Financing SMEs and Entrepreneurs 2020

35. Peru

Key facts on SME financing

Peru’s Central Reserve Bank (CRB) forecasts an annual growth of 4.0% in 2019, following similar growth in 2018 and thanks to a better performance of internal private consumption. It is also expected that the terms of trade will experience a slight improvement from -2.9% to -0.7%, due to a reduction on import prices. In addition, the Central Reserve Bank expects to maintain its interest rate to stimulate the economy (2.75%), given that the inflation rate is stable at around 2.0% and that the output gap is negative.

Outstanding business loans grew by 4.9% in 20181. Based on preliminary data, SME outstanding business loans amounted to 20.8% of all outstanding business loans in 2018, which is slightly lower than the share observed in 2017 (21.5%).

It is also important to point out that 2.83% of all outstanding business loans were non-performing loans, a slight increase from 2017 (2.75%). Non-performing loans in the SME sector experienced a insignificant deterioration from 9.05% in 2017 to 10.13% in 20182. On the other hand, the interest rate spread between SME loans and large firm loans fell slightly from 14.6 to 13.7 percentage points by the end of year 2018, according to the Central Reserve Bank.

In 2018, 99.6% of Peruvian enterprises were SMEs (including micro-enterprises, which employ less than ten persons), and they employed 89.1% of the private sector’s workforce. Compared to 2017, the SME sector grew by 16.0% in 2018 (in terms of the number of SMEs), a significant recovery compared to recent years, according to the National Tax Administration Bureau. Among these formal enterprises, only 5.5% acceded to the formal financial system in 2018, decreasing from 5.9% in 2017. The reason behind this decrease is that the amount of formal enterprises created on 2018 was much higher than in previous years. Importantly, direct government loans from public banks decreased by 12.3%.

As many as 90.8% of the outstanding loans to SME were provided by private banks, with other types of financial institutions granting the remaining 9.2%. It is important to note that it is not necessary for an enterprise to be formal to obtain a formal credit, because entrepreneurs can access credit as individuals.

Table 35.1. Scoreboard for Peru

Indicator	Unit	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs. As of June 30	PEN Billion	16.20	18.65	21.88	24.77	28.21	30.37	32.57	32.54	33.04
Outstanding business loans, total. As of June 30	PEN Billion	71.41	81.29	87.57	104.22	120.35	139.38	146.39	151.13	158.46
Share of SME outstanding loans	% of total outstanding business loans	22.69	22.95	24.98	23.77	23.44	21.79	22.25	21.53	20.85
New business lending, total	PEN Billion	3.99	2.64	2.12	2.78	3.70	1.13	3.03	7.37	12.65
New business lending, SMEs	PEN Billion	3.41	2.29	1.88	2.26	3.30	0.82	2.77	6.59	8.03
Share of new SME lending	% of total new lending	85.42	86.77	88.61	81.27	89.39	72.85	91.68	89.32	63.46
Government loan guarantees, SMEs	PEN Billion	..	..	..	..	..	..	400	..	..
Direct government loans, SMEs	PEN Billion	26	20	26	143	224	234	268	237	208
Non-performing loans, total	% of all business loans	1.93	1.55	1.41	1.56	1.79	1.98	2.29	2.75	2.83
Non-performing loans, SMEs	% of all SME loans	7.82	6.31	5.21	6.27	6.99	8.42	9.07	9.05	10.13
Interest rate, SMEs	%	27.81	25.08	24.41	22.91	22.36	22.83	23.48	23.05	21.55
Interest rate, large firms	%	7.15	8.29	9.06	8.46	8.32	7.90	8.26	8.41	7.83
Interest rate spread	% points	20.66	16.79	15.35	14.45	14.05	14.93	15.22	14.64	13.72
Percentage of SME loan applications	SME loan applications/ total number of SMEs	..	..	..	..	37.82	47.13	58.98	..	..
Rejection rate	1-(SME loans authorised/ requested)	..	..	..	..	5.07	5.25	0.00	..	..
Utilisation rate	SME loans used/ authorised	..	..	..	..	2948.07	94.75	0.00	..	..
Non-bank finance
Leasing and hire purchases	PEN Billion	3 267	3 723	4 182	3 807	3 955	3 691	3 540	3 923	2 948
Factoring and invoice discounting	PEN Billion	675	679	657	697	717	740	786	925	916
Other indicators
Bankruptcies, all businesses	Number	..	..	..	69 427	89 982	85 190	83 079	87 586	..

Note: *Preliminary data.

Source: See Table 35.4.

SMEs in the national economy

SMEs employ nearly 59.2% of the Economically Active Population (EAP) by 2018, with the rest being employed by large firms, the government or one of the seven other type of sectors. This figure grew by 0.9% between 2017 and 2018, mainly due to micro-firms’ employment, which grew by 1.4% during the period. From the point of view of employment, SMEs are an important engine for Peru’s economy, with around 59.2% of all workforce (total working age population) in 2018.

Table 35.2. Employment indicators for Peruvian SMEs

Enterprise size*	Private sector employment (number of people)
	2011	2012	2013	2014	2015	2016	2017	2018
Micro	7 666 112	7 595 779	7 593 363	7 609 800	7 697 698	7 803 352	7 875 182	7 988 758
Small	1 455 828	1 536 616	1 621 759	1 577 172	1 622 896	1 548 375	1 633 225	1 633 702
Medium	335 332	321 968	315 728	307 400	326 711	356 642	332 464	309 094
SME	9 457 272	9 454 363	9 530 849	9 494 372	9 647 305	9 708 368	9 840 871	9 931 554
Large	961 541	1 142 517	1 188 339	1 268 359	1 178 202	1 230 801	1 165 534	1 220 058
Total private employment	10 418 813	10 596 880	10 719 188	10 762 732	10 825 507	10 939 169	11 006 405	11 151 613
Employed EAP	15 307 326	15 541 484	15 683 616	15 796 885	15 918 945	16 197 110	16 510 984	16 776 484

Note: According to number of employees. Micro: up to 10 workers. Small: between 11 and 100 workers. Medium: between 101 and 250 workers. Large: More than 250 workers.

Source: National Institute of Statistics.

A census of existing companies in the economy is undertaken by the National Tax Administration Bureau, according to annual turnover levels. It is noticeable that medium-sized firms are scarce, amounting to 0.1% all SMEs by 2018, which reveals a structural feature of Peru’s economy: some micro-enterprises have difficulties growing. As a whole, the SME sector grew by 16.4% between 2018 and 2017, a more rapid pace compared to previous years. It is important to note that these firms are formal because they pay taxes.

Table 35.3. Distribution of firms in Peru

Enterprise Size*	2014	2015	2016	2017	2018
Micro	1 518 284	1 607 305	1 652 071	1 836 848	2 130 127
Small	71 313	72 664	74 085	60 702	79 143
Medium	2 635	2 712	2 621	2 034	2 711
SME	1 592 232	1 682 681	1 728 777	1 899 584	2 211 981
SME year-on-year growth	..	5.70%	2.70%	10.00%	16.45%
Large	8 388	8 781	8 966	9 245	9 182
Total	1 600 620	1 691 462	1 737 743	1 908 829	2 221 163

Note: According to annual turnover. For 2018, the annual threshold are as follows. Micro-enterprise: up to PEN 622 500, Small enterprise: From PEN 622 500 to 7 055 000, Medium enterprise: From 7 055 000 to 9 545 000.

Source: National Tax Administration Bureau.

SME lending

According to the Finance and Banking Regulator Authority’s preliminary data, SMEs’ share of all outstanding loans has reached its lowest point in 8 years, at 20.8%. Capital allocated to large firms has increased, leaving behind the indicator for SMEs.

Figure 35.1. Share of SME outstanding loans to total business outstanding loans

Note: Data for 2018 are preliminary.

Source: National Tax Administration Bureau and Finance and Banking Regulator Authority.

Statlink

Banks are the main source of loans for companies, though to a lesser extent for micro-firms, as illustrated in Figure 35.2. Bank credit is mainly granted in the capital city of Lima, and other main cities around the country. As for small cities and the peripheries of urban and houses agglomerations, urban credit unions are the most common suppliers of credit. Banks remain the main source of financing for small, medium and large firms with around 90.8% for the SME sector by 2018 (all loans, even if they are for consumption or for asset acquisition), while micro-firms predominantly have recourse to urban credit unions. It is quite unlikely that this state of affairs will change in the medium term. Usually, credit unions and SME-specialised institutions are able to provide small loans through a faster procedure than banks. They are also more accessible to individuals.

Figure 35.2. Distribution of financing sources used by enterprises, 2018

Source: National Tax Administration Bureau and Finance and Banking Regulator Authority.

Statlink

Credit conditions

SMEs are perceived as riskier by the formal financial sector, especially when they have less expertise and skills. Around 52.2% of SMEs have a loan from only one financial institution, and 24.8% of SME have loans from two lenders, which can be banks or any other kind of institution. Only 4.0% of SME have loans with more than five financial institutions. This could be interpreted as a signal of over-indebtedness in this sector. Indeed, these firms may have issued more loans (not necessarily outstanding balances) than their actual turnover, and therefore may face difficulties for repayment.

Figure 35.3. SMEs by number of lenders, 2018

Source: National Tax Administration Bureau and Finance and Banking Regulator Authority

Statlink

The spread between interest rates payed by large firms and those payed by SMEs stands at 13.7 percentage points. This spread has been decreasing in the last years. It nevertheless reflects the risk that SMEs can represent for the financial sector. This gap can even grow in periods of slow economic growth, which was the case in 2016, when it reached 15.2 percentage points. These figures concern only the main commercial banks, which are the principal suppliers of loans for all firm sizes.

Figure 35.4. Interest rates by enterprise size (%)

Note: Observed rates at the end of each year

Source: Central Reserve Bank of Peru.

Statlink

Alternative sources of SME financing

Use of alternative sources of finance for SMEs has increased rapidly in recent years, especially factoring and invoice discounting activities, although these funding alternatives experience high volatility each year. This uncertainty is conditioned by both supply and demand-side factors. Recently, the government has urged private firms to accept invoices for factoring; this means that in factoring operations, those sellers could indeed use their invoices for factoring with a financial institution. Commonly, it was not the case due to the denial of a large buyer firm, arguing operational expenses. Leasing and hire purchases volumes remain higher than factoring and invoice discounting. As of December 2018, factoring and invoice discounting for SMEs reached PEN 915 million (almost 10 million less than 2017), while leasing and purchases stood at PEN 2 948 million, according to the Tax Administration Authority and the Finance and Banking Regulator Authority.

Figure 35.5. Alternative funding options for SMEs

Annual growth, as a percentage

Source: National Tax Administration Bureau and Finance and Banking Regulator Authority.

Statlink

Other indicators

The economy did not recover as well as expected in 2018, but it is expected to pick up in 2019, despite political events such as the parliament shutdown and other social conflicts involving mining sector. As a result, SMEs’ non-performing loans ratio increased in 2018 (reaching 10.13%), as did the rate of non-performing loans for all firms (standing at 2.83% in 2018). In fact, the financial sector is pro-cyclical (Goodhart, 2012), and so it is expected that higher private consumption will keep the internal demand dynamic in 2019.

Non-performing loans tend to be common in the SME sector due to high relative uncertainty they face in their activities. As SMEs are less resilient than larger companies, it is more likely that during any period of slow economic growth, they will suffer from lower sales and lower demand, which in turn directly affect their capacity for loan repayment. Larger firms, on the contrary, are more exposed to global demand and commodity prices, and much less exposed to internal markets shocks.

Figure 35.6. Non-performing loans by firm size

Non-performing loans (more than 90 days of delay) over total outstanding loans

Source: National Tax Administration Bureau and Finance and Banking Regulator Authority

Statlink

Government policy response

The two trends that drive the rate of financial inclusion are the creation of new SMEs and the inclusion of existing firms to the formal financial system. In 2018, the creation of new SME picked up strongly, which led to a decrease in the rate of financial inclusion. The Peruvian government’s main goal is to push firms towards formality, that is, become taxpayers in order to receive various services, mainly through mentoring, market information, financial opportunities (factoring, leasing, guarantees), and also the chance to sell goods and services to public institutions. In concrete, in 2017 the government launched a new taxing scheme for micro and small firms, which in general allows to pay less shares of taxes and is also more simplified.

Government responses concerning financial access will continue to be a part of a broader effort, with formality as the primary goal. There remain around 2 million of economic units that are categorised as informal.

Figure 35.7. Trends in SME and entrepreneurship finance in Peru

Source: See Table 35.4

Statlink

Table 35.4. Definitions and sources of indicators for Peru’s scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	Amounts allocated to the SME sectors at the end of the year. All possible types of credits are considered. The SME sector is identified according to its annual sales. Preliminary data for 2017.	SBS - Financial regulator from Peru and Tax adiminstration.
Outstanding business loans, total	Amounts allocated to the all firm sizes at the end of the year. All possible types of credits are considered. The fim size is identified according to its annual sales.	SBS - Financial regulator from Peru and Tax adiminstration.
Share of SME outstanding loans	Preliminary data for 2017.	SBS - Financial regulator from Peru and Tax adiminstration.
New business lending, total	There is no formal definition for this, we consider any loan as new if it has not appeared in the financial system two years before.	SBS - Financial regulator from Peru and Tax adiminstration.
New business lending, SMEs	There is no formal definition for this, we consider any loan as new if it has not appeared in the financial system two years before.	SBS - Financial regulator from Peru and Tax adiminstration.
Share of new SME lending	There is no formal definition for this, we consider any loan as new if it has not appeared in the financial system two years before.	SBS - Financial regulator from Peru and Tax adiminstration.
Outstanding short-term loans, SMEs	We are unable to produce this data since the terms are stated by private financial institutions and they do not report this. Maybe we could considered the amounts allocated, and consider a certain threshold, which can be arbitrary.
Outstanding long-term loans, SMEs	We are unable to produce this data since the terms are stated by private financial institutions and they do not report this. Maybe we could considered the amounts allocated, and consider a certain threshold, which can be arbitrary.
Share of short-term SME lending	We are unable to produce this data since the terms are stated by private financial institutions and they do not report this. Maybe we could considered the amounts allocated, and consider a certain threshold, which can be arbitrary.
Government loan guarantees, SMEs	There are certain programmes for these loans, and data are collected by the Ministry of the economy. But the last numbers are for recent funds raised especially for these types of financial services.	Ministry of the economy
Government guaranteed loans, SMEs	We are unable to produce this data since a second-floor bank delivers the funds to private banks for the guarantees, and we do not have access to that information.
Direct government loans, SMEs	We consider all loans given by the two public banks directly for the SME segments.	SBS - Financial regulator from Peru and Tax adiminstration.
Non-performing loans, total	We consider as non-performing loans those with more than 90 days of maturiry.	SBS - Financial regulator from Peru and Tax adiminstration.
Non-performing loans, SMEs	We consider as non-performing loans those with more than 90 days of maturiry.	SBS - Financial regulator from Peru and Tax adiminstration.
Interest rate, SMEs	This information is provided by the Central bank mainly from the banking industry. Many other types of financial institutions are excluded, but they account for less of 10% of the market, so it is a proper proxy.	BCRP - Central bank of Peru
Interest rate, large firms	This information is provided by the Central bank mainly for the banking industry. Many other types of financial institutions are excluded, but they account for less of 10% of the market, so it is a proper proxy.	BCRP - Central bank of Peru
Interest rate spread	This information is provided by the Central bank mainly for the banking industry. Many other types of financial institutions are excluded, but they account for less of 10% of the market, so it is a proper proxy.	BCRP - Central bank of Peru
Collateral, SMEs	We are unable to provide this. We have no data at all.
Percentage of SME loan applications	We use an annual survey where SMEs are asked whether they applied for a loan. So we measure the percentage from the total of SME surveyed.	Ministry of Production
Rejection rate	We use an annual survey where SMEs are asked whether they did not receive the loan after applying for it. So we measure the percentage from the total of SME surveyed.	Ministry of Production
Utilisation rate	We use an annual survey where SME are asked whether they indeed received the loan after applying for it. So we measure the percentage from the total of SME surveyed.	Ministry of Production
Non-bank finance
Leasing and hire purchases	This is calculated using the financial regulator information for SME segments, given that this kind of service can be identified.	SBS - Financial regulator from Peru and Tax administration.
Factoring and invoice discounting	This is calculated using the financial regulator information for SME segments, given that this kind of service can be identified.	SBS - Financial regulator from Peru and Tax administration.
Other indicators
Leasing and hire purchases	We use the Tax administration data to measure how many SME quits each year.	Tax administration

References

Central Reserve Bank. (2018). Reporte de Inflación. Setiembre 2018.

Goodhart, C. A., & Tsomocos, D. P. (2012). Financial stability in practice.

Ministry of Production (2017). Las MIPYME en cifras 2016. Obtenido de: http://ogeiee.produce.gob.pe/index.php/shortcode/oee-documentos-publicaciones/publicaciones-anuales

Finance and Banking Regulator Authority (2018).

Perú: Reporte de indicadores de inclusión financiera de los sistemas financiero, de seguros y pensiones.

Junio 2018. Superintendencia de Banca y Seguros (SBS)

Notes

← 1.  Preliminary data.

← 2.  Preliminary data.