Moody's: Banco Pichincha expands funding for microcredit with Peru's first social bond

It went on to add the Inter-American Investment Corporation (IDB Invest, Aa1 stable) —the private sector arm of the Inter-American Development Bank (Aaa stable)— purchased the issue in its entirety.

The social bond is Peru's first and Latin America's fourth, following social bonds issued in Chile, Mexico, and Colombia.

According to Moody's, the social bond issuance is credit positive for Banco Pichincha and the banking system because it expands the ability to fund microcredit lines for customers too small to be on the radar of traditional banks, but that are a relevant and growing segment of the Peruvian economy.

"This bond is a new source of financing for Banco Pichincha, 58% of whose client base are women and 9.3% of its loans made to small companies and microlending. Mibanco, a subsidiary of Banco de Credito (BCP, Baa1/Baa1 stable, baa21 ) and Peru's largest microfinance bank with a 48% share of the microcredit business' market, is likely to follow Banco Pichincha's lead with social bond issuance, which would further enhance its dominant market position," it noted.

Banco Pichincha —as part of Ecuador's financial holding group Grupo Pichincha— currently has US$2.8 billion in total assets, US$1.8 billion in deposits, and US$2.2 in total loans in Peru.

Last year, Pichincha's loan book grew 15% year on year, versus 10% systemwide loan growth; microcredit loans increased 38% year on year, followed by 16% growth in SME financing.

Microlending has the company’s highest three-year compound annual growth rate at around 14%. The small and micro-enterprise financing business comprises 7% of Peruvian banking system's total loans —and including non-bank financial intermediaries— it increases to 14%, or around US$11.4 billion in loans.

Thirty companies are dedicated to the sector. The commitment of public and private sectors to the Inca country's financial inclusion policy, and coordinated work reflected in policies and regulations, has made Peru the leading microfinance lender in the world, according to The Economist Intelligence Unit's Global Microscope.

Recently, the Inter-American Development Bank —with IDB Invest— has made similar microfinance deals with Peruvian financial entities. In November 2018, it invested $15 million to support the growth and consolidation of a municipal microfinance entity at national level in the Inca country.

A similar deal took place September 2018, when IDB provided a $10 million credit guarantee in favor to a local credit cooperative covering the credit risk under the loan, which would be used to fund SMEs credit lines.

Together with Pichincha's deal, this shows multilateral credit agents' commitment to the development of the SME and microfinance businesses and financial inclusion in Peru.