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Ecuador’s microfinance market is well developed with a diverse range of products and services. While both growth and performance indicators in recent years have lagged behind the rest of the Latin American region, on a country level 2010 was a strong year of recovery for Ecuador following the previous slowdown of the world economy. A new government initiative looks to further advance social inclusion throughout the country by changing supervisory laws in regard to microfinance activities, and by facilitating the issuing of government funding to MFIs to the detriment of foreign financing. A detailed explanation and analysis of the new Ecuadorian regulatory schemes can be found throughout the Ecuador Country Briefing:

• Overview: New regulatory laws passed in May of 2011 look to establish a single legal framework for Ecuador’s financial system. These laws will directly affect the microfinance sector, bringing many previously unregulated MFIs under the supervision of ‘the Authority for the Solidarity and Popular Economy’.
• Supply & Demand: Growth in the Ecuadorian microfinance sector has been seen across a number of product categories, with loans earmarked for purposes such as ‘housing’ or ‘consumption’ growing at a faster rate than previously dominant ‘enterprise’ loans. Deposit balances have also increased in the last year, closely mirroring fluctuations seen in the foreign remittance market.
• Funding: While client deposits still account for nearly half of MFI funding in Ecuador, 2010 saw a reduction in this funding source by about 1.5%. The Ecuadorian State is the sector’s biggest single funder, largely relying on oil revenues to make public funds available.
• Performance: Profitability in the sector increased in 2010, although return on asset indicators still show the country to be about 0.5% below regional benchmarks. Operational efficiency indicators such as cost per borrower also show Ecuador to be lagging well behind its regional counterparts.
• Quarterly Update: New laws issued by the government will create significant changes in the microfinance sector, with the imposition of cross-border funding taxes likely to cause MFIs to take on increasing domestic debt as opposed to foreign financing in the future. As the government has taken on increasing control of the largest domestic lending funds, it begs the question of whether the microfinance industry could be sliding towards nationalization.

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