Developing Diversified and Responsible Financing for Micro, Small, and Medium Enterprises in Guatemala

Program Development Objective (PDO)

The goal of this technical assistance program is to develop diversified and responsible financing for micro, small, and medium enterprises (MSMEs) in Guatemala by (a) establishing an enabling regulatory environment and (b) creating diversified and affordable financial products for MSMEs, all while protecting financial consumers and investors.


In 2014, Guatemalan banks appeared sound and well capitalized. However, the banking sector’s main challenges at that time were deepening the financial system and increasing access to financing by small firms and low-income households. Financial cooperatives (FCs) and microfinance institutions (MFIs) are important providers of financing for MSMEs and low-income households, but FCs and MFIs remain fragmented and inadequately supervised. As a result, the credit services available to low-income households and MSMEs were (a) characterized by high costs and (b) regarded as being risky rather than as lacking liquidity. Increasing outreach to MSMEs requires stronger regulatory and supervisory frameworks for financial consumer protection and for market participation, as outreach leads to new and potentially unseasoned consumers entering the formal financial system. 

The Financial Sector Assistance Program’s (FSAP) mission noted the existence of a number of Guatemalan lending practices that are not in line with generally agreed principles of consumer protection. Thus, the Guatemalan authorities requested technical assistance to (a) address a number of recommendations contained in the recent FSAP and (b) enable financial inclusion for MSMEs.


This technical assistance project includes the following activities: 

1.  Promoting a well-regulated MFI and FC sector
     This component entails developing sound regulatory frameworks for MFIs and FCs, increasing
     supervisory capacity to implement the new regulatory frameworks, improving the reporting
     practices of MFIs and FCs, increasing the participation of MFIs and FCs in the credit
     registry, and implementing effective regulations of market conduct.

2.  Developing affordable and diversified financial instruments for MSMEs
     In an effort to mitigate the credit risk of MSMEs and to reduce the cost of lending to them,
     the project team is designing a sustainable partial credit guarantee fund and setting up a
     factoring platform. Providing the foundation for securities markets, the project team is
     also (a) developing the regulations necessary to implement the new securities bill,
     (b) strengthening supervisory capacity to implement the new securities bill, and
     (c) developing a strategy to incentivize market participation. 

3.  Strengthening protection of financial consumers through legal and regulatory frameworks 
     The project team is (a) working to identify legal, regulatory, and institutional gaps in
     MSMEs, as well as MSMEs’ levels of financial capability; (b) developing an action plan to
     address these gaps; and (c) drafting a consumer protection framework for all financial

Expected Outcomes

The main expected outcomes of the project are as follows: 

1.  Increasing the number and amount of loans or lines of credit provided to MSMEs

2.  Establishing sound legal and regulatory frameworks and improving the supervisory capacity of

3.  Establishing sound legal and regulatory frameworks and improving the supervisory capacity of

4.  Establishing a partial credit guarantee fund and a factoring platform

5.  Creating an enabling legal environment in which securities markets can be established

6.  Strengthening the consumer protection framework for all financial services