Remuneration. It regulates in detail the policy and the principles underpinning remuneration policy, highlighting the mandatory requirement that no incentives should be offered to encourage risks that exceed the level tolerated by the institution.

Unlike the Bill amending the Corporate Enterprises Act, this law establishes that the Bank of Spain may require credit institutions to set up a Risk Committee, in accordance with their scale and complexity. The Committee should be made up of non-executive Board members, a third of whom and the Chairman should be independent.

Organization, Supervision & Solvency of Credit Institutions. Act 10/2014, 26th June.

3 Gobierno CorporativoLegislaciónynormaspublicadas

Peru(continue)

must inform the market each year of the level of compliance with the recommendations made in the Code of Good Corporate Governance, based primarily on five aspects: (a) Shareholder rights, (b) General Meeting of Shareholders (c) Board of Directors & Senior Management, (d) Risk & Compliance, and (e) Transparency of information.

The drafting of this Code is part of a wider process to reform the Peruvian capital market, intended to create a robust culture of Corporate Governance in Peru that improves investor perception of companies, promotes business development and contributes to the creation of value in the Peruvian economy.

Title V of the Act includes 11 sections on Corporate Governance and Remuneration Policy. It puts forward specific regulations for credit institutions, which will be completed later with the enactment of the Bill amending the Corporate Enterprises Act.

As well as setting out the obligation for credit institutions to apply the regulations contained in this section, it defines the corporate

governance system as the creation in the institution of sound procedures to provide it with clear organizational structures, well-defined lines of accountability, effective procedures for identifying and measuring the risks to which the institution is exposed, suitable internal control mechanisms, and remuneration policies and practices that are consistent with appropriate risk management.

2928

3.2 Draft legislation

3Spain

Corporate Enterprise Act Reform Bill for the improvement of Corporate Governance.

The origin of the Bill that reforms the current Corporate Enterprises Act can be found in the 2013 National Reform Plan. The Council of Ministers set up a Committee of Experts tasked with assessing the governance of Spanish corporations and proposing measures for improving effectiveness and accountability in their management. This Bill is the result of its recommendations.

The Bill contains one sole article that regulates the amendments relating to the Corporate Enterprises Act in three key areas:

I. Powers of the General Meeting and shareholder rights, giving special prominence to the rights of minority groups by reducing the capital requirements to entitle them to such rights from the current 5% to 3%.

II. Company directors. Focusing primarily on the duties of loyalty and diligence of its directors, protecting discretionary business judgment in the area of strategy and in business decisions. The scope of penalties in the event of non-compliance with the duty of loyalty is extended beyond retribution for damages caused, so that it now includes the clawback of unfair gains.

Moreover, an obligation has been established for companies to set up, at least, an Audit Committee, and an Appointments & Remuneration Committee.

III. Remuneration of board members. In order to redeem past excesses, directors’ remuneration must be fair and in keeping with the economic situation of their companies, and with the duties conferred on them. The remuneration must seek to promote the profitability and sustainability of the company in the long term.

The aim is thus to bring about a major overhaul which willchange the traditional operation of the companies’ principalgovernance bodies, moving away from the model based onrecommending standards of good governance and towardsincorporating them into Spanish statutory law.

CorporateGovernance

2928

3.2 Draft legislation

3Spain

Corporate Enterprise Act Reform Bill for the improvement of Corporate Governance.

The origin of the Bill that reforms the current Corporate Enterprises Act can be found in the 2013 National Reform Plan. The Council of Ministers set up a Committee of Experts tasked with assessing the governance of Spanish corporations and proposing measures for improving effectiveness and accountability in their management. This Bill is the result of its recommendations.

The Bill contains one sole article that regulates the amendments relating to the Corporate Enterprises Act in three key areas:

I. Powers of the General Meeting and shareholder rights, giving special prominence to the rights of minority groups by reducing the capital requirements to entitle them to such rights from the current 5% to 3%.

II. Company directors. Focusing primarily on the duties of loyalty and diligence of its directors, protecting discretionary business judgment in the area of strategy and in business decisions. The scope of penalties in the event of non-compliance with the duty of loyalty is extended beyond retribution for damages caused, so that it now includes the clawback of unfair gains.

Moreover, an obligation has been established for companies to set up, at least, an Audit Committee, and an Appointments & Remuneration Committee.

III. Remuneration of board members. In order to redeem past excesses, directors’ remuneration must be fair and in keeping with the economic situation of their companies, and with the duties conferred on them. The remuneration must seek to promote the profitability and sustainability of the company in the long term.

The aim is thus to bring about a major overhaul which willchange the traditional operation of the companies’ principalgovernance bodies, moving away from the model based onrecommending standards of good governance and towardsincorporating them into Spanish statutory law.

CorporateGovernance

3130

3.3 Opinion article

Chile3

The La Polar scandal was uncovered in early June 2011, and involved one of the largest companies in Chile’s retailing industry. Since retailers were allowed to grant credit to their customers, La Polar accumulated an enormous portfolio of very poor-quality debt. To prevent non-performing loans from dragging down the company’s value, the firm’s executives came up with the idea of “automatic and unilateral renegotiation of loans already granted”. The company, without consulting its debtors, added new instalments to extend the term of repayment, which only served to add fuel to its uncollectible-debt bonfire.

This meant that instead of revealing a vast amount of unpaid and probably unpayable debts, the company’s financial statements reported asset values inflated by high figures for trade receivables. On 9th June 2011 the CEO admitted possible irregularities in its financial statements. Shares immediately plummeted by 42% on the first day alone, and the risk of insolvency has cast doubt over the company’s survival ever since. Even today its creditors and bondholders continue to haggle over the payment of amounts still owing to them.

The case sparked a series of civil lawsuits taken out by customers whose loans had been unilaterally rescheduled, as well as by shareholders and institutional investors. There were also criminal suits alleging the use of insider information, the disclosure of false information to the markets, and the violation of the General Law of Banks. The regulators of banking and stock market activity have also sued the company executives for fraud and the external auditors for failing to detect the wrongdoing at the time. Although some administrative fines have been imposed, all these cases are still being argued out before the courts.

Opinion: Impact of the La Polar case and corporate governance standards

CorporateGovernance

3130

3.3 Opinion article

Chile3

The La Polar scandal was uncovered in early June 2011, and involved one of the largest companies in Chile’s retailing industry. Since retailers were allowed to grant credit to their customers, La Polar accumulated an enormous portfolio of very poor-quality debt. To prevent non-performing loans from dragging down the company’s value, the firm’s executives came up with the idea of “automatic and unilateral renegotiation of loans already granted”. The company, without consulting its debtors, added new instalments to extend the term of repayment, which only served to add fuel to its uncollectible-debt bonfire.

This meant that instead of revealing a vast amount of unpaid and probably unpayable debts, the company’s financial statements reported asset values inflated by high figures for trade receivables. On 9th June 2011 the CEO admitted possible irregularities in its financial statements. Shares immediately plummeted by 42% on the first day alone, and the risk of insolvency has cast doubt over the company’s survival ever since. Even today its creditors and bondholders continue to haggle over the payment of amounts still owing to them.

The case sparked a series of civil lawsuits taken out by customers whose loans had been unilaterally rescheduled, as well as by shareholders and institutional investors. There were also criminal suits alleging the use of insider information, the disclosure of false information to the markets, and the violation of the General Law of Banks. The regulators of banking and stock market activity have also sued the company executives for fraud and the external auditors for failing to detect the wrongdoing at the time. Although some administrative fines have been imposed, all these cases are still being argued out before the courts.

Opinion: Impact of the La Polar case and corporate governance standards

CorporateGovernance

3332

3 CorporateGovernanceOpinion article

Andrés Silva T.PartneratLarraínyAsociados Abogados

Chile(continue)

The auditing of retailers’ credit businesses has also become increasingly stringent. Since June 2011, the SVS requires them to flesh out the information presented in their financial statements with explanatory notes providing information on their policies with regard to credit, renegotiations, refinancing, provisions and penalties, etc.Another corollary of the La Polar case in the field of consumer rights was the drafting of Law 20.555 which reinforces the safeguards for consumer rights, and endows the National Consumer Service (SERNAC) with additional attributions and resources to protect consumers of financial products and services.

Finally, given that various pension fund managers were La Polar shareholders, the pensions supervisor changed the pension-fund investment regulations, reducing the maximum investment allowable in any single company. This was intended to reduce the funds’ potential exposure to any one issuer and encourage them to spread their risk over several separate holdings. Although when the malpractices occurred Chilean legislation on corporate governance was up to date and even on the cutting edge, it was nonetheless overwhelmed by events. The revelation of such substantial gaps in the companies’ internal control cried out for further regulation. The challenge now is to enforce compliance with these latest standards.

The case study throws up many lessons, but in its corporate governance it was clear that the firm’s directors had failed to exercise their custodial and oversight duties with respect to the company’s business and failed to effectively monitor the executives in charge of calculating and administering outstanding balances on the loan portfolio. Another important conclusion is that the external auditors of the company’s financial statements proved unable to provide shareholders with adequate information on the actual state of the company’s finances. The same accusation has been leveled at the rating agency, which routinely awarded top-notch risk ratings to La Polar’s portfolio despite the fact that its actual quality was far from ideal. This misjudgment was then propagated to banks and financiers who took the agency’s assessment at face value.

Recognizing the fallout for corporate governance, the main aim of the General Regulation (NCG) 341/2012 issued by the securities and insurance supervisor (SVS) in the aftermath of this scandal was to provide the market with information on the governance practices prevailing in each corporation. More specifically, the NCG orders companies to conduct a self-assessment into the way the senior management operates, how the company relates to its shareholders and the general public, what criteria it applies in the recruitment of executives, and how internal control and risk management measures are adopted and monitored. Another measure imposed by the same regulator establishes the principles and best practices for correct lines of reporting and accountability, and risk-management and internal-control systems to improve the corporate governance of insurance companies.

3332

3 CorporateGovernanceOpinion article

Andrés Silva T.PartneratLarraínyAsociados Abogados

Chile(continue)

The auditing of retailers’ credit businesses has also become increasingly stringent. Since June 2011, the SVS requires them to flesh out the information presented in their financial statements with explanatory notes providing information on their policies with regard to credit, renegotiations, refinancing, provisions and penalties, etc.Another corollary of the La Polar case in the field of consumer rights was the drafting of Law 20.555 which reinforces the safeguards for consumer rights, and endows the National Consumer Service (SERNAC) with additional attributions and resources to protect consumers of financial products and services.

Finally, given that various pension fund managers were La Polar shareholders, the pensions supervisor changed the pension-fund investment regulations, reducing the maximum investment allowable in any single company. This was intended to reduce the funds’ potential exposure to any one issuer and encourage them to spread their risk over several separate holdings. Although when the malpractices occurred Chilean legislation on corporate governance was up to date and even on the cutting edge, it was nonetheless overwhelmed by events. The revelation of such substantial gaps in the companies’ internal control cried out for further regulation. The challenge now is to enforce compliance with these latest standards.

The case study throws up many lessons, but in its corporate governance it was clear that the firm’s directors had failed to exercise their custodial and oversight duties with respect to the company’s business and failed to effectively monitor the executives in charge of calculating and administering outstanding balances on the loan portfolio. Another important conclusion is that the external auditors of the company’s financial statements proved unable to provide shareholders with adequate information on the actual state of the company’s finances. The same accusation has been leveled at the rating agency, which routinely awarded top-notch risk ratings to La Polar’s portfolio despite the fact that its actual quality was far from ideal. This misjudgment was then propagated to banks and financiers who took the agency’s assessment at face value.

Recognizing the fallout for corporate governance, the main aim of the General Regulation (NCG) 341/2012 issued by the securities and insurance supervisor (SVS) in the aftermath of this scandal was to provide the market with information on the governance practices prevailing in each corporation. More specifically, the NCG orders companies to conduct a self-assessment into the way the senior management operates, how the company relates to its shareholders and the general public, what criteria it applies in the recruitment of executives, and how internal control and risk management measures are adopted and monitored. Another measure imposed by the same regulator establishes the principles and best practices for correct lines of reporting and accountability, and risk-management and internal-control systems to improve the corporate governance of insurance companies.

Guidelines foraLatin-AmericanCodeof Corporate Governance.

34

3.4 Interesting documents

3

35

In order to reinforce corporate governance throughout Latin America, CAF has implemented a program designed to promote best practices in corporate governance for the entire region. As part of this program, it has presented these Guidelines for a Latin-American Code of Corporate Governance. The intention is to submit these guidelines, an updated version of an earlier document published in 2004, to the consideration of companies,

capital-market operators and public-policy makers in the region. The document is comprehensive in scope and applicable to a broad spectrum of corporations.

CorporateGovernance

Guidelines foraLatin-AmericanCodeof Corporate Governance.

34

3.4 Interesting documents

3

35

In order to reinforce corporate governance throughout Latin America, CAF has implemented a program designed to promote best practices in corporate governance for the entire region. As part of this program, it has presented these Guidelines for a Latin-American Code of Corporate Governance. The intention is to submit these guidelines, an updated version of an earlier document published in 2004, to the consideration of companies,

capital-market operators and public-policy makers in the region. The document is comprehensive in scope and applicable to a broad spectrum of corporations.

CorporateGovernance

4

Interview

36

“Microfinance is one of the most powerful instruments for a country’s development”

37

Financiera Confianza: It is surprising to see your name come up as an adviser in the Peruvian government’s negotiations with the terrorist group MRTA during the holding of 72 hostages in the Japanese ambassador’s residence in 1997. What was that experience like?

J.A. Payet: It was extraordinary. I was working on the legal reform of the education sector, and the hostages were seized just after we’d finished. The President had asked Domingo Palermo, the Minister of Education, to handle the matter, and he contacted me because he needed a legal adviser. At that time my wife was pregnant –I have triplets– and I told him that first I needed to get permission from my wife and my partners in the firm, which they gave. He asked me to keep everything on standby.

José Antonio Payet is the founder of one ofthemostprestigiouslawfirmsinPeruandhas been involved in some of the country’s landmark corporate finance transactions. At the same time, his firm has also embarked on a range of projects to support the underprivileged.Inthisinterview,DrPayettellsus about his experience as a negotiator after 72hostageswereseizedbyterroristsin1997,and shares his insights into the 21st-century legal profession.

By Financiera Confianza.-

It was one of the most important events in recent Peruvian history, and at that time you were barely 36 years old.

Yes, I was just 36. I accompanied Palermo in the negotiations with the MRTA, and we met in a house opposite the residence. The team was headed by Monsignor Juan Luis Cipriani, with the presence of the Canadian ambassador and the Japanese ambassador in Mexico, and Néstor Cerpa and Rolly Rojas on behalf of the MRTA, who turned up with their bandannas covering their faces and in uniform. The negotiations went on for hours.

Everything ended with a spectacular rescue operation, but during those conversations, what impression did you get of the terrorists?

My impression was they were in a situation that had got out of hand. They were way out of their depth. The whole thing was an incredible experience for me.

The legal profession is not always associated with charitable deeds. However your firm appears to contradict that stereotype, as it’s involved in a large number of social initiatives.

One distinguishing feature of our firm is our willingness to contribute. If you’re a relatively successful professional –with a good income, with resources– in a country like Peru where there’s such gaping inequality, you can’t remain indifferent. One of our most enriching experiences was in the town of San Matías, near Chincha (south of Lima), after the 2007 earthquake. One of the partners decided to start a collection, and as we had a very close relationship with a Spanish firm associated to the Uría Foundation, they made a contribution. We raised enough capital to rebuild that town. We worked with the Universidad Católica to design the houses; we involved the locals in the construction project, and the whole town was rebuilt. Today they have well-made houses and services, and we have an excellent relationship.

Your firm has taken part in several of the biggest mergers and acquisitions in Peru. From your point of view, what is the importance of good corporate governance?

The corporation is a cornerstone of the economy and society. From the time we become adults until we die, we have a very close links with corporations: they give us services, education, healthcare, they administer our money; it’s as important as the family. And corporate governance defines how these corporations behave. Good corporate governance is a corporation’s code of conduct. It is transparent; rigorous in observing the rights of its shareholders; complies with regulations; treats its workers well; respects the environment. But this doesn’t only apply to large corporations. It’s crucial that these practices should have a “trickle-down” effect and be adopted from the very top right down to the bottom.

In these last two decades, legal practice has changed considerably. How do you see the profession being practiced in Latin America in the coming years?

The legal profession mirrors what’s going on in the country. In this profession you’re a kind of hinge between the private customer and the legal system.

Since we opened the firm in 1996 until the present day, there have been advances in this area. However, some of the areas in the public sector have made progress, while others just haven’t. There has been no evolution in the power of the judiciary. In the future the private sector will continue to move ahead, and the job of lawyers will become more technical, more specialized. And I hope that in the role of lawyers dealing with the State, legal argument will prevail over the evil arts.

What advice would you give lawyers who are about to finish their degree this year?

This profession has two important aspects. Firstly, your principles; because as a lawyer you can make a lot of money doing really terrible things. When you’re a lawyer, you have knowledge, intelligence; you’re operating with legal instruments that you could use for your personal benefit. You can use them well or badly. And that’s not determined by your abilities, but by your principles, by your ethics. The second aspect is technical: you have to be familiar with the law, study it closely. You can’t improvise, because that way you can do a lot of damage.

And what message would you give people who work for the BBVA Microfinance Foundation Group, which seeks a better future for disadvantaged people through Responsible Productive Finance?Microfinance is one of the most powerful instruments for a country’s development. If we imagine the cell is the family and the corporation, with microfinance you can act directly on the vein. It is like the lifeblood that enables the organism to work. As a financial institution you have direct contact with SMEs when you provide them with loans. But you are not a charitable institution; you’re a business concern that reinvests its profits and has to be careful about recovering its loans. This is important because it imposes market discipline on this fledgling sector. Your role is fundamental for its development.

At the end of the day, or outside your everyday work, what do you do to relax?

My main hobby is my family. I really value the time I spend with them. My second hobby is traveling, seeing different things, the mountains. A little while ago I was in Puerto Maldonado. I love Cusco, but I also love Asia. My children are 17 years old – two girls and a boy. I don’t think any of them are considering becoming lawyers. When my son José Antonio was seven he said: “Daddy you work a lot. I don’t want to be a lawyer. I’d rather be a client”. But it’s a very rewarding profession.

JoséAntonio

Payet

4

Interview

36

“Microfinance is one of the most powerful instruments for a country’s development”

37

Financiera Confianza: It is surprising to see your name come up as an adviser in the Peruvian government’s negotiations with the terrorist group MRTA during the holding of 72 hostages in the Japanese ambassador’s residence in 1997. What was that experience like?

J.A. Payet: It was extraordinary. I was working on the legal reform of the education sector, and the hostages were seized just after we’d finished. The President had asked Domingo Palermo, the Minister of Education, to handle the matter, and he contacted me because he needed a legal adviser. At that time my wife was pregnant –I have triplets– and I told him that first I needed to get permission from my wife and my partners in the firm, which they gave. He asked me to keep everything on standby.

José Antonio Payet is the founder of one ofthemostprestigiouslawfirmsinPeruandhas been involved in some of the country’s landmark corporate finance transactions. At the same time, his firm has also embarked on a range of projects to support the underprivileged.Inthisinterview,DrPayettellsus about his experience as a negotiator after 72hostageswereseizedbyterroristsin1997,and shares his insights into the 21st-century legal profession.

By Financiera Confianza.-

It was one of the most important events in recent Peruvian history, and at that time you were barely 36 years old.

Yes, I was just 36. I accompanied Palermo in the negotiations with the MRTA, and we met in a house opposite the residence. The team was headed by Monsignor Juan Luis Cipriani, with the presence of the Canadian ambassador and the Japanese ambassador in Mexico, and Néstor Cerpa and Rolly Rojas on behalf of the MRTA, who turned up with their bandannas covering their faces and in uniform. The negotiations went on for hours.

Everything ended with a spectacular rescue operation, but during those conversations, what impression did you get of the terrorists?

My impression was they were in a situation that had got out of hand. They were way out of their depth. The whole thing was an incredible experience for me.

The legal profession is not always associated with charitable deeds. However your firm appears to contradict that stereotype, as it’s involved in a large number of social initiatives.

One distinguishing feature of our firm is our willingness to contribute. If you’re a relatively successful professional –with a good income, with resources– in a country like Peru where there’s such gaping inequality, you can’t remain indifferent. One of our most enriching experiences was in the town of San Matías, near Chincha (south of Lima), after the 2007 earthquake. One of the partners decided to start a collection, and as we had a very close relationship with a Spanish firm associated to the Uría Foundation, they made a contribution. We raised enough capital to rebuild that town. We worked with the Universidad Católica to design the houses; we involved the locals in the construction project, and the whole town was rebuilt. Today they have well-made houses and services, and we have an excellent relationship.

Your firm has taken part in several of the biggest mergers and acquisitions in Peru. From your point of view, what is the importance of good corporate governance?

The corporation is a cornerstone of the economy and society. From the time we become adults until we die, we have a very close links with corporations: they give us services, education, healthcare, they administer our money; it’s as important as the family. And corporate governance defines how these corporations behave. Good corporate governance is a corporation’s code of conduct. It is transparent; rigorous in observing the rights of its shareholders; complies with regulations; treats its workers well; respects the environment. But this doesn’t only apply to large corporations. It’s crucial that these practices should have a “trickle-down” effect and be adopted from the very top right down to the bottom.

In these last two decades, legal practice has changed considerably. How do you see the profession being practiced in Latin America in the coming years?

The legal profession mirrors what’s going on in the country. In this profession you’re a kind of hinge between the private customer and the legal system.

Since we opened the firm in 1996 until the present day, there have been advances in this area. However, some of the areas in the public sector have made progress, while others just haven’t. There has been no evolution in the power of the judiciary. In the future the private sector will continue to move ahead, and the job of lawyers will become more technical, more specialized. And I hope that in the role of lawyers dealing with the State, legal argument will prevail over the evil arts.

What advice would you give lawyers who are about to finish their degree this year?

This profession has two important aspects. Firstly, your principles; because as a lawyer you can make a lot of money doing really terrible things. When you’re a lawyer, you have knowledge, intelligence; you’re operating with legal instruments that you could use for your personal benefit. You can use them well or badly. And that’s not determined by your abilities, but by your principles, by your ethics. The second aspect is technical: you have to be familiar with the law, study it closely. You can’t improvise, because that way you can do a lot of damage.

And what message would you give people who work for the BBVA Microfinance Foundation Group, which seeks a better future for disadvantaged people through Responsible Productive Finance?Microfinance is one of the most powerful instruments for a country’s development. If we imagine the cell is the family and the corporation, with microfinance you can act directly on the vein. It is like the lifeblood that enables the organism to work. As a financial institution you have direct contact with SMEs when you provide them with loans. But you are not a charitable institution; you’re a business concern that reinvests its profits and has to be careful about recovering its loans. This is important because it imposes market discipline on this fledgling sector. Your role is fundamental for its development.

At the end of the day, or outside your everyday work, what do you do to relax?

My main hobby is my family. I really value the time I spend with them. My second hobby is traveling, seeing different things, the mountains. A little while ago I was in Puerto Maldonado. I love Cusco, but I also love Asia. My children are 17 years old – two girls and a boy. I don’t think any of them are considering becoming lawyers. When my son José Antonio was seven he said: “Daddy you work a lot. I don’t want to be a lawyer. I’d rather be a client”. But it’s a very rewarding profession.

JoséAntonio

Payet

38

Missionstatement

39

This document has been published by:

• BBVA Microfinance Foundation legal department• Bancamía legal department• Financiera Confianza legal department• Microserfin legal department

This document has been prepared for the members of the BBVA Microfinance Foundation Group and their stakeholders. It contains general information and opinion articles on topics that may be of interest to you, and should in no event be considered as legal advice. The opinions of its authors do not necessarily reflect those of the BBVA Microfinance Foundation Group.

To foster sustainable, inclusive economic and social development for our customers at the base of the socio-economic pyramid, through Responsible Productive Finance.

OurprofileinLatinAmerica

7 countries8 MFEs

Group data (JUNE 2014)

483Branchoffices

$1,462 Average loan

(median$300-400)

$6,058mAggregate loanbook

granted2007-2013

1,5 mCustomers

7.206Employees

5

(MicroFinanceEntities)

DOMINICAN REP.

PANAMACOLOMBIA

PERU

ARGENTINA

PUERTO RICO

38

Missionstatement

39

This document has been published by:

• BBVA Microfinance Foundation legal department• Bancamía legal department• Financiera Confianza legal department• Microserfin legal department

This document has been prepared for the members of the BBVA Microfinance Foundation Group and their stakeholders. It contains general information and opinion articles on topics that may be of interest to you, and should in no event be considered as legal advice. The opinions of its authors do not necessarily reflect those of the BBVA Microfinance Foundation Group.

To foster sustainable, inclusive economic and social development for our customers at the base of the socio-economic pyramid, through Responsible Productive Finance.

OurprofileinLatinAmerica

7 countries8 MFEs

Group data (JUNE 2014)

483Branchoffices

$1,462 Average loan

(median$300-400)

$6,058mAggregate loanbook

granted2007-2013

1,5 mCustomers

7.206Employees

5

(MicroFinanceEntities)

DOMINICAN REP.

PANAMACOLOMBIA

PERU

ARGENTINA

PUERTO RICO

Responsible Productive Finance