for SMEs by further expanding existing government programs (see below) and by promoting the development of alternative financing instruments (investment funds, factoring/supplier financing, fiduciary structures etc.).

Government programs to support SME financing include long-term development funds and partial credit guarantees. Longer-term development funding is mainly provided in the form of rediscounting lines at below-market rates by the state-owned, second-tier credit institutions Bancóldex<sup>17</sup> , Finagro<sup>18</sup> ( _Fondo para el Financiamiento del Sector Agropecuario_ ) and Findeter ( _Financiera de Desarrollo Territorial_ )<sup>19</sup> . Partial credit guarantees – typically around 50 percent loan loss coverage – are provided by FNG<sup>20</sup> , as well as by FAG<sup>21</sup> ( _Fondo Agropecuario de Garantías_ ) for the agricultural sector. As will be seen in sections 3 and 4 below, the role of these institutions – particularly Bancóldex and FNG – has been cited as instrumental in promoting access to credit for SMEs.

The authorities have recently embarked on an initiative to improve financial access, including for SMEs. The low level of financial penetration in Colombia, both in response to pre-crisis levels and compared to other regional peers, has prompted the authorities to take measures to expand access to credit and other financial services (Figures 2.1 and 2.2). Both demand- and supply-side barriers have been identified and will be tackled via regulatory reforms and the ‘ _banca de las oportunidades_ ’ initiative. Recent policy measures have included the introduction of correspondent banking arrangements<sup>22</sup> , changes in the definition of the interest rate ceiling, passage of legislation on credit reporting (“ _Ley de habeas data_ ”), and strengthening of creditor rights via a new bankruptcy law (see section 4 for a discussion)<sup>23</sup> . Additional proposed reforms include changes to the civil code on enforcement procedures and to the financial system structure, as well as plans for the introduction of a special savings account for low-income households. In addition, the ‘ _banca de las oportunidades_ ’ initiative aims to design and propose measures to stimulate financial access, particularly for low-income households. The initiative includes a component to promote SME financing that is being drafted.

> 17 Bancóldex is an affiliate of the MCIT, and its main aim is to provide low-interest lines of credit via firsttier credit institutions for exporters and SMEs. It took on the discount portfolio and functions of another, currently defunct, second-tier credit institution ( _Instituto de Fomento Industrial_ ) in 2002, and has in recent years reoriented itself towards becoming an “entrepreneurial development and foreign trade bank”.

> 18 Finagro was created in 1990 as part of the legislation that established the _Sistema Nacional de Crédito Agropecuario_ . It is an affiliate of the Ministry of Agriculture, and its main aim is to provide low-interest financing for agriculture, livestock, forestry and related rural projects.

> 19 Findeter is an affiliate of MHCP, and it was set up in 1989 in order to lend (via first-tier banks) to subnational entities for infrastructure and other development projects.

> 20 FNG was created in 1982 and is an affiliate of the MHCP. It is a guarantee fund that ‘backs’ credits to all economic sectors (except agriculture) with the primary objective of facilitating access to credit for micro enterprises and SMEs.

> 21 FAG is a guarantee fund housed within Finagro that ‘backs’ working capital and investment loans for the agricultural sector that are financed either with Finagro discounting or with a credit institution’s own funds. 22 Correspondent banking arrangements refer to bank partnerships with typically non-bank commercial outlets in order to provide a range of banking services, such as payments and transactions. 23 See World Bank (November 2006) for more details.

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