Microfinance and financial inclusion in Nicaragua

The World Bank indicates that financial inclusion refers to the access that people and companies have to various useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – and that are provided in a responsible and sustainable manner.

Financial inclusion is considered as an element that facilitates the achievement of 7 of the 17 Sustainable Development Goals, according to the 2030 agenda approved by the United Nations Organization (UN) in 2015. Law No. 769 ” Law for the Promotion and Regulation of Microfinance”, approved on June 9, 2011, states that microfinance activities stimulate the economic development of the country’s low-income sectors. This is where microfinance and financial inclusion converge, with the former having an important role in achieving the objectives pursued by the latter.

In Nicaragua, microfinance institutions have had a significant boom since before 2011 when the law that governs them was published, considering that they serve a significant percentage of the unbanked Nicaraguan population. In the Annual Report of the Central Bank of Nicaragua (BCN) for the period 2022, it is noted that microfinance institutions have repositioned themselves as a relevant financing provider for the national credit market, by increasing their credit portfolio issuances and serving a significant amount of the population, as these showed a positive evolution since 2020 that has continued to improve in 2022, which had been affected by the economic slowdown produced by the events of 2018 and the COVID-19 pandemic.

According to data from the National Microfinance Commission (CONAMI), regulatory body for microfinance institutions in Nicaragua, reflected in the BCN Report, the microfinance sector is smaller in relation to the banking system, however, at the end of 2022, the gross portfolio of microfinance institutions was equivalent to 8.3 percent of the gross portfolio of the Banking and Financial System (SBF), while the number of loans of microfinance institutions was 541,093 loans, representing a 43% of the total credits granted by the SBF.

As of December 31, 2022, CONAMI has registered a total of 61 microfinance intermediary financial institutions, of which, 37 are microfinance Institutions with mandatory registration and 24 are intermediary financial institutions of microfinances that chose to regulate themselves voluntarily. According to the CONAMI annual management report for 2022, the institutions regulated by CONAMI have a national presence, with 315 subsidiaries, of which 20% are operating in Managua. At the end of 2022, they generated 3,421 direct jobs nationwide and registered 453,480 clients served, with a balance of C$13,289.22 million cordobas, for an average credit balance of C$27,206.46, equivalent to $750.29 US dollars.

From a legal and regulatory perspective, the BCN report also that the microcredit industry has few barriers to entry compared to banking, which could be a positive factor to consider in the framework of an investment in the Banking and Financial System in the country.

Notwithstanding the above, microfinance institutions are regulated by Law No. 769 and CONAMI acts as the regulatory and supervisory body for microfinance institutions, without leaving aside the development component.

In this sense, it is important to consider that the registration of a microfinance institution will be mandatory if it meets two criteria:

    • Its capital stock must exceed C$7,700,000.00.
    • The gross value of its microcredit portfolio must represent at least 50% of its total assets.

Without prejudice to this, there is also the possibility of voluntary registration if the Microfinance Institution does not meet these requirements.

Among the benefits of registration are:

    • The freedom to agree on interest rates.
    • Access to the Credit Risk Center and CONAMI studies.
    • Trainings.

In addition to acquiring a status of transparency and compliance with the Law, which will allow easier access to funds or national or foreign financing.

The registration process has its requirements and stages that every institution, obligated or voluntary, shall complete to obtain its status, to that end, the legal advice and support will be key to achieve the objective.