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| Ernesto Medina Villaveirán |
By CubaStandrad.com, November 29, 2011
Communist Party daily Granma interviewed Ernesto
Medina Villaveirán, president of the Banco Central de Cuba (BCC), about the
intention behind Decreto-Ley 289 and three additional resolutions, under which
private business owners can soon obtain loans from three Cuban state banks.
Following is a translation by Cuba Standard of the verbatim interview.
What do the new regulations change?
M.
The old norms established several limitations for natural persons in their
financial operations: Obtaining loans for amounts not exceeding 3,000 pesos
(CUP), impossibility to open a checking account in the case of small farmers
and self-employed workers, and a very low maximum payment the latter may
receive from state entities when those receive a service or good. Based on the
approval of Decreto-Ley 289, the Banco Central de Cuba published the
resolutions No. 99, 100 and 101 regarding obtaining loans, the opening and
operations of checking accounts, and bank norms for charges and payments, which
broaden the possibilities in each of these services. Because credit policy is,
due to its complexity, the area that demands most attention to detail, the
dialogue begins with the other two topics I mentioned.
What changes in charges and payments does
Resolution 101 introduce?
M.
This norm repeals a previous one that limited to 100 pesos cash the payments of
state enterprises to self-employed workers when they have commercial
interactions. The price will be defined by the parties, depending on the
services or goods traded, for which the state entities must take into account
their approved spending. This relation will be established by way of contracts.
In this case, several payment instruments can be used that avoid the
circulation of cash and provide more protection: Checks or cashiers’ checks and
bank transfers, which are the two most practical methods, and furthermore the
magnetic card, when it will become possible as this service will expand.
What are checking accounts, and what advantages
do they provide?
M.
Checking accounts are used in function of an economic activity, where income is
deposited and from which payments — such as tax payments — are made, without
the need to handle cash. When the new regulations become effective, the Banco
Metropolitano, the Banco de Crédito y Comercio, and Banco Popular de Ahorro
will be able to open checking accounts for private farmers, licensed
self-employed workers, and other natural persons authorized to exercise other
non-state activities, in Cuban Pesos (CUP) or convertible Pesos (CUC). These accounts
have the advantage of making operations more agile. They particularly
facilitate commercial relations between government entities and non-state
workers when it comes to making payments. They also help the financial
institution to check on the progress of productive activities, thus evaluating
loan applications. In fact, the opening of a checking account could be a
prerequisite to applying for a loan, and its cash flow could be granted as a
guarantee. The opening of a checking account is obligatory for any
self-employed person with gross annual income of 50,000 pesos (CUP) and more. I
want to clarify that checking accounts differ from savings accounts, in which
persons deposit resources that are temporarily free, that won’t be used in the
short term, and for which they obtain interests.
Who will be eligible for loans?
M.
According to the new regulations, small farmers, licensed self-employed
workers, people who want to buy construction material and pay authorized
construction workers, and those who want to build or renovate their home by
themselves. Although the regulations also allow the granting of loans to
persons in general to buy goods and satisfy other necessities, initially the
financing offers will be for the development of the non-state economic sector,
to increase agricultural production, and to promote renovation and repairs to
homes by their owners. These are the three most pressing necessities in the
country. As economic and financial conditions improve, the offerings will
expand.
How are the credit offerings to farmers
different from those that existed previously?
M.
In effect, credit for farmers is a policy that has been used for several years,
incorporating land tenants with Decreto-Ley 259 of 2008. These tenants of state
land will continue to benefit from financing for the purchase and repair of
equipment, the protection and rehabilitation of plantations, and other actions
that contribute to increasing agricultural production. When the new regulations
become effective, they will also be allowed to use financing to buy goods and
supplies in the network of domestic trade stores that are sold as part of the Programa
Campesino. The new norms
establish minimum loan amounts, but no maximums. In the case of farmers, the
loans start at 500 pesos (CUP), according to Resolution 99. The total amount
depends on the capacity of payment of the applicant and the guarantees
provided, among others. Farmers who receive financing to build their own homes
can buy construction materials in the network of domestic trade stores. These
loans begin at 1,000 pesos (CUP). If the construction materials are only
available in hard-currency stores, they can obtain CUP loans for the equivalent
of CUC prices. The construction loans can also be used to buy construction materials
from self-employed persons or to contract construction workers. Self-employed
workers will be able to receive loans starting at 3,000 pesos (CUP) for the
purchase of supplies and goods that guarantee a better work performance. The
duration must not exceed 18 months if the credit is used for work capital, such
as supplies and labor, or five years when it is used for investment such as in
equipment or construction.
What aspects determine the approval of a loan?
M. As
a rule, applicants must demonstrate they can obtain future income that will be
used to pay the loan, demonstrating their capacity to return the borrowed money
within the agreed time with the financial institution. They will also offer
guarantees that will assure the contracted obligations. To grant a loan, which
will always be in Cuban pesos (CUP), the banks will perform a risk analysis
that takes into account these elements, as well as the amount applied for,
among others. Also, the planned economic activity will be evaluated, the merit
of the operation and the feasibility of the business. Applicants must convince
the bank that they have the conditions to receive the loan; furthermore, they
must contractually agree to assume the obligation to respect the commitments of
return, and provide the guarantees that compensate the bank in situations that
entail the non-compliance of the agreement.
What mechanisms do the banks have to assure
repayment of the loans?
M. A
first step in that sense is accomplished by performing an appropriate
evaluation of the economic and financial circumstance of the applicant. But it
is essential to get guarantees. These are legal mechanisms that assure the
repayment of the loans in case of non-compliance on behalf of the debtor; they
are alternative sources of payment. Depending on the loan amount, they could
consist of bank deposits of the applicant or third parties that agree to offer
them. Any savings account can be granted as total or partial guaranty, without
any loss of interest income for the owner. It will also be possible to
formalize, by agreements with the bank, support bonds by third people to pay
the loan amount if the applicant is unable to do so. In this case at least two
guarantors, which can be a person, bank or insurance company, are needed. Also,
the bank can accept present or future personal retribution or income. Likewise,
the forfeit of a vacation home or undeveloped land could be considered
guarantees. Finally, agricultural Credit and Service Cooperatives (CCS) that
want to support their members can act as guarantors, as can (state) entities
that rent commercial space or other goods to self-employed workers, when the
tenants want to use a loan to improve them.
What consequences can the use of a loan for a
different purpose have?
M. When
obtaining a loan, the applicant signs a contract with the financial institution
in which the use, amortization and guarantees are stipulated. This contract has
legal validity. Generally, the loan is granted in tranches, not in its
entirety. This allows the bank to observe, with visits to the place where the
activity is performed or other mechanisms, the results of the use of the funds.
That is the bank’s right. If the client shows a favorable financial
performance, the bank can grant a new facility or increase the original loan.
But if the bank determines that the information offered by the applicant is
inadequate, that his economic and financial situation doesn’t assure repayment,
or violates contract stipulations, it can cancel the credit and execute the
guarantees, or reduce the loan amount.
Who determines the granting of loans, interest
rates, amounts and duration?
M.
The credit committees at the subsidiary level, provincial level and
headquarters that have decision power within the loan amount. It’s important to
point out that the persons who tend to loan applicants in the financial
institutions, the bank officials, are not the ones who have the decision-making
power. The amount and duration are agreed between the applicant and the
financial institution, according to the terms and conditions of the bank. It’s
necessary to clarify that maybe the client hopes to receive the full amount for
a business startup, but if he doesn’t totally convince the bank regarding the
feasibility or his payment capacity, he will be advised to start with a simpler
activity, one that requires less capital. Each case will require a different
analysis. That is why we talk about taylor-made suits; a sense of pragmatism
must prevail. It will be necessary to thoroughly check the feasibility of a
business, to investigate the possible guarantees that maybe even the client
doesn’t recognize he might have. All this will be done in the fastest possible
time, but without neglecting the detailed study the process requires. The
process may even include more than one meeting with the client to obtain the
necessary data and documentation. In that sense, it is important that
applicants come to the interview prepared, with all documentation that might be
relevant, even with an projection on how the business may evolve, how much it
will need to undertake a certain activity, expenses and revenues, and more. The
Banco Central de Cuba is charged with establishing the minimum and maximum
interest rates to be used by financial institutions. As a principle, rates
cannot be lower than those paid by the bank to depositors.
Which banks will work with loan applicants?
M.
In each precinct of Havana there will be at least one Banco Metropolitano office to perform loan operations. In the other
provinces, this service will be offered by the Banco Popular de Ahorro and Banco de Crédito y Comercio. In order for everything to operate smoothly, a
general training was performed and instructions about procedures were written.
Loan specialists will play an important role, but we also emphasize the role of
head managers, who will have to make sure that everything is done according to
the rules. Equally to familiarizing a new generation of bankers with this
topic, it will be a challenge for the loan specialists to increase the
knowledge among the public.
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