Créditos Arequipa, a microfinance institution (MFI) which serves approximately 26,000 clients in Peru’s two largest cities, plans to begin issuing debt on the local stock exchange in an effort to reduce its dependence on foreign currency funding. Créditos Arequipa is one of 14 Edpymes- specialized microcredit institutions regulated by the governmental organization Superintendencia de Banco, Seguros, y AFP (SBS)– in Peru. At the end of July 2007, it had 145 million soles (USD 46 million) in total assets. The firm currently relies on multilateral financial institutions like the Inter-American Development Bank (IDB) and the Corporación Andina de Fomento (CAF) for support. The IDB, established in 1959 to promote development in Latin American countries, is the oldest and largest regional bank in the world with total assets of USD 9.53 billion as of 2006. The CAF is the main financing source for its 17 member countries in Latin America, the Caribbean, and Europe, generating USD 11.74 billion between 2002 and 2006. In 2006, its loan portfolio totaled USD 8.9 million. The Créditos Arequipa also accepts funding from the Peruvian government’s financial institutions.
In the first stage, Créditos Arequipa will issue short-term bonds guaranteed by the IDB. Debt issues will make up 20 percent of the firm’s liabilities in the medium term, according to CEO Javier Valencia.
Valencia predicts that raising local currency funds through debt issues and deposits will lead to a three percent reduction in the firm’s funding rate, dropping it to eight percent. This decrease in the company’s cost of capital combined with the large under-served market in Peru is expected to lead to considerable loan growth for 2007 and 2008. This comes after experiencing 64 percent loan growth from 2005 to 2006. The Edpyme average that year was 49 percent.
By Elizabeth Nelson, Research Assistant
Additional Resources:
Business News America: “Microlender Créditos Arequipa plans to enter debt market – Peru”
Microfinance Gateway: “Peruvian MFI to Enter Debt Market to Reduce Reliance on Foreign Currency Funding”
Inter-American Development Bank (IDB): “Annual Report 2006”
Corporación Andina de Fomento (CAF): “CAF in Figures, Portfolio”
MIX Market: “EDPYME Crear Arequipa (EDPYME Crear Arequipa)”
Bloomberg.com: “Currency Calculator”
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