6 & 7. Legal and regulatory framework conducive to private investment and Governance and transparency assessment.
Ecuador has a strong legal and regulatory framework and solid institutional development compensates for a relatively weak investment climate.
Regulation of microcredit operations:
The regulation of banks, financial associations, savings and credit mutual associations for housing, savings and credit co-operatives / credit unions above a certain minimum size (currently US $10m in assets), and investment and development corporations are all regulated by the Superinendencia de Bancos y Seguros. This government organization was created since 1927 after major changes in financial and banking laws. Apart from regulating the financial sector, the Superintendencia de Bancos y Seguros aims at: Strengthening the legal framework in accordance to current international standards. * Works as a risk management agency
* Protects final consumers rights
* Strengthens human resource management.
* Ensures the security and quality of the information and information systems with the most up to date technology. * Optimizes financial resource management.
Interest rate regulations have eased in 2009 after the turmoil of the 2007 financial crisis. There have been constant changes in policies on interest generally toward the loosening on rate caps and eliminating commissions in 2007-2008. In 2008, usury caps were established trough a new technical formula that gives caps for different segments. The problem arising with this formula is that it was found to be unconstitutional which has led the government to find other ways to lower the caps. This has been accused by some market participants as a discretionary and political move that have put into a predicament its survival. The government has also established several public programs with high subsidies to incentivize micro-firms causing certain market distortion. In general, Ecuador has had agencies in charge of regulating its financial system as well as economic operations since 1927. Recent moves by the government shows a certain trend towards regularization with aims of making a more flexible financial sector
Formation and operation of regulated, specialized MFIs
Ecuador has several specialized microfinance institutions (MFIs). Non-governmental organizations (NGOs) also have the possibility of upgrading and becoming finance companies. Finance companies also have the possibility of becoming banks. The Superinendencia de Bancos y Seguros works with some non-regulated credit unions on a transition program so they can become regulated once they achieve the legal minimum size. To be categorized as a microfinance institution, firms have to comply with certain requirements such as: * Complying with prudential regulation.
* Minimum capital requirements.
* Operational restrictions.
* Disclosure obligations.
The government faces the challenge of regulating the microfinance sector since many of these don’t have the minimum requirements. It is important to be able to regulate all types of financial institutions if economic stability is to be achieved. A figure which is alarming is the fact that as of 2008, 30% of all microcredit loans in the country are made by non-regulated co-operatives.
Regulatory and examination capacity
The country is heavily specialized in its capacity for regulation. Microfinance activity is regulated trough specific criterias such as risk categories, credit methodologies, provisioning requirements, etc, rather than specific types of institutions. The Superintendencia recently approved an external rating agency specific to microfinance and it’s exploring the possibility of supervising credit unions. The Superintendencia suffers from credibility since its political independence is not that clear. There are also questions over the legitimacy of the Superintendencia of regulating the...
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