Fostering the Private Sector in Peru

IFC is working to develop and strengthen the private sector in Peru. Executive Vice President Lars Thunell recently visited the country, where IFC holds its fifth-largest exposure among Latin American countries. The visit was part of his first official trip to the region since joining IFC in January 2006.

Thunell met with Peru's recently elected president, Alan Garcia, and consulted with representatives from the local private sector and civil society. The visit gave him an opportunity to discuss the country's priorities for economic as well as social development and explore ways to improve the business environment and enhance private sector development.

"IFC will continue to support Peru's private sector by encouraging more investment in strategic sectors, such as microfinance, infrastructure, and agribusiness. IFC believes in the private sector's potential to reduce poverty," said Thunell.

The visit also demonstrated IFC's continuing commitment to its well-established partnership with Peru. Since 1956, when Peru joined IFC, we have provided $942 million, including syndications, for 52 projects in the country. During fiscal 2006, we invested $44 million in Peru, with a focus on the agribusiness and financial sectors. Our total portfolio in the country was $272 million as of June 2006, with an additional $14 million held for participating banks.

IFC's Priorities for Peru Our mission is to reduce poverty and promote sustainable economic growth. We leverage our investment operations and technical assistance to maximize impact on private sector development. Our areas of focus in Peru include: Strengthening the financial sector Enhancing Peru's competitiveness Investing in the real and service sectors Promoting sustainable investment and equitable development

Helping Marginalized People Access Finance

IFC recently closed a $29 million deal with Mibanco, the largest specialized microfinance institution in Peru. The proceeds of the transaction are being used to expand the availability of financial services to microentrepreneurs, many of whom live below the poverty line.

Mibanco makes microloans averaging less than $1,200 to provide working capital for its clients. The company has a branch network of 70 offices covering most of Peru, serving more than 200,000 clients. Its loan portfolio totals more than $250 million.

The loan from IFC will also help Mibanco diversify its funding base with long-term financing. This will allow the company to provide longer maturities to its clients.

IFC will also develop a program with Mibanco to provide outreach and training to help clients use titles as collateral for their loans. IFC will collaborate in this effort with the World Bank's Property Rights Program.

Building the Mortgage Industry

To support Peru's housing mortgage sector, IFC is partnering with its Colombian client, Titularizadora Colombiana, and the largest bank in Peru, Banco de Crédito del Peru, to set up the country's first secondary mortgage company, Titulizadora Peruana.

Drawing on its experience in the sector, IFC will play a critical role in establishing Titulizadora Peruana as an independent secondary mortgage institution. IFC will also help transfer knowledge and attract capital and human resources from key local financial players. We will work to ensure the company's adoption of transparent governance mechanisms and business procedures, as well as enhance its ability to obtain a favorable credit rating for its bonds and securities.

IFC's support is expected to have a strong developmental impact on Peru's financial sector as well as its primary and secondary mortgage market.

Streamlining Business Registration

Since 2004, IFC's Technical Assistance Facility for Latin America and the Caribbean has been working with the local government in Lima, Peru's capital, to simplify business registration. The work builds on IFC and the World Bank's annual Doing Business reports, which compare practices in countries worldwide to pinpoint how governments can make business regulation less burdensome.

Initial results are promising. The number of days required to register a new business has dropped from more than 60 to three or less.

Business owners now need visit municipal offices only once or twice—rather than 11 times—to obtain an operating license. Required inspections have also been reduced, from five duplicative operations to one combined, multipurpose inspection. The inspection process has been made more objective, with clear criteria and simple "yes or no" questions. In the year since the reform took effect in December 2005, the municipality has registered more than 8,300 businesses, as many as in the previous seven years combined.

This year, the 2007 Doing Business report cited Peru as one of the world's top 10 reformers of business regulation.

Broadening Benefits from Extractive Industries

IFC is providing technical assistance to the municipality of Los Baños del Inca, one of the main beneficiaries of tax revenue generated by the mining operations of Minera Yanacocha, an IFC client. The tax-sharing arrangement with local governments is known as the Peruvian Canon Minero, or mining canon.

The project has helped introduce a modern financial management system and has provided on-the-job training to municipal officers. It has helped overloaded municipal departments outsource activities to local firms, craftsmen, and professionals. A set of tools have been developed for the municipality, including a model to forecast the flow of mining revenues over the next two years and extensive guidance on good practices for managing these funds.

These reforms have allowed this rural municipality to increase its investment capacity five-fold since 2001. Effective management of this income is helping ensure that local people benefit from IFC's investment in Yanacocha. The annual investment program now comprises more than 100 public works for over 50 communities.

For more information contact:

Cecilia Lozada
Lima, Peru
Phone: +(511) 611-2521
E-mail: clozada@ifc.org

Adriana Gomez
Washington, D.C.
Phone: +(202) 458-5204
E-mail: agomez@ifc.org