Actualidad Colombia

Rural Microfinance Fund

Decree 1449/2015, 2nd July

The Colombian government regulated the Fondo de Microfinanzas Rurales (Rural Microfinance Fund, hereinafter “the Fondo”), created by Law 1731/2014, as follows:

  • Defining the purpose of the Fondo as promoting access to financial products for small producers and micro, small and medium-sized enterprises (MSMEs) whose business is conducted in a rural environment.
  • Defining rural microfinance as financial services (eg, microcredit, microinsurance, microleasing, microfactoring, microcollateral and microsavings) granted through microfinance technology to small producers and MSMEs whose business is conducted in a rural environment.
  • Defining microfinance technology as the special methodology for risk assessment, placement, management, control and monitoring of transactions, and the main source of access to financial services for the user profiles the Law describes.
  • Appointing the Fund for Agricultural Financing (Finagro) to manage the Fondo. (Finagro is a public entity specialising in rediscount lines for farmers.)
  • Indicating that the Fondo will receive an initial injection of capital from the national government through the Ministry of Agriculture & Rural Development, after which it must be self-funding, placing credit and rediscounting short-term debt.
  • Establishing rules for agricultural solidarity funds to be capitalised when market prices of agricultural products fall significantly, using strategies such as debt purchases from non-financial entities, land buyback, etc.

Activities eligible for funding

The decree provides for financing activities to help the rural population, promoting (i) access to financial instruments, such as collateral and value chain schemes, credit mechanisms, savings, investment, insurance and risk hedging; (ii) financial education; (iii) mobile technologies.

The law represents an opportunity for growing the portfolio of microfinance institutions operating in rural areas, freeing up mechanisms to enable them to lend to rural entrepreneurs under better conditions with the money they get from the Fondo. It also represents a major opportunity for microentrepreneurs to access finance for their businesses in rural areas of the country.