C E A
L |
Center for the Economic Analysis of Law |
W A S H I N G T O N, D C |
Bolivia: Creating a
Legal and Regulatory Framework to Promote Access to Credit in Agriculture Heywood
W. Fleisig Nuria
de la Peña April
1995 |
Discussion Draft:
November 29, 1995: This draft is being
circulated for review and comment.
Please do not cite or quote without the permission of the authors. Thank you.
* The views and interpretations expressed
in this paper are those of the authors and do not necessarily represent the
views and policies of The Center for the Economic Analysis of Law (CEAL); or of
the World Bank, its Executive Directors, or the countries they represent.
Heywood Fleisig is the Director of
Research at CEAL; Nuria de la Peña is an attorney and consultant to The World
Bank. The work set out in this paper
was undertaken under the broad supervision of Jonathan Parker (LA3NR). It was
written by Heywood Fleisig and Nuria de la Peña and draws on work done jointly
with Juan Carlos Aguilar done under the supervision of Vicente
Fretes-Cibils. The authors are obliged
to Jonathan Parker, Susannah Knaudt, and Philip Hazelton for their advice and
guidance. The authors thank, for their
substantial intellectual contributions, Efraín Camacho, Ronald C.C. Cuming,
Jose Luis Galindo, Alejandro Garro, Lance Girton, Kenneth Kletzer, Graciela
Rodriguez-Ferrand, Stephen Salant, and John A. Spanogle. In addition, the authors received much
helpful advice and information from many Bolivians who agreed to be interviewed
for this report.
Executive Summary
i. Improving access to credit in
agriculture is often seen as a key element in rural development strategy --
because projects exist that could increase the incomes of farmers and other
rural businesses if they only had access to credit. Similarly, access to credit is often seen as an important tool in
attacking rural poverty, not just because profitable projects exist that could
raise income, but also because increasing access to credit would achieve other
social objectives, such as improving the independence and self-reliance of the
target groups, increasing agricultural self-sufficiency, or permitting the able
rural poor to swiftly raise their earning prospects.
ii. There has been much concern that formal
sector institutions do not adequately deliver credit to farmers and other rural
businesses, especially to the poor in rural areas. Consequently, there has been much focus on institutional
innovation that could improve the delivery of such credit.
iii.
At first, multilateral lenders
attempted to disburse these credit lines through state banks. However, uncertain performance in reaching
target groups combined with poor loan recovery rates led to a policy of disbursing
through private lenders. This improved
the efficiency of these operations, as private lenders took great care to
disburse only where loans could be collected; however, in most cases this
improvement in efficiency took place at the expense of reaching the target
groups -- the price of improved efficiency was that target groups had even less
access to credit.
iv. In Bolivia, legal, regulatory, and
institutional features of the Bolivian economy limit formal sector institutions
in their delivery of credit to agriculture and to the rural poor. These features hamper innovative new
institutions that aim at delivering such credit; they make it difficult for
innovative institutions to form links with formal sector institutions to
deliver such credit.
Problems in Laws and
Regulations
v. In Bolivia, several features of the
legal system limit access to credit in agriculture:
·
Homestead and exempt property
provisions prevent the rural smallholders, preeminently the poor, from using
their small holdings as collateral or purchasing small parcels of land or small
quantities of equipment on credit
·
Usury laws drive informal
lenders underground, so that poor rural borrowers fail to get the benefits of
competition or proper regulation of lending practices
·
An age of majority of 21
makes it impossible for the large number of poor under that age to sign lawful
contracts to borrow
·
The implicit requirement that
loan contracts be in writing makes a lawful contract impossible for citizens
not literate in Spanish, often the rural poor
·
A defective framework for
secured transactions makes it difficult for formal sector lenders to provide
supplemental financing to natural conduits of rural credit, especially dealers
and suppliers of farm inputs. In
additional, the same defects limit the ability of NGO lenders to refinance
their portfolios of loans with formal sector lenders.
Problems in
Institutions
vi. Several institutional features limit
access to credit:
·
Legal registries are
expensive to search, not sufficiently open to public access, and technically
weak. This makes it expensive to
register security interests in small real estate holdings, movable property,
accounts receivable and chattel paper that will be essential in opening
channels of credit to rural borrowers. Where land holdings are small and of low
value, these costs will make registration of security interests prohibitively
expensive and drive the poor out of the credit market.
·
Credit reporting systems are
just beginning and banks have no systems for making credit decisions based on
past lending performance, so borrowers who are not well known outside their
areas, especially the poor, have no way to gain access to credit by publicizing
a strong payment performance
·
National identity cards are
typically required by formal sector lenders, but they are difficult and
expensive to get for those who have not served in the Army or who do not have
birth certificates, critically limiting action by single women heads of
households
·
Defects in secured
transactions law combine with usury laws to prevent the open operation of
competing pawnshops
·
Personal lending is not yet
subject to the supervisory norms that would permit loans to borrowers without
real estate to be monitored prudently
Other Explanations?
vii. Other explanations have been offered for
lack of access to credit in agriculture in Bolivia. The paper explains that these explanations are either less
important than problems related to the secured transactions framework or
inapplicable to Bolivia situation; among these are:
·
Insufficient savings
·
Macroeconomic instability
·
Excessively restrictive bank
practices and regulations
·
Absence of bank interest in
small loans
Economic
Implications and Options for Solution
viii. In each section, the paper discusses the
economic implications of these legal and institutional restrictions. It sets out, for discussion and
consideration, some options for action by the government, by the Superintendent
of Banks, and by NGOs for addressing these problems.
Implications for
Bank Operations
ix. While major reforms will require legal
and substantial institutional change, existing Bank operations might be
modified to better achieve their targets under existing laws; such revamped
operations might reach target groups through:
·
Mortgages on land holdings
between 50 and 100 hectares
·
First trust loans on land
holdings below 50 hectares
·
Personal loans to those with
land holdings under 50 hectares
·
Loans to NGO lenders secured
by the portfolio of NGO loans
·
Loans to dealers in
agricultural inputs and equipment secured by their accounts receivable
·
Loans to cooperatives,
secured by warehouse receipts, to refinance credit extended to members owning
less than 50 hectares
· Loans to finance inventory of equipment and input dealers that sell to farmers with holdings under 50 hectares