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Nicaragua: increased safety for small borrowers

Wednesday, October 31, 2012

Nicaragua now has a more secure system for controlling small loans, following the entry into force earlier this year of the Law Promoting and Regulating Microfinance.

The registration period for institutions interested in operating under this program started October 5, and ends on November 9, after which any company, which is not registered, and which provides microfinance loans to the public, faces fines and other penalties.

For purposes of the law, a microfinance institution is defined as one, whose assets include a minimum of 50% microcredit loans, and which has a minimum net worth of the equivalent of $200,000.

Microcredit is defined as that which does not exceed ten times the gross domestic product per person, which is currently the equivalent of $12,000.

Loans of this type are mostly made to small and medium enterprises, operated by individuals for productive or commercial purposes, as well as personal loans for stable purposes, such as improvements to real estate.

Other important aspects of the law include transparency, obligating microfinance institutions to publish full interest charges, using the so-called "effective rate", which includes all fees, charges and expenses. In this way, users can compare the real cost of funding between different entities. The conditions of commercial contracts likewise must be published.

Currently, the total value of microfinance in Nicaragua is about $ 300 million.

For more information, please contact Carlos Taboada at [email protected], or (505) 2254-5454, ext 105