Costa Rica: The involvement of special agents in the Development Banking System (SBD)
The Development Banking System (SBD) was created in 2008 by Law N ° 8634, reformed in 2014 by Law N ° 9274. As its name indicates, it is a system that comprises organizations of different nature, whose purpose is to finance and promote technically and economically feasible productive projects, in accordance with the country’s development model in relation to the social mobility of the system’s beneficiaries, which are defined in article 6 of the Development Banking System Law. As indicated in Legal Opinion number 19 of January 26, 2017, by the Procuraduría General de la República, the system comprises different organizations that interrelate to achieve the purposes and principles of development banking. “It is not, then, a single body in charge of promoting the development of priority sectors through banking or financial services. The System is not, then, an entity. The Law does not create it as a legal entity and there is no provision that allows it to be conceptualized as a legal entity. It is not a bank either. ” Such organizations are coordinated and directed by a Governing Council, with the support of the Technical Secretariat, set up as an instrumental branch.
The integration of the System, described in article 2 of the Law, includes financial, public and private entities, non-financial services entities, state and non-state organizations. While the integration of certain entities is mandatory, for example, public financial intermediaries, the involvement of other entities such as private financial intermediaries, private entities accredited by the Governing Council or private organizations that provide non-financial services, is optional. Due to this conception of development and the purpose of financing and promoting productive projects, both financing and providing business support to the beneficiaries of the System are equally important. This non-financial support is the reason why the System is also made up of entities that provide non-financial services.
As for the involvement of private financial intermediaries, article 59 of the Organic Law of the National Banking System instructs private banks to allocate a percentage of short-term deposits for the purpose of granting loans to subjects that qualify as SBD beneficiaries. Private banks must comply with one of the following options:
i) The so-called bank toll, in which banks must permanently maintain a loan balance in the Development Credit Fund equal to 17% of their total 30-day or less term deposits. These resources are received by state-owned banks and are channeled directly or via a second-tier lending model to associations, cooperatives, or other entities.
ii) This alternative requires private banks to have at least four agencies or branches outside the central region dedicated to providing basic banking services, and to permanently maintain a balance equal to at least 10% of their total 30-day or less term deposits in loans directed to the programs that are previously approved by the Governing Council of the SBD for these purposes. These resources may be placed directly or through a second-tier lending model.
In case the private intermediary choses option ii), it must be authorized by the Governing Council and register to become a member of the System. Once part of the system, it must comply with the directives of the Governing Council and the programs that are approved for these purposes. The channeling of these resources may be through a first-tier or second-tier operating model. The use of alternative models to channel these resources to the System’s beneficiaries is necessary to be able to allocate them efficiently. Therefore, the involvement of special agents is allowed; these organizations may or may not be regulated by the General Superintendency of Financial Entities (SUGEF). These special agents collaborate with the accredited bank in a previously approved program, either as a first-tier placement agent within a second-tier lending model or as a correspondent agent.
In the first-tier operating model, there are two possibilities: that the organization itself concentrates all the stages of the lending process, or that it makes use of a third party, or correspondent agent, to develop one or some of these stages (except credit approval, which should be completed by the accredited bank). In accordance with the Operating Regulations on First and Second Tier Lending Activity of Participating Banks in the Development Banking System, the correspondent agent is a link or contact between the accredited bank and the System´s beneficiaries. In this case, the bank’s credit exposure is with the final beneficiary.
On the other hand, in the second-tier operating model, the financial operator uses a placement agent to place the loans. The Operating Regulations define the placement agent as an organization, which must be accredited in the System that, in a second-tier lending model, performs first-tier operations with functional autonomy from the accredited bank responsible for the program, except for the identification and selection of beneficiaries, who must meet the requirements set forth in article 6 of the Law. In this case, the bank’s credit exposure is with this organization, which in turn, has the exposure with the final beneficiary.
The involvement of these special agents is very important since it facilitates the fulfillment of the placement and resource allocation goals for the accredited banks. Their specialization, knowledge and experience are fundamental factors that allow these agents to allocate resources more easily or serve as a link or contact between the beneficiaries and the accredited banks. Additionally, their intervention implies greater efficiency in the channeling of resources towards the final beneficiaries, which ultimately implies greater efficiency of the System as such.