“We started in a tiny kitchen, with a small bag and a defective motorcycle, but we had to reach customers any way we could,” says Verónica Cevallos, owner of Sushi Friends, a sushi business launched four years ago.
Today, Verónica tells her story in a modern space decorated with professional photos of appetizing sushi rolls. The kitchen is more comfortable, the uniformed waiters are friendly, and the tables are ready for diners.
This is the story of more than 3,500 micro, small and medium-sized enterprises (MSMEs) that received loans from the Corporación Financiera Nacional (CFN) through private banks. These funds are part of the project Promoting Access to Finance for Productive Purposes for MSMEs, an investment project that the World Bank supports in the country.
Between December 2020 and December 2022, the project disbursed USD 213 million, of which USD 99.1 million were lent to MSMEs. That figure is expected to continue to increase as banks finish disbursing all the funds from the credit line among new MSMEs.
"In Ecuador, MSMEs were identified as an opportunity to support the country's development because they are a key source of employment and can have a trickle-down effect on a family’s economy," says Federico Diaz Kalan, World Bank financial specialist and project co-manager.
Moving up to the second tier
The World Bank loan to the CFN included several conditions that were key to the success of the initiative. One was to convert the CFN into a second-tier bank, that is, to encourage development through credit lines to private financial institutions to expand geographic coverage and therefore reach more MSMEs.
The results are very good; comparing what CFN did as a first-tier bank with what it does now, the amount of credit disbursed was tripled and this model of operation has allowed it to reach more places; commercial banking is already there, it already operates there, it already has infrastructure, it knows its customers and it reaches small towns and remote rural areas.
This transformation strengthened the institution and led to the cleaning of the balance sheet through an asset quality review (AQR). In other words, the loan portfolio was reviewed to improve it. Additionally, coverage was expanded to enable more MSMEs to access more credit.
This project has also encouraged the financial system, including the CFN and private banks, to incorporate environmental and social monitoring criteria into their programs. This helps ensure that the financed projects use sustainable practices and technology that meet climate change adaptation and mitigation criteria.