Resolution No. JPRF-F-2022-041: Reforming the Interest Rate Norm to Establish a Special Maximum Interest Rate for Social Interest Microcredit Loans

Resolution No. JPRF-F-2022-041 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 226 of the Constitution of the Republic of Ecuador provides: "State institutions, their agencies, dependencies, public servants, and persons acting by virtue of a state power shall exercise only the competencies and faculties attributed to them in the Constitution and the law. They shall have the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution."; That, according to Article 302 numeral 4 of the Constitution of the Republic, monetary, credit, exchange, and financial policies shall have, among others, the ultimate objective of achieving "economic stability," which is also one of the objectives of economic policy, in accordance with the constitutional precept inserted in Article 284 numeral 7; That, the first paragraph of Article 308 of the Supreme Norm stipulates that financial activities are a public order service and shall have the fundamental purpose of "preserving deposits and meeting financing requirements for the achievement of the country's development objectives." In concordance, Article 309 of the Constitution of the Republic stipulates that the norms of the national financial system shall be responsible for "preserving its security, stability, transparency, and solidity."; That, Article 310 ibidem establishes that: "The public financial sector shall have as its purpose the sustainable, efficient, accessible, and equitable provision of financial services. The credit it grants shall be oriented preferentially to increase the productivity and competitiveness of productive sectors that allow achieving the objectives of the Development Plan and of the less favored groups, in order to promote their active inclusion in the economy."; That, Article 5 of the Organic Code of Monetary and Finance provides that the formulation of policies and regulations in matters of monetary, credit, exchange, financial, as well as insurance and securities, is an exclusive faculty of the Executive Function, and ratifies that the objectives of public policy in these matters are those determined in Articles 284 and 302 of the Constitution of the Republic; That, Article 13 of the aforementioned Code created the Financial Policy and Regulation Board as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation, and subsequently establishes that: "Only when decisions imply the use of fiscal resources, affect existing financing granted to the governing body of public finances, or imply the need for sovereign guarantee, the resolutions adopted by the Financial Policy and Regulation Board must previously have the favorable report of the head of the governing body of public finances"; That, Article 14 numerals 1 and 2 of the Organic Code of Monetary and Finance, regarding the scope of action of the Financial Policy and Regulation Board, mandate: "1. Formulate credit, financial, including insurance policy, prepaid comprehensive health care services, and securities policies; 2. Issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial system (...) For the fulfillment of these functions, the Financial Policy and Regulation Board will issue norms in matters within its competence, without being able to alter legal provisions. The Financial Policy and Regulation Board may issue regulations by segments, economic activities, and other criteria."; That, Article 14.1, numeral 7, literal b) ibidem, states: "For the performance of its functions, the Financial Policy and Regulation Board must comply with the following duties and exercise the following faculties: (...) 7. Issue the prudential regulatory framework to which financial entities, securities, insurance, and prepaid comprehensive health care services must adhere, framework that must be coherent, not give rise to regulatory arbitrage, and cover, at least, the following: (...) b) Establish the system of maximum interest rates for active and passive operations of the national financial system and the other interest rates required by law, promoting the development of prudent credit (...)"; That, Article 130 of the Organic Code of Monetary and Finance orders that: "The Financial Policy and Regulation Board will establish the system of maximum interest rates for active and passive operations of the national financial system and the other rates required by law. Usury is prohibited. At the request of public financial entities, the Financial Policy and Regulation Board will establish a special maximum interest rate for social interest credits belonging to the microcredit segment." That, the Fiftieth Transitory Provision added to the Organic Code of Monetary and Finance by the Organic Reformatory Law to the Organic Code of Monetary and Finance for the Defense of Dollarization, prescribes: "Transitory Regime of Resolutions of the Codification of the Monetary and Financial Policy Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy Board and the norms issued by control bodies, will maintain their validity until the Monetary Policy Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies."; That, on June 18, 2022, the President of the Republic issued Executive Decree No. 456, which is reformed by Executive Decree No. 488 of July 12, 2022, and in its pertinent part states the following: "Article 5.- Order the Board of Directors of BANECUADOR B.P. to implement, according to its faculties and through the pertinent legal instrument, resolve the authorization to its General Manager to implement: (...) 2. The credits granted shall be for amounts up to US $20,000, at 5% annual interest and up to ten (10) years term. For this effect, the General Management must obtain all regulatory authorizations in due course. Article 6.- Order the members of the Board of Directors of BANECUADOR B.P. to resolve the authorization to its General Manager to -according to its faculties and through the pertinent instrument- request the Financial Policy and Regulation Board to establish a maximum interest rate for social interest credits belonging to the microcredit segment at 5% annual and up to ten (10) years term, in accordance with the management policies issued by BANECUADOR B.P."; That, through Letter No. BANECUADOR-GPGE-2022-0076-OF of August 25, 2022, the Manager of Planning and Strategic Management of BANECUADOR requests the Ministry of Economy and Finance to "...issue the viability opinion for the subsidy of the rate of the product 'Productive Credit 5%', in the terms required in letter No. BANECUADOR-BANECUADOR-2022-0229-OF of August 11, 2022."; That, on September 2, 2022, the Vice Minister of Finance of the Ministry of Economy and Finance, through Letter No. MEF-VGF-2022-0288-O, sent to the Acting General Manager of BANECUADOR B.P., the favorable opinion to the request indicated in the previous numeral in the following terms: "In merit of what has been exposed, based on the reports: technical No. MEF-SPF-SP-2022-079 and legal No. MEF-CGJ-2022-0735-M, which are attached, under the protection of what is provided by Article 74 numeral 15 of the Organic Code of Public Planning and Finances, and delegation granted by the Minister of Economy and Finance to the Vice Minister of Finance, through Ministerial Agreement No. 0104B of August 29, 2018, the Ministry of Economy and Finance issues a favorable opinion for the draft resolution through which the General Manager of BANECUADOR B.P. will authorize the commercialization and execution of the productive credit 5% product which will have the allocation for the subsidy of the interest rate."; That, on September 5, 2022, Mgs. William Fernando Chiang Espinoza, General Manager, acting for BANECUADOR B.P., sends Letter No. BANECUADOR-BANECUADOR-2022-0266-OF, addressed to the President of the JPRF, through which he requests the fixing of the special interest rate of five percent (5%) up to ten (10) years term for social interest credits belonging to the microcredit segment, in the terms of Executive Decrees Nos. 456 and 488 cited above. As attachments to this Letter, Resolutions Nos. D-2021-086 and D-2021-087 issued by the Board of Directors of BANECUADOR B.P. on August 11, 2022, the technical and legal support reports, and Letter No. MEF-VGF-2022-0288-O of September 2, 2022 from the Ministry of Economy and Finance were attached; That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0073-M of October 12, 2022, sends to the President of the Board the following reports: (i) Technical Report No. JPRF-CT-2022-0034 of October 12, 2022, through which the Technical Secretariat proposes to establish a maximum interest rate for social interest credits belonging to the microcredit segment corresponding to 5% annual, based on what is provided in Title III of Executive Decree No. 456 of June 18, 2022, reformed through Executive Decree No. 488 of July 12, 2022, and the second paragraph of Article 130 of the Organic Code of Monetary and Finance, Book I; (ii) Legal Report No. JPRF-CJ-2022-0041 of October 12, 2022, establishes that the Financial Policy and Regulation Board, as responsible for the formulation of credit and financial policy and regulation, has legal competence to establish a maximum interest rate for social interest credits belonging to the microcredit segment, in accordance with what is provided in Articles 14.1 number 7 letter b) and 130 of the Organic Code of Monetary and Finance, Book I; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on October 12, 2022 and carried out through video conference on October 13, 2022, learned of Memorandum No. JPRF-SETEC-2022-0073-M of October 12, 2022, issued by the Technical Secretariat of the Board, as well as Technical Report No. JPRF-CT-2022-0034, Legal Report No. JPRF-CJ-2022-0041 of October 12, 2022, issued by the Technical Coordination and the Legal Coordination of the aforementioned Board, and the draft Resolution corresponding; That, the Financial Policy and Regulation Board, in an extraordinary session held by technological means, convened on October 12, 2022 and carried out through video conference on October 13, 2022, learned of and approved the following Resolution; and, In exercise of its functions, RESOLVES: ARTICLE ONE.- Add after Article 29 of Subsection IV "INTEREST RATES FOR SPECIAL OPERATIONS" of Section II "ON INTEREST RATES", of Chapter XI "INTEREST RATE AND FEE SYSTEM OF THE CENTRAL BANK OF ECUADOR", of Title I "MONETARY SYSTEM", of Book I "MONETARY AND FINANCIAL SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following article: "Art. 29.1.- For operations granted in accordance with Title III of Executive Decree No. 456 of June 18, 2022, reformed by Executive Decree No. 488 of July 12, 2022, a special maximum interest rate for social interest credits belonging to the microcredit segment is established, of 5% annual." ARTICLE TWO.- Add as General Provisions First and Second of Subsection IV "INTEREST RATES FOR SPECIAL OPERATIONS", Section II "ON INTEREST RATES", Chapter XI "INTEREST RATE AND FEE SYSTEM OF THE CENTRAL BANK OF ECUADOR", Title I "MONETARY SYSTEM", of Book I "MONETARY AND FINANCIAL SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, the following: "FIRST.- For the purposes established in Executive Decree No. 456 of June 18, 2022 reformed by Executive Decree No. 488 of July 12, 2022, BANECUADOR B.P. or its legal successor must manage the necessary resources with the Ministry of Economy and Finance, in accordance with the opinion contained in Letter No. MEF-VGF-2022-0288-O of September 2, 2022, prior to the granting of the credits. In addition, it will implement risk mitigation actions contained in its internal reports, both for adequate placement and portfolio recovery. SECOND.- The Banking Superintendence, within the scope of its competence, must ensure the adequate use of resources in the exercise of its function of evaluating the quality and control of risk management of operations granted in accordance with Title III of Executive Decree No. 456 of June 18, 2022, reformed by Executive Decree No. 488 of July 12, 2022." UNIQUE GENERAL PROVISION.- The Banking Superintendence will adapt its information structures in such a way that they allow identifying the respective social interest credit products corresponding to the microcredit segment, whose special maximum interest rates have been determined in accordance with the second paragraph of Article 130 of the Organic Code of Monetary and Finance, Book I. UNIQUE REPEALING PROVISION.- Repeal number 8 of Article 1 of Chapter IX "NORMS THAT REGULATE THE SEGMENTATION OF THE CREDIT PORTFOLIO OF ENTITIES OF THE NATIONAL FINANCIAL SYSTEM", of Title II "NATIONAL FINANCIAL SYSTEM", of Book I "MONETARY AND FINANCIAL SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, regarding the segment of "Social Interest Microcredit". FINAL PROVISION.- This resolution will enter into force from the present date, without prejudice to its publication in the Official Register, and will be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance. COMMUNICATE.- Given in the Metropolitan District of Quito, on October 13, 2022. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The resolution above was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on October 13, 2022.- I CERTIFY. TECHNICAL SECRETARY Dr. Nelly Arias Zavala