Corporación Financiera de Desarrollo president Jorge Velarde has submitted proposals to Peruvian government ministries to protect credit flows during the El Niño climate emergency.
The state-backed development bank aims to prevent severe weather disruptions from choking corporate liquidity and halting productive activity across the country, Velarde said during an industry forum.
The proposed measures target multiple points along the credit chain. They focus on maintaining small business financing, preserving payment streams between major corporations and their suppliers, and supporting financial institutions facing deteriorating loan portfolios.
Velarde stated that the proposals had been formally presented to government ministries overseeing the economy as well as the special command handling the El Niño response. He announced the initiative at an event organized by the Sociedad Nacional de Industrias, Peru's national manufacturing association, focused on climate emergency preparedness.
The El Niño weather phenomenon periodically causes heavy rainfall, flooding, and coastal warming in Peru, posing significant risks to agriculture, transport networks, and commercial infrastructure. Emergency climate events often strain company liquidity and increase default risks for regional lenders.
Protecting small businesses and supply chains
The first proposal focuses on micro and small enterprises, known in Peru as mypes. Velarde said sustaining credit to smaller businesses requires development institutions to accompany financial entities in managing loan risk during periods of economic disruption.
A second proposal addresses medium and large companies, aiming to maintain the flow of payments to their suppliers and independent professionals. Velarde explained that liquidity damage at a major firm could quickly cascade through an entire supply chain if secondary providers are left unpaid.
He specified that the objective is not to provide direct financing to large corporations. Instead, the initiative leverages the stronger credit profile of principal taxpayers to ensure that payments continue reaching independent contractors and smaller service vendors.
Relief for financial institutions and bad loans
A third measure targets microfinance institutions, credit unions known as cajas, and commercial banks. Velarde noted that while regulatory authorities may grant loan rescheduling facilities, lenders could still accumulate impaired loan portfolios, restricting their capacity to issue new credit.
Municipal credit unions and specialized microfinance lenders play a vital role in Peru by providing working capital to rural businesses and small merchants. However, these institutions are often heavily exposed to localized climate damage when heavy rains disrupt regional business activity.
Under the Cofide proposal, the development bank or a specialized fund managed with state support would purchase a portion of those impaired portfolios. The selling financial institutions would then be given a five-year window to buy back the loans once economic conditions stabilize.
Funding infrastructure through tax credit schemes
In addition to credit support measures, Cofide is expanding financing for public infrastructure projects through Peru's Works for Taxes scheme, known locally as Obras por Impuestos. The mechanism enables private companies to fund public works in exchange for tax credits.
Velarde said Cofide already has its first two Works for Taxes transactions in the development pipeline. The institution plans to offer revolving credit lines to support construction firms and infrastructure developers throughout project execution.
The development bank is also evaluating whether to participate as an anchor investor in infrastructure funds. Under this framework, third-party funds would use specialized Project Management Office management to oversee and execute the development projects.
Corporación Financiera de Desarrollo operates as Peru's state development bank, functioning as a second-tier financial institution that channels resources to foster economic growth, support small businesses, and fund national infrastructure developments.
