Future of Fish is excited to announce the launch of the Artisanal Fisher Development Fund (the Fund), a pilot loan guarantee fund to facilitate access to credit to support formalization, sustainable practices and financial inclusion amongst Peru´s artisanal fishing sector .
The informal economy in Peru is estimated to make up more than 40% of the country’s GDP and its presence is widespread amongst artisanal fisheries. As in many communities dependent on wild capture fisheries, this lack of formality prevents most fishers, vessel owners, and coops/associations from accessing the formal market and necessary financing to improve their businesses. Many of these fishers instead are reliant on informal money lenders who lock them into “debt-trap” conditions which, in turn, perpetuates the need to fish more to pay off their debts – thus exacerbating overfishing and illegal, unreported, and unregulated fishing (IUU). This dependency means that breaking off existing relationships with informal lenders to pursue new, formal financing sources can present significant risks to fishers. Compounding this risk, even when choosing a path to formalization, a newly formalized business will not be able to access formal credit due to their lack of commercial track record, credit history and adequate collateral. Given these challenges, transitioning from the informal to formal economy presents significant risks that many are unable or fearful to take given the risks to the activities that support their livelihoods.
Moreover, within Peru´s savings and lending sector, only a fraction of their credit portfolios are devoted to financing artisanal fisheries. A study implemented in Peru in 2021 by UNDP’s Biodiversity Finance Initiative (BIOFIN) analyzed the credit portfolio of the seven most important savings and lending financial institutions, concluding that 95% of their portfolios were comprised by loans in the agriculture and livestock sectors while only 5% were devoted to the artisanal fisheries and aquaculture sectors largely due to the particular and additional risks inherent to seafood production versus terrestrial based activities. This striking difference reinforces the importance of this initiative to bridge the financial gap in Peru´s artisanal fishery sector.
In order to address these challenges, educate the financial sector and advance the sustainability of Peruvian artisanal fisheries, Future of Fish and Future of Fish Peru are partnering with Caja Sullana, one of Peru’s main savings and lending financial institutions, to launch the Artisanal Fisher Development Fund. The Fund will be used to help bridge the transition from informality to formality by providing the collateral necessary for Caja Sullana, and other financial institutions, to provide loans to cooperatives and artisanal fishers. The pilot is expected to last 2 years, and be accompanied by additional capacity building activities to improve artisanal fishers’ and cooperatives management and financing capacities while ensuring loan repayment.
This loan guarantee fund represents an innovative approach to support fishers in managing the transition from informal to formal and thus from IUU to legal fishing. The combination of capacity building to support better administration to unlock pilots that support better business practices that can result in increased profitability can help demonstrate that there is a business case to be made to incentivize more responsible production, both in Peru – and globally. — Peter Battisti, Executive Director, Future of Fish
At the conclusion of the pilot, we hope that the Fund begins to demonstrate that artisanal fishers and cooperatives can represent a tangible asset class to financial institutions with the potential to grow into a profitable economic sector while also helping to bridge the financial inclusion gap in the artisanal fishers’ sector. We believe that facilitating this access to credit for Peru´s recently formalized artisanal fishers, coops, and associations is an essential step in expanding responsible business practices amongst the artisanal fishing fleet.
For more information on the Artisanal Fisher Development Fund, please contact Luis Miguel Ormeno at lormeno@futureoffish.org.
Glossary of terms:
Business formalization
A process by which a company goes from being informal to fulfilling all legal requirements in terms of creation, tax compliance, and social protection of its workers.
Collateral
Tangible or intangible assets pledged by a borrower as guarantee for a loan. If the borrower stops repaying the loan, the lender can seize the collateral to get their funds back.
Financial inclusion
Means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
IUU
Illegal, unreported, and unregulated fishing activities violate both national and international fishing regulations. IUU fishing is a global problem that threatens ocean ecosystems and sustainable fisheries.
Informal economy
Refers to economic activities that are not regulated by the government, not monitored for taxation purposes, and not included in the Gross Domestic Product (GDP) calculations of a country. These activities are often characterized by their unregistered and non-compliant nature with regards to government regulations and tax laws.
Loan guarantee
A promise by a third party to repay a loan if the borrower defaults on their obligation to repay the loan. In other words, it is a form of financial security provided by a guarantor to a lender to mitigate the lender’s risk of lending money to a borrower.
Reference
BIOFIN. 2021. Estudio de caso sobre el impacto del cambio climático y el uso sostenible de la biodiversidad en la cartera de las CMAC para los sectores de agricultura, ganadería y pesca. Perú.
Published Jun 21, 2024
