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5. Guatemala: BANRURAL and Bancafé in Petén

The forest concession system in Petén, Guatemala is unique in Latin America for its accessibility to community-based associations and cooperatives in addition to industrial timber mills. The establishment of the community forest concession system involved a series of institutional development challenges within the government, civil society and enterprise sectors. Regulations and capacities in the management of the concessions, authorizations, and certifications had to be developed at the governmental level. Most community enterprises were accompanied by an NGO and/or international cooperative agencies throughout their development process. In addition, new community-based alliances have been formed, which are playing a key role in the community forest enterprises and policy regarding the biosphere reserve. As part of the evolutionary process, more sophisticated financial services are now being directed toward these enterprises.

The microfinance sector in Guatemala is served by commercial banks, savings and loans cooperatives, NGOs, and informal money lenders. Two commercial banks, Banco de Desarrollo Rural (BANRURAL) and Banco del Café (Bancafé), are actively involved in microfinance, with special programmes for micro-, small- and medium-sized enterprises. Savings and loan cooperatives in Guatemala are relatively well developed and distributed throughout the country. The National Federation of Savings and Loan Cooperatives has 28 members, although only seven report their statistics to the Ministry for Micro, Small and Medium Enterprises. Most of their portfolio is concentrated in individual loans, and in 2003 they reported an outstanding portfolio dedicated to microfinance of approximately US$34 million.

There are 35 NGOs providing microfinance services, working mainly through village banking and solidarity groups; over 75 percent of their loans are backed by fiduciary, solidarity or community guarantees. In general, their geographic scope is limited. Twenty of these NGOs participate in the Guatemalan Network of Microfinance Institutions. The network reports that in 2003 its members together had 143 offices and/or branches throughout Guatemala and approximately 100 000 clients of micro and small enterprises. The outstanding portfolio was approximately US$54 million.

A key advantage of the two banks compared to the other microfinance institutions is their national coverage. Bancafé has 172 branches throughout the country and BANRURAL has 275 branches. None of the cooperatives reporting to the Vice Ministry of Micro, Small and Medium Enterprises has an office in Petén, and only two NGO microfinance institutions have branch offices there.

Notwithstanding the existence of these microfinance institutions, the Guatemalan rural sector continues to be relatively underserved by financial services. A national study found that two out of three entrepreneurs in rural areas have no relationship with formal or non-formal microfinance institutions. Of the one-third that do, 51 percent work with commercial banks, 27 percent with savings and loan cooperatives, 12 percent with state-owned banks, 9 percent with NGOs and 1 percent with money lenders.

Department of Petén

The Department of Petén has been strongly colonized during the last 40 years, with its population growing from 11 000 in 1941 to 500 000 in 1996. The population is composed primarily of first-, second- and third-generation immigrants from other regions in Guatemala, who cleared large areas of forest for seasonal agriculture and pasture. They also engaged in the extraction of fine woods from the forest as well as non-wood forest products.

Several policies have been developed for the protection of the natural resource base of Petén. However, with 59.3 percent of the population living below the poverty line, and 22.15 percent in extreme poverty, any sustainable strategy for conservation must incorporate livelihood alternatives for the local population.

F ollowing the creation of the National Council for Protected Areas in 1989 and of the Maya Biosphere Reserve in 1990, 12 community forest enterprises have been formed in the Reserve by neighbouring communities or stakeholders. All of the enterprises are legally established and carry out regular planning as part of the concession process. In addition, due to the requirement that concessions become certified within three years, ten of the community forest enterprises have already achieved certification by the Forest Stewardship Council, which opens up additional marketing opportunities.

Given that the community forest concessions are long-term, and subject to long-term management plans (from 25 to 70 years), the community forest enterprises harvest a small portion of their area each year (approximately 1 percent). This helps to guarantee the regenerative capacity of the forest. Initially, the concessions principally harvested mahogany and tropical cedar - high value woods with an established demand. They have begun to explore marketing options for other woods and are now including these in their annual operating plans.

Donors have supported the start-up of the community forest enterprises, in particular through the provision of technical assistance for the development of forest management plans. Donor support continues to be available to a certain extent for the forest certification process and for developing annual operating plans.

Finance needs vary among the community forest enterprises depending on the amount of timber to be harvested, the distance of the concession from the community, internal decisions regarding salary levels and the quality of equipment owned by the enterprise. The productive capacity of each concession varies according to the density of commercially viable timber found.

Given the relative youth of the community forest enterprises, most have not been able to capitalize themselves to a sufficient extent and therefore seek financing to cover ongoing operational costs, as well as to purchase fixed assets. Most of the enterprises therefore take advantage of a combination of the following resources to cover operating needs:


Bancafé was established in October 1978 with the mission of providing financial services to clients in order to help them integrate more fully into the modern economy. In 2003, Bancafé had an outstanding portfolio dedicated to micro-enterprise in village banks, solidarity groups and individual loans of approximately US$17.8 million.

Bancafé began its relationship with community forest concessions in 2003. It was approached by institutions supporting the concessions and was asked to consider the possibility of financing the annual operating plans of a group of concessions. Loan applications were backed by the promise of support from the local office of the US Agency for International Development/Chemonics Biodiversity and Sustainable Forestry project (BIOFOR) and ACOFOP.

The loans provided to the forest concessions follow a type of institutional solidarity group. Forest concessions must have a formal legal status and be members of the AFOCOP. Loans are based on the annual operating plans developed by each of the forest concessions. These plans describe the quantity and type of timber that will be harvested and provide a detailed breakdown of costs involved in the extraction. This breakdown serves as the basis for establishing the overall amount and schedule of disbursements, which are generally monthly or once every two months. The guarantee for the loans is the ACOFOP agreement to cover any non-payment, a lien on harvested wood and the psychological effect of possible non-payment on the international prestige achieved by the concessions.

Loans to the concessions are for approximately 10 months at 18 percent interest, with interest and capital due in one final payment. When loans enter into arrears, interest is capitalized. Requirements for the loans include: current legal status and legal documentation, financial statements and/or projections for the coming harvest year, approval of the annual operating plan by the governmental forestry department and ACOFOP's solidarity guarantee. Bancafé carries out inspections every three months and requires that the loan recipients manage their accounts in Bancafé. The ACOFOP also plays an important role in monitoring loan use and payment.

In 2003, the first year of servicing community forest concessions, Bancafé approved eight loans for a total of US$1.3 million. Of the eight concessions loans, four were repaid on time, while the four remaining concessions required loan extensions. After a one-month extension, 9 percent of the total portfolio continued in arrears. All loans were paid within six months of the due date. In the case of the arrears for the 2003 loans, the ACOFOP actively worked with the affected concessions to guarantee repayment. In one case, the ACOFOP provided a bridge loan to a concession in order to guarantee repayment to Bancafé.

The four concessions that repaid their loans on time without extension qualified for new loans in 2004. Of these, three decided to continue the relationship with Bancafé and one decided not to take a new loan, based on having sufficient cash flow from other sources.

While working through the ACOFOP as the principal client is attractive to the bank in order to lower its transaction costs, there have been some drawbacks for the community enterprises and for the ACOFOP. Some of the community enterprises have complained that their loan disbursement process was delayed because the documentation for the applications of all of the enterprises had to be presented as a package. If one enterprise did not have its documentation in order on time, the entire package was delayed. The sustainability of ACOFOP is also a concern, because while it incurs costs in managing the loan process and monitoring loan use and repayment, it does not receive any portion of the interest rate or a handling fee for this service. Moreover, in the case of massive default by forest concessions, the ACOFOP would not have sufficient assets to cover the losses.

Loans to the forest concessions represent an important part of Bancafé's portfolio in the Petén region, reaching 45 percent of the portfolio in 2003 and 50 percent in 2004. In order to attract these clients, Bancafé offers preferential rates for money transfers and a favourable interest rate for loans (18 percent) and makes individual credits available to members of the concessions. Financial disaggregated data are not available; however, Bancafé reported an overall portfolio in arrears of 6.6 percent in October 2004 and the bank is consistently profitable.


BANRURAL was formed in 1997, as a result of the transformation of the former state bank, Banco de Desarrollo Agrícola. BANRURAL was formed with mixed capital, including among its shareholders the Guatemalan Government, cooperatives, indigenous groups, NGOs, businesses and the public at large.

During 2003, it had an outstanding portfolio dedicated to micro-enterprises in village banks, solidarity groups and individual loans of approximately US$53 million. By law, BANRURAL is permitted to accept unconventional collateral such as family assets, machinery and other instruments in order to facilitate microcredit. It also participates in second-tier lending to NGOs and cooperatives, and works with microfinance trust funds (fideicomisos).

BANRURAL began to work with the community forest concessions in 1999, providing loans of up to approximately US$13 000 to three concessions. These loans were backed by collateral guarantees on equipment, as well as evidence of sales contracts. In 2002, the bank experimented with larger loans, up to $52 000 provided to four concessions, backed by a letter of credit from an importer in the United States. The latter experience was less than successful, however. The importer was unable to purchase the wood that it had ordered and asked the concessions to find alternative buyers. The concessions asked for an extension from the bank in order to identify alternative buyers and the bank agreed. All the concessions eventually paid the loan, but payment was delayed, and in one case, the concession had to sell assets in order to cancel the loan.

Following this experience, BANRURAL was reluctant to provide larger loans in 2003. While it continued to provide smaller loans up to US$13 000, no more letters of credit were accepted. In 2004, it began to grant larger loans again, reaching up to US$65 000, and it plans to continue granting larger loans in 2005. Previous limits on overall loan amounts seem to have been overcome as competition is developing with Bancafé.

As in the case of Bancafé, the annual operating plans for the concessions represent an important part of the loan application. Additional requirements include copies of sales contracts, legal status in order and copies of financial statements. Loans are given in February, and interest and capital are due in November or December. Two monitoring visits are carried out to the enterprises - one previous to the loan and one during the loan period. Financial disaggregated data are not available; however, BANRURAL reported an overall portfolio in arrears of 2.1 percent as of October 2004, and the bank operates with a clear profit.

Challenges for the future

Non-payment of loans to date has principally been due to problems in the timely sale of products. In some cases, loans have been diverted for non-designated uses. Some of the decisions regarding the use of the funds have not been the most appropriate, such as the purchase of obsolete equipment. Given that the enterprises will continue to require technical and managerial support at least in the near future, and the fact that the US Agency for International Development/Chemonics BIOFOR project is drawing to a close, sustainability of the support structure is a key issue. In the longer term, a challenge will be to ensure the increasing capacity and independence of the community forest enterprises.

As part of BIOFOR's exit strategy, a local enterprise has been formed, Forescom, which is specialized in commercialization and marketing processes. Forescom is a limited liability company whose shareholders include 11 of the community forest enterprises. The company was legally constituted in July 2003, but began operations in April 2004. Forescom will serve as a market intermediary for its shareholders, with the goal of achieving better market conditions by negotiating as a block.

Forescom is also exploring options for the creation of a fund that would allow it to provide more favourable financing conditions to its members. An additional role for the company would be to serve as the contact point for loans provided by commercial banks. The company would cover its costs through an interest rate margin or a margin charged as part of the commercialization process. Forescom may also be able to answer the need for joint purchasing of equipment to achieve economies of scale, such as dryers to improve the quality of the wood sold.

Community forest enterprises require credit not only for activities stipulated in their annual operating plans, but also for the purchase of fixed assets and for short-term cash flow shortfalls. To this aim, they often employ diversified funding strategies and utilize informal sources. In many cases, at least a portion of the production is sold through advance payments from clients at fixed costs. In addition, short-term needs are often covered through accessing loans from local money lenders. In spite of their high interest rates, these informal sources continue to provide the most agile services when enterprises are faced with immediate cash flow needs.

The above seems to indicate that the commercial banks still do not meet all of the community forest enterprises' financing needs. As the enterprises develop and their repayment record is strengthened in the banking sector, more flexible financing opportunities are expected to become available, such as lines of credit that could be accessible where necessary and paid off in regular payments.


The case of Petén illustrates that with an appropriate institutional environment and support structure, community forest enterprises can successfully access microfinance services from commercial banks. Several factors have contributed to the bankability of the enterprises, namely, clear forest rights and the legal establishment of the concessions, sound annual operating plans, provision of technical assistance and business development services, loan guarantees and lowering of transaction costs.

While the community forest enterprises do not hold titles to the forest that they are harvesting, they have clear rights to their concessions. The extent of their capacity to exploit the concession is established in their general management plan and annual operating plans. The census carried out as a basis for the latter provides a clear indication of production levels to be expected and there is little risk that this production will not be achieved. While the community enterprises are new and continue to have significant management weaknesses, their financial viability is ensured to a certain extent by the existing demand for many of the products they offer, minimizing the risk for the banks.

The technical assistance and business development services provided by civil society organizations and international cooperation agencies have given an additional guarantee to the banks to offer larger loans to the community enterprises. The scale achieved by the group of community forest concessions and the scale of financial services required make the credit product an attractive option for the banks. Consolidation of financial needs of micro-entrepreneurs members of the forest concession and solidarity among the group also clearly facilitate access to the commercial banks and reduce supervision costs. Achieving this scale also leads the banks to offer other services, such as money transfer services at discounted rates and individual loans to community enterprise members in order to compete for clients.

In the case of Bancafé, the BIOFOR project and ACOFOP actively marketed the group of community forest enterprises to the bank as a package. The guarantee offered by ACOFOP and the monitoring assistance they offered together with Chemonics/BIOFOR were key in establishing a lending relationship with the enterprises. Bancafé was able to lower its transaction costs by treating the group of loans as a package, and by dealing with one overall client, ACOFOP.

Community forest enterprises require credit not only for activities stipulated in their annual operating plans, but also for the purchase of fixed assets and for short-term cash flow shortfalls. Currently, these needs are covered by sources that are much more expensive than the commercial banks. As the enterprises develop and their repayment record is strengthened in the banking sector, one would expect that more flexible financing opportunities would become available.

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