Financing SMEs and Entrepreneurs 2022

34. Peru

Key facts on SME financing

In 2020, 99.5% of Peruvian enterprises were SMEs (including micro-enterprises, which employ fewer than ten persons), and they employed 89.4% of the private sector’s workforce. Compared to 2019, according to data from the National Tax Administration Bureau, the size of the SME sector decreased by 25.1% in 2020 (in terms of number of SMEs), a significant drop compared to recent years. Among these formal enterprises, only 9.4% had access to the formal financial system in 2020, increasing from 5.5% in 2019. This increase is due to the credit programmes implemented by the Government of Peru in order to face the liquidity crisis suffered by companies due to the COVID-19 pandemic.

The Central Reserve Bank of Peru (CRB) forecast an annual growth of 10.7% in 2021, thanks to a better performance of internal private consumption. It is also expected that the terms of trade will experience a slight improvement, from 8.2% to 13.0%, due to an increase in export prices. In addition, the CRB expects to maintain its interest rate low (0.25%) to foster the economic recovery, taking into account that the inflation rate is stable at around 3.0% and that the output gap is negative.

Outstanding business loans grew by 24.4% in 2020. Based on preliminary data, outstanding SME loans amounted to 32.7% of all outstanding business loans in 2020 (driven by the increase in new SME lending, which grew by 18.5%), which is higher than the share observed in 2019 (24.4%). The increase in new lending corresponds to the efforts of the Peruvian government to establish extraordinary measures that targeted specifically SMEs, for instance through the Business Support Fund for MSMEs (FAE-MYPE) and the Business Support Programme for micro and small businesses (PAE-MYPE). In other programmes, such as Reactiva Peru, 98.6% of beneficiaries were SMEs.

About 2.9% of all outstanding business loans were non-performing, which is slightly lower than in 2019 (3.2%). Non-performing loans in the SME sector experienced a significant improvement, declining from 10.9% in 2019 to 6.6% in 2020. This decline is explained by the government implementing debt moratoria.

The interest rate spread between SME loans and large-company loans fell from 19.4 to 15.8 percentage points in 2020, according to the Central Reserve Bank, which is nonetheless high by international standards. The high interest rate spread reflects banks’ significantly higher operating costs and credit risk associated with SME operations. SMEs, particularly those operating in the retail portfolio, tend to have a low degree of organisation, operate in the local market and mostly lack financial information regarding their activities. Around 57.9% of SMEs do not keep a record of their cash flows and 80% do not prepare a financing plan for their activities.

The main financial institutions that grant loans to SMEs are private banks with 93.7% of outstanding loans, urban credit unions with 4.2% of outstanding loans, and other types of financial institutions with the remaining 2.1%.

Table 34.1. Scoreboard for Peru

Indicator	Unit	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Debt
Outstanding business loans, SMEs. As of June 30	PEN Billion	17.18	19.75	23.23	26.62	30.14	32.44	32.46	34.11	35.56	36.48	61.92
Outstanding business loans, total. As of June 30	PEN Billion	65.99	75.04	81.49	97.20	112.21	127.37	130.02	134.62	147.30	149.53	189.21
Share of SME outstanding loans	% of total outstanding business loans	26.04	26.31	28.50	27.39	26.86	25.47	24.97	25.34	24.14	24.39	32.73
New business lending, total	PEN Billion				264 129	244 850	249 880	226 035	219 435	244 928	241 292	281 590
New business lending, SMEs	PEN Billion				241 949	224 537	228 624	207 603	201 133	225 421	222 626	263 860
Share of new SME lending	% of total new lending				91.6	91.7	91.5	91.8	91.7	92.0	92.3	93.7
Government loan guarantees, SMEs	PEN Billion	..	..	..	..	..	..	400	..	..	..	..
Direct government loans, SMEs	PEN Billion	30.98	49.06	59.57	219.92	365.33	369.45	389.18	320.85	399.83	367.95	387.01
Non-performing loans, total	% of all business loans	2.20	1.78	1.65	1.96	2.14	2.37	2.46	3.33	3.40	3.15	2.93
Non-performing loans, SMEs	% of all SME loans	7.83	6.33	5.19	6.30	7.11	8.42	9.03	8.69	10.53	10.94	6.63
Interest rate, SMEs	%	27.63	27.09	25.96	24.66	23.41	25.59	26.37	26.57	26.31	25.28	20.23
Interest rate, large firms	%	4.98	6.03	6.60	6.49	6.37	6.29	6.86	6.75	6.00	5.93	4.39
Interest rate spread	% points	22.65	21.06	19.35	18.17	17.04	19.30	19.52	19.82	20.31	19.35	15.84
Percentage of SME loan applications	SME loan applications/ total number of SMEs	..	..	..	..	38.52	51.02	43.26	48.39		43.40
Rejection rate	1-(SME loans authorised/ requested)	..	..	..	..	5.06	5.77	4.63	5.93		4.00
Utilisation rate	SME loans used/ authorised	..	..	..	..	94.94	94.23	95.37	94.07		96.00
Non-bank finance
Leasing and hire purchases	PEN Billion	3 374	3 846	4 301	3 978	4 128	3 966	3 530	3 440	3 110	3 000	3 204
Factoring and invoice discounting	PEN Billion	768.98	754.27	719.99	779.45	809.13	819.41	835.50	833.89	1006.19	947.14	724.63
Other indicators
Bankruptcies, all businesses	Number	162 948	168 261	233 287	152 758	225 384	242 842	259 443	362 091	199 303	183 442	859 595

Note: *Preliminary data.

Source: See Table 34.4.

SMEs in the national economy

SMEs employ nearly 54.1% of the Economically Active Population (EAP) by 2020, with the rest being employed by large firms, the government, or one of the seven other types of sectors1. This figure decline by 0.9% between 2019 and 2020, mainly due to micro-firms’ employment, which decrease by 19-0% during the period. From the employment perspective, SMEs are an important engine for Peru’s economy, with around 89.4% of the private sector’s workforce in 2020.

Table 34.2. Employment indicators for Peruvian SMEs

Enterprise size*	Private sector employment (Number of people)
	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Micro	7 666 112	7 595 779	7 593 363	7 609 800	7 697 698	7 803 352	7 875 182	7 988 759	8 164 942	6 616 948
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	1 613 968	1 209 952
Medium	335 332	321 968	315 728	307 400	326 711	356 642	332 464	309 094	330 465	236 109
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	10 109 375	8 063 008
Large	961 541	1 142 517	1 188 339	1 268 359	1 178 202	1 230 801	1 165 534	1 251 488	1 313 079	952 206
Total private employment	10 418 813	10 596 880	10 719 188	10 762 732	10 825 507	10 939 169	11 006 405	11 183 042	11 422 454	9 015 214
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	17 133 100	14 901 782

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.

The National Directorate of Tax Administration has a registry of existing companies in the economy, in accordance with annual billing levels. It is noted that microenterprises are well-provided since they represent 95.7% of SMEs, followed by small companies with 4.1% and medium-sized companies with 0.2% of all SMEs in 2020. As a whole the SME sector decreased by 25.1% between 2019 and 2020. It is important to note that these companies are formal because they pay taxes.

Table 34.3. Distribution of firms in Peru

Enterprise Size*	2015	2016	2017	2018	2019	2020
Micro	1 607 305	1 652 071	1 836 848	2 130 127	2 292 250	1 703 745
Small	72 664	74 085	60 702	79 143	82 057	73 623
Medium	2 712	2 621	2 034	2 711	2 937	2 749
SME	1 682 681	1 728 777	1 899 584	2 211 981	2 377 244	1 780 117
SME year-on-year growth	5.70%	2.74%	9.88%	16.45%	7.47%	-25.12%
Large	8 781	8 966	9 245	9 182	9 537	8 783
Total	1 691 462	1 737 743	1 908 829	2 221 163	2 386 781	1 788 900

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 highest point in 8 years, at 32.7%.

Figure 34.1. Share of SME outstanding loans to total business outstanding loans

Note: Data for 2020 are preliminary.

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

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Banks are the main source of loans for companies, though to a lesser extent for micro-firms, as illustrated in Figure 34.2. 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 93.7% for the SME sector by 2020 (all loans, even if they are for consumption or for asset acquisition), while micro-firms predominantly have recourse to urban credit unions. Usually, credit unions and SME-specialised institutions have the capability to provide small loans through a faster procedure than banks. They are also more accessible to individuals and entrepreneurs.

Figure 34.2. Distribution of financing sources used by enterprises, 2020

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

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Credit conditions

SMEs are perceived as riskier by the formal financial sector, especially when they have less expertise and skills. Around 62.9% of SMEs have a loan from only one financial institution, and 22.9% of SME have loans from two lenders, which can be banks or any other kind of institution. Only 1.8% of SME have loans with more than five financial institutions. This could be interpreted as a signal of over-indebtedness in the SME sector. Indeed, these firms may have borrowed more (not necessarily outstanding balances) than their actual turnover, and therefore may face difficulties for repayment.

Figure 34.3. SMEs by number of lenders, 2020

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

Statlink

The spread between interest rates paid by large companies and those paid by SMEs stands at 15.8 percentage points in 2020, declining 3.51 percentage points compared to 2019. This decline in spreads is associated to a decline in interest rates for SMEs. Tor small business loans, the interest rate dropped from 22.6% and 22.2% in December 2019 and April 2020, respectively, to 17.2% in December 2020; while those for medium-sized companies did so from 10.0% and 9.3% to 6.1% during that period. The decline is associated with the easing of monetary conditions by the Central Reserve Bank, which has maintained the reference interest rate of 0.25% since April 2020, and the effect of the new credits associated with the Guaranteed Loan Program by the government.

The trend in interest rate spreads show a decline in the last years. However, it reflects the risk that SMEs can represent to the financial sector. This gap can even increase in periods of slow economic growth. These figures concern only to the main commercial banks, which are the leading providers of loans for businesses of all sizes.

Figure 34.4. Interest rates by enterprise size

Year on year growth, as a percentage

Note: Observed rates at the end of each year.

Source: Central Reserve Bank of Peru.

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Alternative sources of SME financing

The use of alternative financing sources for SMEs has increased rapidly in recent years, especially factoring and invoice discounting activities, although these financing 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, this was not the case due to the refusal of a large buyer firm, arguing operating expenses. Leasing and hire purchases volumes remain higher than factoring and invoice discounting. As of December 2020, factoring and invoice discounting for SMEs reached PEN 724 billion (almost 222 million less than 2019), while leasing and purchases stood at PEN 3 204 million, according to the Tax Administration Authority and the Financial and Banking Regulator Authority.

Figure 34.5. Alternative funding options for SMEs

Year on year growth, as a percentage

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

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Other indicators

Non-performing loans tend to be common in the SME sector due to high relative uncertainty they face in their activities. Considering that 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, therefore, they are less vulnerable to internal market shocks.

Figure 34.6. 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

In 2020, the Peruvian government implemented two support programs for SMEs (Reactiva Peru and Fondo de Apoyo Empresarial- FAE-MYPE) both aimed to alleviate the liquidity problems faced by companies as a result of the closure of activities due to COVID-19. Likewise, a credit rescheduling program was implemented to control potential risks of default.

To be a company benefiting from the Reactiva Peru program, it is necessary that the company does not have tax debts, they must be classified in the Financial System as a normal client or with potential problems. On the other hand, the coverage provided by the Reactiva Peru program ranges from 80% to 98%. Likewise, the program will assign the guarantees to each company depending on the level of sales it has reached in 2019. In addition, the credit term obtained by the guarantee is up to 36 months, which includes a grace period of up to 12 months.

On the other hand, to be a company benefited by the FAE-MYPE it is necessary that the company can obtain credits for working capital and be classified in the Financial System as a normal client or with potential problems. The coverage provided by the FAE-MYPE program for loans granted up to S / 10,000 is 98%, while the coverage for loans of S / 10,001 to S / 30,000 is 90%.

Figure 34.7. Trends in SME and entrepreneurship finance in Peru

Source: See Table 34.4.

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Table 34.4. 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 2020.	SBS - Financial regulator from Peru and Tax administration.
Outstanding business loans, total	Amounts allocated to all firm sizes at the end of the year. All possible types of credits are considered. The firm size is identified according to its annual sales.	SBS - Financial regulator from Peru and Tax administration.
Share of SME outstanding loans	Preliminary data for 2020.	SBS - Financial regulator from Peru and Tax administration.
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 administration.
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 administration.
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 administration.
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 consider 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 consider 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 consider the amounts allocated, and consider a certain threshold, which can be arbitrary.
Government loan guarantees, SMEs	There are certain programs 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 administration.
Non-performing loans, total	We consider as non-performing loans those with more than 90 days of maturity.	SBS - Financial regulator from Peru and Tax administration.
Non-performing loans, SMEs	We consider as non-performing loans those with more than 90 days of maturity.	SBS - Financial regulator from Peru and Tax administration.
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
Utilization 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. (2021). Reporte de Inflación. junio 2021.

Ministry of Production (2018). Las MIPYME en cifras 2018. Obtenido de: http://ogeiee.produce.gob.pe/index.php/shortcode/oee-documentos-publicaciones/publicaciones-anuales

Finance and Banking Regulator Authority (2021).

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

diciembre 2020. Superintendencia de Banca y Seguros (SBS)

Note

← 1.  The sectors are: Agricultural sector, fishing, industry, mining, commerce, construction and services.