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).
If the reforms to the Banking Law that are being discussed in the Congress are approved, cooperatives will have to start reporting information in their loan portfolios.
Legal initiative number 5157which is pending final approval, proposes, among other changes, including in the Credit Registration Information System (SIRC by its initials in Spanish) information from financial institutions that are not yet sending reports.
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.
A bill introduced in the Legislative Assembly proposes regulating cooperatives and credit associations whose savings range from $30 million to $92 million.
The bill, prepared by the Federation of Association of Savings and Credit Cooperatives of El Salvador (Fedecaces), proposes establishing a different regulation, more appropriate to the size and characteristics of these entities.
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Unions are opposed to the legal reform which aims to extend the scope of the supervision of the Superintendent of Financial System over savings and loans cooperatives.
In the view of Julio Cesar Portillo, secretary of the board of the National Commission for credit unions in El Salvador and CEO of Co-Andes de R.L. ,"... the reform presented to the Legislature, seeks to impose on savings and loans cooperatives a framework of regulation and supervision which is exclusively for private financial companies and for-profit institutions such as banks. "
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."
In addition to the two audits a year, the idea of amending the legislation to increase the oversight of the 161 financial companies registered in the country is being contemplated.
According to the Panamanian authorities it is important to update the legislation and supervision of financial institutions, as it is an important sector which manages $1.17 billion in assets.
As part of the reform to the tax concentration law cooperatives are calling for the elimination of the retention of 1% per month on their gross income and for a special tax rule to be created.
The Concertación Tax Act indicates that cooperatives are free to pay income tax if their gross annual incomes are less than or equal to $1.5 million. However, this same law also states that 1% must be retained per month in advance even if the stated income level is not reached.
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