Defaults Increase on Bank and Micro-credit Loans in Nicaragua

Center for Consumer Assistance Proposes Debt Moratorium 

Five thousand signatures back bill that offers payment windows to protect individuals, small and medium businesses, and vendors.

By Ivan Olivares (Confidencial)

HAVANA TIMES – The crisis in the country has already caused some 215,000 people to lose their jobs according to a study from Funides, the Nicaraguan Foundation for Economic and Social Development. This in turn has increased the level of debt delinquency in the local financial system, with ever more people – up to 45% according to Juan Carlos Lopez, coordinator of the Legal Center for Consumer Assistance – finding it impossible to pay their contracted debts.

“Since before the crisis began, the users already had problems of overdue debt payments, indebtedness and over-indebtedness,” explained Lopez during an interview on the nightly television news program Esta Noche [“Tonight”]. “Since April, the user of this type of services has felt deeply the economic impact, so that many have opted to refinance their debt or to acquire a new debt to pay the other,” he explained.

Lopez knows of many cases of small business people or simply salaried workers who lost their businesses or their jobs and were left without the possibility of continuing to make payments on their loans.  The legal center accompanied many of them in their process of debt renegotiation, something that wasn’t always possible.

Because of this, they opted to prepare a preliminary draft of a Special Debt Moratorium Law.” Their proposal, based on consultations with many of those involved, was later presented to the National Assembly, together with the 5,000 signatures needed so that it can be considered as a law.

If approved, the bill would allow the banks and microfinance institutions to offer, for a time, better arrangements than the ones the client had established. “This proposed bill is an opportunity for getting through the crisis, not of attending to the normal agreements,” Lopez clarified.

A breathing period for repayment

The law would offer deadlines of six to eight months so that the user could at least make some payments on their debt.  The debts would meanwhile be frozen, as would the interest, leaving intact the client’s credit classification. “What we want is to set a time-frame, establish level payment quotas, and avoid affecting the client’s credit record,” he detailed.

According to these criteria, the proposed law would offer a breathing space to small businesspeople, like those from the Masaya market whose merchandise burned, leaving them no way at all to honor their debts; or those who were left without work and possibly didn’t even receive their severance pay because the companies they were working for didn’t have the means of paying the legally stipulated compensation.

Lopez rejected the idea that the Moratorium Law might represent an additional problem for the banks or for the micro-finance institutes, because “many of the funding entities have insurance contracts. Apart from this, we’re promoting the idea of having the customer approach the banks to negotiate and try to come to an agreement – perhaps making smaller payments – instead of just disappearing from their radar for six months.”

“We’re presenting this proposal because the banking entities aren’t applying the norms adequately. They’ve been too discretionary and their actions are being based on the policies established before the crisis,” he affirmed.

“In the two weeks since we submitted this proposed bill, we’ve noticed that the banks and many of the microcredit institutions have begun to lessen the mistreatment that they were giving their customers. They’ve begun being more flexible.”

Lopez recognized that despite the fact that they presented the proposed bill to the parliamentary representatives from both the FSLN and the Liberal Party, “It’s possible that it may end up in a drawer like many that we’ve presented in our five years of existence. However, we’re sure that the effect will be to have the [banks and microfinance institutions] treat their clients better, and ground themselves better, because they need to bring in resources.”