Actualidad Colombia

Low-volume consumer credit

Decree 2654, 17th December 2014

The Ministry of Finance & Public Credit in Colombia published a decree on 17th December 2014, creating a new line of credit for low amounts, called “el crédito de consumo de bajo monto”.

Under this decree, such low-volume consumer credit is granted exclusively to finance individuals. The maximum term will be 36 months, and the maximum amount of the transaction will be two minimum monthly wages. Under the current legislation at 2014 prices, this would be COP 616,000; approximately US$ 268.

The specifications for this line of credit are: i) It cannot be a rolling credit line; ii) It cannot be offered over credit cards; iii) The lender must first verify that the customer does not have an outstanding debt balance of more than two monthly minimum wages; and iv) The lender must define maximum repayment terms and instalment frequencies.

The regulation does not establish any more than a very general framework for the approval of such lines of credit. It leaves this to the discretion of the lender. Colombia is expecting the financial watchdog, Superintendencia Financiera, to put out some standards for them, especially with respect to how the risk on such credit should be managed.

Over-indebtedness is a shadow that always hangs over the microfinance industry, especially when it is providing lines of credit for consumers without any specific purpose. This decree was intended to expressly establish the requirement that lenders must first check the borrowers’ overall borrowing balance before allowing them to make any drawdown against these low-volume lines of consumer credit. In order to be able to get a precise estimate of such balances, the financial institutions must establish a methodology that will take into account the payment obligations that the potential borrower currently has with the financial sector and other sectors. For this, they will have to use the information filed at the financial information central offices for such purpose.

The decree is trying to regulate a kind of credit that already has some antecedents in mechanisms for offering small amounts of credit, for example in order to buy household appliances, which were settled in the accounts of some public services or through department store cards. Recognising such practices, it has expressly highlighted the importance of including a way of avoiding over-indebtedness so that borrowers cannot accumulate more small debts than they can afford.