The experience of Banco Pichincha (BP), the largest commercial bank in Ecuador, illustrates how technical assistance and funding from development finance institutions can help financial institutions achieve their strategic objectives despite the crisis. In 2017, BP, with the support of IFC and other institutions, significantly expanded its MSME portfolio and tackled the country’s large gender gap in access to finance.78 It did so by addressing biases in credit review and customizing credit products for women entrepreneurs. BP entered the pandemic having doubled its portfolio of women entrepreneurs. As the pandemic unfolded, the bank continued to focus on women entrepreneurs, adapting its financial and nonfinancial services offerings to continue growing its portfolio. Between March 2020 and August 2021, BP’s MSME loan portfolio grew by 16 percent, with over 50 percent of new loans disbursed to MSMEs owned by women.79
Policies to enable access to credit and address risks Approaches to restoring credit growth involve adapting or innovating ways in which finance providers manage risk. Product features and existing approaches to risk modeling can be adapted to the pandemic economy, while other measures to improve visibility and recourse may depend on digital channels and tools. Many of the solutions supporting new lending in this context will be technology-driven. Policy makers should therefore consider taking measures to facilitate such innovations in business models and products, including by supporting the participation of new types of credit providers in the market and by enabling use of new types of data and analytics. Upgrades in financial infrastructure can further foster access to finance and support resilience in credit markets. However, financial innovation may also pose new risks to businesses and consumers, as well as to financial stability and integrity (see online annex 4A80). Addressing these risks requires adequate oversight by regulators. In fact, in many countries legacy financial sector regulatory and supervisory frameworks and approaches need to be updated.81 This section reviews some of the policies that may help foster innovation and access to credit while minimizing risks to consumers and the financial sector.
Facilitating innovation through new providers, products, and uses of data and analytics The digital transformation of finance is enabling the atomization of services, the recombination of value chains, and the participation of nontraditional providers.82 These advances can contribute to greater efficiency, more diverse and inclusive markets, and the expanded availability of credit. New entrants, from challenger banks to fintech lenders, can improve the range of products and the appetite for risk in a market that includes banks, MFIs, supply chain finance providers, and others. Regulatory and supervisory frameworks can support healthy innovation by allowing diverse lenders with modern business models to participate in the market. The entry of new financial service providers may require adjustments in the regulatory perimeter. Digital credit providers, for example, offer products similar to those provided by regulated banks, but may not be subject to oversight by the financial regulator because of the current definitions of regulated activities or institutions.83 For example, in Kenya between 2016 and 2019, the providers of app-based, short-term, small-value loans operated outside of the regulatory perimeter. During those years, use of these products expanded from 0.6 percent to 8.3 percent of adults and resulted in instances of irresponsible lending.84 This is one example of a new provider playing an important role that should be encouraged, but also overseen within an expanded regulatory perimeter.85 Regulators worldwide are developing
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