The Credit Line for Productive Investment (Línea de Financiamiento para la Inversión Productiva, LFIP) has already reached more than 350,000 micro-, small- and medium-sized enterprises (MSMEs) in Argentina for about ARS3,585 billion from its implementation two years ago. This is one of the main programs implemented by the BCRA whereby a portion of bank funding is channeled towards the productive sector. The program aims at boosting production to contribute to economic development and employment creation.
The Board of the BCRA launched the LFIP on October 15, 2020 as under Communication A 7140, which established that banks must allocate a portion of their deposits to grant credit at lower rates for investment projects and financing working capital. According to the current regulation, the largest financial institutions (included in Group “A”) must allocate to this credit line at least 7.5% of the private sector´s funds deposited in pesos in September 2022, while smaller financial institutions, 30% of the largest institutions’ quota.
Following the objective of streamlining financing to the productive sector, last September the BCRA extended the effectiveness of the LFIP until March 2023. This credit line is the main instrument to channel financing to MSMEs under more favorable conditions. Under this credit line, the annual percentage rates (APR) on lending for investment projects currently stood at 64.5%, and for other purposes, at 74.5%.
Around 86% of the amount disbursed up to November 2022 (more than ARS3,585 billon) was channeled to financing working capital, and the rest, to investment projects. The total stock of the LFIP totaled ARS1,073,565 million in October, which accounted for 1.2% of the gross domestic product (GDP).
Public banks played a key role in financing under this credit line, with a 48.6% share in the total stock of financing—up 7 percentage points (p.p.) against 41.2% in October 2021. In turn, private foreign banks have a share of 27.5% in the total amount granted, remaining virtually unchanged against last year (27.7%). As regards private domestic banks, their share in the total slid down between October 2021 and October 2022, from 31.3% to 23.9%.
The strength of this program mostly lays in financial inclusion. More than 2,800 companies that had never had bank financing have joined the financial system since last July, and almost 15,000 since the LFIP’s implementation in November 2020.
The data arise from the latest Financial Stability Report published by the BCRA, which also highlights the low level of non-performance of debtors under this credit line recorded so far. The non-performance ratio of borrowers under the LFIP stood around 0.6%, below the indicator for the total of companies which stands at 3.2%.
As regards the size of MSMEs that received financing under the LFIP, almost all the companies (94%) had fewer than 100 employees at the time they had applied for the loan. In addition, around 20.7% of the total number of individuals formally employed in the private sector in Argentina are employed by borrowers under the LFIP (up 1.2 p.p. against April 2022).
The stock of bank financing to small- and medium-sized enterprises (SMEs) in pesos—at an aggregate level—has been on the increase since the launch of the LFIP, recording nearly 20% of the total stock of financing to the private sector, 5.6% of the assets placed in the financial system, and 1.7% of the GDP as of September 2022.
In turn, the growth of the LFIP partially counteracts the fall in real terms of the remaining credit lines. Within a context of lower economic activity, the stock of loans to the private sector in pesos—at constant prices and seasonally-adjusted—shrank between October and November at an average monthly rate of 2.2% seasonally-adjusted (s.a.), falling nearly 12% over the year.
The LFIP is one of the measures adopted by the BCRA to boost lending to MSMEs. Within this framework, the BCRA simplified the minimum cash regime in pesos last October, except for the deductions that promote credit intended for productive purposes to MSMEs.
Moreover, the BCRA seeks to consolidate the electronic credit invoice for MSMEs (factura de crédito electrónica MiPyME, FCEM) as a financing instrument by implementing the Database of MSME Electronic Credit Invoices Not Paid Upon Maturity (Central de Facturas Electrónicas MiPyME Impagas al Vencimiento, CENFIV). The CENFIV will promote transparency and will create a credit record to improve the traceability of FCEMs. The use of FCEMs promotes a straightforward operation that accommodates MSMEs’ daily management.
