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Monthly Snapshots - February 2020: Peru Edition

ISA issues first green bonds in Peru's history

For the first time in Peru’s history, ISA has issued green bonds. Transmantaro, the energy consortium, was the first company to issue the bonds in order to raise capital for environmentally friendly projects.

A green bond works in the same way as any other bond but with a different purpose. Investment in a green bond provides assurance that your money is exclusively going to projects focused on renewable energy, energy efficiency, conservation of biodiversity, reduction of harmful emissions and much more.

The issue of these green bonds was a huge success. In fact, the demand for the bonds was 5.7 times larger than the amount of bonds available. The bonds will have a term of 15 years and an interest of 4.7%. The total amount of money leveraged was US $400 million.

The President of the ISA, Bernardo Vargas Gibsone, has affirmed that the public reaction to the bonds has proved the confidence that the market has in Transmantaro and also its commitment towards saving the planet.

The success of this initiative, and the hope it provides for future green initiatives, represents an important step for Transmantaro who aims to reduce carbon emissions by 11,000,000 tonnes by 2030.

Fintech company, Pago Fácil, to enter Peru in 2020

The Fintech company, Pago Fácil, has recently announced its plans to enter the Peruvian market in 2020. It will invest US $350,000 to kick-start its operations in Peru, money raised from their own operations in Chile and also from a US $500,000 investment by Grupo Consorcio Financiero in June 2019.

The Fintech, native to Santiago, helps SMEs (small to medium sized enterprises) by providing an online payment platform. The payment platform allows for quick transactions via credit and debit cards, transfers and cash. They combine easy and simple payments with strong security to provide a reliable service to its customers.

This is great news for Peruvian start-ups and SMEs. In fact, Pago Fácil has already started collaborating with government institutions that aid SMEs. In the upcoming year, these institutions have pledged to provide emerging start-ups with the technology that they lack. Therefore, this move is not only a great business opportunity for Pago Fácil, but it also will create the availability of necessary resources for the success of Peruvian start-ups and SMEs.

Recent studies show Peru is the lowest-risk economy in Latinamerica

According to a study recently conducted by consulting firm, JP Morgan, Peru is the lowest risk economy in Latin America.

When analysing the financial security of a market, a common indicator used is the EMBI (Emerging Market Bond Index). This measures a country’s ability to meet its financial obligation and the political risk associated with the country. The EMBI is measured by the difference in the average yield of a country's sovereign bonds versus the yield of U.S. Treasury bonds, which are considered risk-free. The bigger the difference, the higher the risk and therefore the more likely it is that the state will breach its financial terms.

JP Morgan compiled an index of EMBEI and Peru proved itself to be the least risky economy in Latin America. This is great news for the country as low country risk can encourage foreign investment and consequently economic growth.

Microfinancing to increase in Peru in 2020

The Development Bank of Latinamerica (CAF) has announced plans to increase microfinancing in Peru and Colombia.

In 2019, CAF created a fund of US $13.8 million to promote and energize the ecosystems of microfinance entities in Peru. However, for the first half of 2020, CAF hopes to finalize new approval of credit lines in Peru and Colombia worth US $32 million.

In 2019, the total payments made in the Latinamerica reached US $70.7 million which helped 23,000 entrepreneurs of which 60% were women. Microfinancing is an essential service which provides small business owners and entrepreneurs with access to capital. Often, these small and individual business owners do not have access to traditional financial resources from the bigger institutions. This means it is harder to access loans, insurance and investments necessary for their business.

The distinguishing aspect of these loans is the fact that they are issued despite the fact that the receiver will have no collateral or financial security. Many of the people who receive this loan come from poor backgrounds and would not be able to start their business otherwise. The increase in microfinancing in Peru will encourage entrepreneurship and help to decrease inequality of opportunity.

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