Peru: Microlender Créditos Arequipa plans to enter debt market

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Sep 2007
Peru, September, 05 2007 - Peruvian microfinance institution Créditos Arequipa plans to issue debt on the local stock exchange for the first time as it looks to reduce its reliance on foreign currency funding, CEO Javier Valencia told BNamericas.

"One of the problems we have is microenterprises demand sol-denominated loans, while funding from overseas is in US dollars," said Valencia, who oversees a US$35mn loan book, of which 74% is denominated in the local sol currency.

Créditos Arequipa operates as an Edpyme and as such mostly relies on funding from international lenders like CAF and IDB and Peruvian state-run financial institutions. The firm is converting itself into a finance company so it can issue debt and take deposits from the public.

Edpymes are specialized microcredit institutions supervised by financial services regulator SBS of which there are 14 in Peru today.

In a first stage, Créditos Arequipa will be issuing short-term bonds that will carry IDB guarantees which have already been approved, the executive said.

"The minimum issue size is US$5mn. It doesn't make business sense to sell less than that," said Valencia, who expects debt issues to account for 20% of the firm's liabilities in the medium term, with deposits and financial institution financing making up the rest.

The chief executive believes raising local currency funds through deposits and debt issues could in the medium term lead to a three-percentage point drop in the company's funding rate, which currently stands at 11%.

OUTPACING INDUSTRY

Créditos Arequipa expects its loan growth to outpace the industry average this year and next after seeing lending climb 64% at the end of last year from end-2005 compared to the Edpyme average of 49%.

Valencia said a large underserved market will drive growth at the company, which currently serves 30,000 clients in Arequipa and Lima, Peru's two largest cities. The company's average loan size stands at US$1,100 with an eight-month term.

"Most of our clients are just above the poverty line, earning around 700 soles (US$225) a month," Valencia said.

In Peru, a family of four with combined income of 650 soles or more is considered to be above the poverty line.

As of July 31, Créditos Arequipa held 145mn soles in assets and 21.0mn soles in equity. The firm ranked fourth among Edpymes, with a 11% loan market share at end-July.



Source : BN Americas
 

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