In order to help cooperatives, cope with the emergency caused by the spread of covid-19, the National Institute for Cooperative Development agreed to reduce the interest rate on loans.
This decision was taken to support the cooperative sector, especially the agricultural sector, which has been suffering from a variety of effects. The authorities also hope to make a significant contribution to the country, in the context of the current epidemiological situation, reported the National Institute for Cooperative Development (INFOCOOP).
A bill in Costa Rica proposes allowing cooperatives to carry out activities which up until now were prohibited, such as the public offering of securities issues, administration of trusts, factoring and financial leases.
The Ministry of Finance and the National Council of Supervision of the Financial System (Conassif)is opposed to this bill. The substitute text received an endorsement from the Legislative plenary on November 28, and will now be sent for consultation and will then be discussed again in the Economic Affairs Committee.
In the second quarter of 2017, three entities accounted for 61% of the assets of the cooperative system, which represents 11% of the assets of the Costa Rican financial system.
From a report by Fitch Ratings :
Concentration of Business Model:The cooperative sector has moderate participation and accounts for 11% of assets in the national financial system. The participation of entities rated by Fitch Ratings (Coopenae, Coopeservidores and Coopeande No.1) has remained high and relatively stable in relation to the regulated cooperative system, accounting for 61.3% of the sector's assets. The business model continues to focus on consumer credit for its associates, mostly low- and middle-income public sector employees.Fitch believes that cooperatives face the challenge of diversifying products in their portfolio to reduce concentration risk in the consumer segment, which is typically more vulnerable to the business cycle.
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In the second quarter of 2016 three entities accounted for 63% of the assets of the cooperative system, which accounts for 10% of the Costa Rican financial system.
From a report by Fitch Ratings:
Cooperatives in Costa Rica: Defaults and Pressured Profitability
Concentration of Business Model: The cooperatives rated by Fitch Ratings (Coopenae, Coopeservidores and Coopeande 1) are the three largest in Costa Rica and account for 63.3% of the assets of the cooperative system, a sector that still has a low participation in the national financial system(10.6%). These entities have a business model focused on consumer finance for its members, which makes them dependent on the behavior of a single segment.
In the view of the union of cooperatives the Law on Social Solidarity Economy being discussed in Congress is unnecessary and will only create more bureaucracy and duplicity of functions.
More bureaucracy, confusion in the application of the laws governing cooperatives and duplication of functions is what will come from, if approved, the Social Economy Act, which is being promoted by the Solis administration. This is the approach of the National Council of Cooperatives (Conacoop), an entity created by law and who has the power to make rules for the sector.
Since mid-2014 credit unions and mutuals have had to increase their reserves due to an increase in expected losses by banks.
The need to increase reserves due to increased losses expected to be suffered by institutions for non-payment of their debts is mainly due to a greater number of "bad debtors" according to an article on Elfinancierocr.com.
In Costa Rica a bill has been put forward which aims to allow cooperatives and private and public pensions funds to invest in public infrastructure.
The bill introduced in the Legislative Assembly "... aims to allow different private and public organizations dedicated to raising money from pension funds, to invest in the construction of public works."
The fiscal consolidation document presented by the Ministry of Finance of Costa Rica proposes considering surplus capital distributed by cooperatives and solidarity associations as passive income.
"Capital passive income, is, for example, dividends, mutual funds and bank deposits, among other things, which currently have different rates. The initiative proposes a single rate of tax for them. "
The owner will rent the textile plant to a cooperative formed by the 300 employees who have been laid off.
The textile industry in Costa Rica has been in decline for the last eight years due to loss of international competitiveness, which has now been compounded by a fall in the dollar's value. These are the same reasons put forward by Michael Borg, owner of the textile company Borkar, on closing its operations in the country.
Rural electrification cooperatives in Costa Rica may be treated differently from cooperatives in general, for financing their projects through debt issuance.
Crhoy.com reports that "The Attorney General's Office told the Superintendency of Securities (SUGEVAL), that it could not measure these entities using the same scale as it does for credit unions."
For the volume of assets and loan portfolios they manage, cooperatives together make up the fourth largest financial operator ivn the country.
In Costa Rica, the 30 cooperatives under the supervision of the Superintendent of Financial Institutions (Sugef) exceed in value the assets and loan portfolio of the "private bank BAC San José and are below the banks, Banco Nacional, Banco de Costa Rica and Banco Popular which are funded by public capital. "
Costa Rican credit unions pay up to 4.25% more than banks on term deposits in local currency.
After two years of low rates, return on certificates of term deposits (CDP in Spanish) is rising and the best deals are with savings and credit unions (CAC in Spanish), which exceed those of the banks by 4.25 percentage points.
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