San José, Costa Rica, since 1956

Got a Good Idea? You May Qualify for a Loan

Coffee farmer César Ureña, tired of low prices and poor harvests, wants to try something else – fattening sheep and exporting their meat to Europe.

Under a new law, he can borrow money without offering collateral or showing he has a steady income. He needs only to prove that his sheep idea is a moneymaker.

Reaching their first major consensus in months, lawmakers last week created a $200 million fund to provide loans and training to anyone with an idea for an economically viable project.

Financed by public and private banks and trusts, the fund aims to make credit more accessible and restore confidence in a banking system that has often spelled disaster.

Some 61% of Ticos don’t have loans, according to a recent poll by the University of Costa Rica (UCR) for the weekly El Financiero.

Ureña is nervous about borrowing money. In 2003, he defaulted on a $12,000 debt and Banco Nacional threatened to confiscate his 26-acre coffee farm in Los Santos Zone, south of San José. A government trust rescued the farm by buying his debt, but Ureña is still scarred. He will take his sheep business slow.

Under the new system, the public banks – Banco Nacional, Banco de Costa Rica, Bancrédito and Banco Popular – must lend money, while other groups – private banks, NGOs, or cooperatives – can choose to sign on. In addition to offering credit, the fund will guarantee loans and pay for training to help borrowers execute their project.

Lenders will pick borrowers and decide lending conditions based on guidelines issued by a “governing body” composed of  two ministers, two private sector figures, and one representative from the state banks.

Under the law, lenders must favor women, ethnic minorities, disabled people, young entrepreneurs and cooperatives.

Projects could range from opening a dentist’s office to starting a candle business to experimenting with a new seed.

The bill is politically popular. Lawmakers proposed 24 different versions in the last 12 years, and the final bill passed unanimously – a rare event.

Still, some people worry the system allows for political or personal favoritism.

“For me, the biggest risk is that lenders will start funding projects that aren’t realistic or viable, as the law demands,” said Pablo Sauma, an economist at the UCR.

Loan defaults pose another danger, said Alvaro Dengo, president of Bancrédito, a public bank based in Cartago, east of San José. The system favors borrowers with dubious profiles who could not otherwise access credit.

“There is a danger that these funds eventually won’t be returned to the banks,” Dengo said.

Still, he said, the system will help public banks attract clients. People who approach banks for loans may also seek other services, such as credit cards or banking accounts.

Some 40% of Costa Ricans rarely enter banks, according to the UCR study. They either use no banking services or they have only a savings account.

“People will start using the banks little by little through this system because they will no longer fear financial institutions,” Dengo said.

A strong agricultural lobby is partly responsible for pushing the bill through. Leaders of the National Agricultural Movement, a network of farmers and small producers, often watched debates and met with lawmakers in the past year. Ureña was among them.

In a testament to the farmers’ strength, the law pardons 80% of the $51 million debt owed by more than 7,000 farmers to a government trust – the same one that rescued Ureña.

Ureña worries the new fund will be hard to access. But he draws comfort from the agricultural movement’s political clout.

“If the fund fails in something, we will speak out together,” he said.


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