Academic literature on the topic 'Consumer Protection in the capital market'

AbstractIn 2009, the Nigerian banking system witnessed a financial crisis caused by elite borrowers in the financial market. Regulatory response to the Nigerian crisis closely mirrored the international response with increased capital and liquidity thresholds for commercial banks. While the rise of consumer protection on the agenda of prudential supervisors internationally was logical in that consumer debt was the main cause of the global recession, the Nigerian banking reforms of 2009 disproportionately affected access by poorer consumers, who ironically had little to do with the underlying causes of the crisis. As lending criteria become more stringent, poorer consumers of credit products are pushed into informal markets because of liquidity-induced credit rationing. Overall, consumer protection is compromised because stronger consumer protection rules for the formal sector benefits borrowers from formal institutions who constitute the minority of borrowers in all markets. While the passage of regulation establishing credit bureaux and the National Collateral Registry will, in theory, ease access to credit especially by lower-end borrowers, the vast size of the informal market continues to compound the information asymmetry problem, fiscal policies to tackle structural economic issues such as unemployment and illiteracy remain to be initiated, and bank regulators continue to pander to elite customers with policy responses that endorse too big to fail but deems lower-end consumers too irrelevant to save. The essay concluded that addressing the wide disparity in access to credit between the rich and poor through property rights reforms to capture the capital of the informal class, promoting regulation to check loan concentration, and stimulating competition by allowing Telecommunication Companies (TELCOs) and fintech companies to carry on lending activities because of their superior knowledge of lower-end markets will facilitate greater access. The risk of systemic failure deriving from consumer credit in Nigeria is insignificant compared to the consumer vulnerabilities resulting from the exposure of consumers to unregulated products in the informal market.

The object of this scientific article is protection of consumer rights and interests in contractual relationship between seller and consumer. The ever-expanding trade development, increasing abundance of goods and services stimulates consumption and this obviously leads to the growing number of consumer contracts. The growing number of consumer contracts determines the need to regulate contractual relations of consumers and sellers as much detail as possible. The purpose of detailed regulation is to prevent unfairness and ensure effective protection of the consumer as the weaker party. The work also draws attention to European Union law. The European Union law not only develops and ensures free movement of goods, services, capital and persons in a single market of European Union, but also seeks to discover a balance between the competitiveness of various companies in different Member States and a high level of consumer protection.

Capital market sector is one of the financial services which quite dynamic in progress. Capital market transactions have varied characteristics and complexity. In its practices, many factors may motivate legal dispute in capital market in which mostly not settled in litigation way. The investors avoid settle their dispute through litigation mostly because of its formalistic procedure, time consume, and uncertainty of the result because of distrust against court system. The Indonesian Supreme Court has enacted Supreme Court Regulation No. 5 of 2015 concerning Small Claims Procedure as an effort to reform civil justice system which is simplify and expedite. The small claim procedure may offer dispute settlement which simple and quick, however it is limited with the claim value up to Rp200 millions, while mostly capital market transaction has greater value than Rp200 millions. This article will discuss the implementation of the small claims procedure in investor dispute settlement in the capital market. Moreover, this article also elaborates the advantages and disadvantages of small claims procedure in settling investor dispute as a protection to the consumer in capital market.

AbstractThis paper discusses the design of the legal and regulatory framework for using artificial intelligence (AI) in the financial services markets to enhance access to finance (financial inclusion). The author argues that the development of AI should continue to adhere to the regulatory objectives of market safety, consumer protection, and market integrity. However, to ensure equality and fairness, access to finance should be made a clear policy choice. In the first part, the author discusses how AI can lead to systemic risks and market manipulation on trading platforms. For example, by examining the use of algorithms for trading on the capital market, the author discerns the regulatory objectives and the possible methods of regulation for peer-to-peer platforms. In the second part, the author discusses how the use of AI to provide consumers with investment advice, such as financial advice provided from robo-advisers, can close the investment advisory gap and provide consumers with access to finance. The current regime does not provide adequate protection to financial consumers in this regard. In the third part, the author discusses how AI can be used as a form of RegTech to streamline compliance processes, thereby increasing competition in financial markets and providing a benefit to consumers. However, this use may be in conflict with privacy, data protection, and ethical concerns. The author makes policy recommendations and suggests some directions for governance in the use of AI in financial services to enhance access to finance. The findings of this paper are relevant to research on the future governance of AI in financial services, public policy innovation, and urban development.

The capital market is seen as an effective means to accelerate the development of a country because of its ability to mobilize long-term funds from the public to be channeled to productive sectors. However, trading traffic on the capital market requires supervision from the government or parties that are considered to be independent to create safe and comfortable market conditions for each party that will carry out the transaction. This article raises the issue of how to control the capital market before and after the enactment of the Law Number 21 of 2011 concerning the Financial Services Authority ?. The writing of this article uses a normative approach in analyzing various laws and regulations as well as literature related to capital market developments. The process of data analysis is done qualitatively. The function of the capital market supervision after the enactment of Law Number 21 of 2011 concerning OJK replaces the function previously performed by the Capital Market Supervisory Agency (Bapepam). Supervision under the OJK is based on a passion to give attention to protection and education for consumers. Education and protection of financial consumers is directed to increase the trust of investors and consumers in every activity and business activity in the financial services sector and provide opportunities and opportunities for the development of the financial services sector in a fair, efficient and transparent manner.

AbstractEU regulation both affects private law and increasingly relies on private law mechanisms to ensure its proper enforcement. Prominent examples are competition and capital markets regulation. In contrast, EU prudential regulation of commercial banking predominantly relies on public enforcement via supervisory authorities. This is astonishing given that the protection of individual bank customers emerges as a leitmotiv of EU banking regulation. CRD IV and CRR as the main legislative acts of EU commercial banking regulation strongly promote the goals of depositor and investor protection. More explicitly, the Consumer Credit Directive and the Consumer Mortgage Credit Directive introduced the duty of responsible lending towards consumers. Where the individual bank customer enjoys regulatory attention, but is not protected by public supervisory authorities, private law is best placed to fill the enforcement gap. In light of CJEU guidance, this contribution argues that the current EU banking regulation is open for and even requires private law remedies to enforce individual protection goals. Suitable instruments are contract interpretation, contract nullity and damages.

The main issue discussed here, using a juridical normative method, regards the legal validity and implementation of, and legal protection given to investors, found in the Financial Services Authority Regulation No. 41/POJK.04/2020 re. Electronic Public Offering of Equity, Debt Securities and/or Syaria’ Undivided Share. Important to note is the fact that the Financial Services Authority is established by virtue of Law No. 21 of 2011 to replace and take over the functions of the Capital Market and Financial Institution Supervisory Agency and the Central Bank in regulating and supervising Indonesian Banks and Capital Markets and lastly protect consumers in the financial services industry. Here should also mentioned the fact that the Capital Market Law (No. 8/1995) and its implementing regulations has yet to respond to how advances in information technology can be utilized to regulate-control and supervise public offering of shares or equity in the Capital Market.

The world experience of the prerequisites for the formation of a consumer personal data market has been analyzed, in particular from the point of view of providing access to stakeholder groups interested in it. A conceptual scheme of the for-mation of a market for personal data has been introduced. A quantitative and qualitative analysis of indicators that identify the conditions of the personal data market has been carried out. The following indicators has been included in the work: economically active population, Internet home subscribers, Internet connectivity rates, available income per capita, and recorded cybercrimes. The basics of streamlining public information relations in terms of personal data protection based on the formation of a unified system of personal data protection has been formulated, methods for minimizing the risks of leak-age of consumers personal data has been developed.

Modern food market is a market with a high level of innovativeness, what is a consequence of more and more differentiated expectations of consumers, not only about the hunger, but also various hedonistic desires, keeping slender figure, increasing vital forces, saving time, or protection of environment (Gutkowska, 2011). Food industry is becoming more and more global. Development of international corporations, movement of capital and workforce on the international scale, development of IT cause diffusion of consuming behavior patterns and there is growing tendency of identification with transnational values. However, phenomenon of homogenization of needs is less observable within the food products because consumers often manifest ethnocentric attitudes toward these products. Food consumption has the strongest relationship with the culture of the country and therefore, in comparison with industrial consumption is less susceptible to the process of globalization. Consumer is an invaluable source of information, indispensable for the producers during preparation of marketing strategies connected with designing and introduction of new products to the market. Knowledge of attitude and behaviors of the consumers towards innovations can significantly contribute to the growth of subject innovativeness. Currently, there is no single common position on how baying decisions of the Generation Y consumer are determined by global trends, and to what extent they are the result of cultural conditioning. Therefore, undertaking this issue has its cognitive justification due to insufficient diagnosis. The goal of this article is identification perception of Gen Y consumers towards innovations on the food market. The author used an analysis of the subject literature and results of her own surveys conducted among 606 consumers Generation Y, from the border areas of Poland and Czech Republic. Results of research have proven that young consumers are open to novelties. The innovations on the food market is a subjective category. Some of the ways of perception of innovations on the food market varied depending on sex and nationality of the respondents.

One of the near casualties of the global financial crisis (Crisis) was the march toward a more principles-based global regulatory structure that simultaneously encouraged cross-border transactions and recognized sovereign authorities over them without the necessity of a one-size-fits-all regulatory framework. The implementation of the G20 reforms for over-the-counter derivatives was far more prescriptive than principled. Post-crisis implementation of the G20 reforms, embodied in the United States in Title 7 of the Dodd Frank Wall Street Reform and Consumer Protection Act, yielded a costly, and in some markets, persistent loss of liquidity and fragmentation as market participants have attempted to sort out complex and sometimes competing regulatory requirements for reporting, trading, clearing, margin, and capital in practice.

The diploma thesis deals primarily with consumer protection in the capital market in the Czech Republic. It compares the situation in the capital market with conditions existing in the banking sector. It emphasizes the importance and possible consequences of upcoming pension reform in the Czech Republic in 2011. The first part of the thesis describes capital market structure and its functioning, analyses financial position of Czech households and contemplates the reasons that can lead to consumer protection in financial markets. The second part of the thesis deals with specific protective tools that are used in the Czech Republic to protect consumer. It analyses tools that are implemented to protect consumers' financial assets and tools associated with distribution of financial services and information requirements imposed on financial intermediaries. The thesis analyses the efficiency of selected important tools (such as investor compensation schemes or investment limits).

The thesis provides an overview of consumer protection in the financial markets in the Czech Republic. The focus is on the legislative system of client protection in commercial banking, which includes consumer credit, protecting consumer deposits and system of payments. Furthermore, this thesis deals with capital markets, focusing on consumer protection resulting from the implementation of MiFID in the legal system of the Czech Republic. The last segment of the financial markets defined in this thesis is the insurance industry. Each area of consumer protection is complemented by illustrations of current cases and includes an evaluation of the effectiveness of certain legal measures and revealing the weaknesses in each segment. Beyond the legislative framework are also described activities in the area of consumer protection by major institutions, in particular the activities of the Ministry of Finance of the Czech Republic, Czech Financial Arbitrator, Deposit Insurance Fund and the Guarantee Fund. To add to the comprehensiveness of the overview of consumer protection in the financial markets, additional protective measures were included (Institute of debt relief, distraint of debtor, protection of personal data of clients of financial institutions).

The performance of cash protection strategies implemented in the South African market are investigated in order to establish if investors are able to add value through the use of dynamic portfolio insurance methods. The analysis is performed, using monthly data, from January 1961 to August 2014 using six alternative methodologies including both a Fixed Rate and Rolling Average Stop-Loss approach, a Lock-In approach, a Constant Mix strategy, a Constant Proportion Portfolio Insurance ("CPPI") approach and an alternative CPPI approach using a Ratchet mechanism. The results indicate that the use of such cash protection strategies can markedly improve portfolio performance from a risk return perspective compared to a pure diversified investment strategy. Notably, the use of older, simpler trading strategies such as the Stop-Loss and Lock-In approaches at optimum threshold levels can still offer investors higher risk to reward benefits with less commitment required. These strategies, though, lack the flexibility observed with the more recently developed dynamic trading strategies in terms of providing for varying risk appetites.

Magister Legum - LLM (Public Law and Jurisprudence)
Zimbabwe is a Southern African country which has witnessed frequent bank collapses in the last two decades. This has eroded consumer and business confidence in the banking sector due to the irreparable financial prejudice suffered by most sectoral consumers. The side effect of this lack of trust in the sector has been the hoarding and preference of cash in most, if not all transactions, as opposed to the use of plastic money. Between April 2015 and March 2016, it is estimated that between US$3 billion and US$7.4 billion was circulating outside the banking system in the informal sector thus exposing the depth of mistrust crippling the banking sector. Together with other factors beyond the scope of this study, it is submitted that this lack of trust and confidence in the sector has contributed to the current cash shortage which, according to Latham and Cohen, has left .a black hole in the financial system that's crushing the rest of the economy'.

Both developed and emerging markets have liberalised their stock markets by removing investment restrictions on equity capital inflows and outflows. The aim is to attract foreign investors and also to allow domestic investors to diversify internationally. However, existing literature shows that local investors overweight the domestic market (home bias), whilst foreign investors under or overweight foreign markets (foreign bias). Current studies have mainly investigated factors that determine home and foreign bias. The study uses comprehensive macro and micro level data to examine the implications of home and foreign bias on three research questions. The first empirical study investigates the impact of home and foreign bias on cost of capital. We mainly use five measures to proxy for cost of capital. We find compelling evidence supporting the hypothesis, those countries that exhibit higher home bias, experience higher cost of capital. Similarly, consistent with theory, we find that countries that have higher foreign bias enjoy lower cost of capital. In the second empirical study, we examine the impact of home and foreign bias on stock market development. Economic reasoning suggests, that countries that have home bias should have lower level of stock market development, while the countries where foreign equity portfolio investors invest more, should be associated with higher development. Our findings, based on rigorous analysis, confirm that prevalence of higher degree of home bias impedes stock market development. Likewise, higher foreign bias in equity portfolio allocations has significant positive implications for the development level of domestic stock market. Finally, in our third empirical research, we examine whether varying degrees of home and foreign bias have any impact on country level investor protection standards. We report two findings. First, we find strong evidence that supports the hypothesis that home bias leads to weak investor protection. Second, consistent with theory, countries that experience higher foreign bias, tend to have better investor protection. The findings suggest that provision of encouraging optimal international portfolio allocations to increase risk sharing, could be a crucial policy measure for governments. Policy makers in emerging countries can improve macroeconomic fundamentals and good governance to attract and retain foreign investors.

Le premier chapitre montre l'interdépendance sur le marché locatif entre le formalisme procédural (FP) et les réseaux sociaux locaux. Tandis que le FP augmente le coût de résolution des conflits juridiques entre propriétaires et locataires, les réseaux sociaux présentent l'avantage de pouvoir régler un conflit sans la justice. Le FP permet de rendre plus intéressant aux yeux du propriétaire les individus appartenant à un réseau social. Le deuxième chapitre explique l'importance du soleil sur la demande de régulation du marché locatif. Les pays d'Europe du sud très ensoleillés sont attractifs de par leur douceur de vie. Cette immigration potentielle augmente la tension sur le marché locatif. Pour la réduire, les individus d'Europe du sud développent une complémentarité entre capital social local et régulation. Cette stratégie explique un équilibre méditerranéen où le capital social local et le FP sont élevés. A contrario, l'absence d'attractivité des pays faiblement ensoleillés explique un équilibre anglo-saxon et scandinave aux caractéristiques opposées. Le troisième chapitre explique le soutien pour la régulation du marché du travail par la présence de régulations sur le marché locatif. Lorsque ce dernier est très régulé, les propriétaires sélectionnent les locataires selon leur capacité à payer le loyer. Protéger les contrats à durée indéterminée oblige les entreprises à sélectionner les travailleurs et permet alors aux propriétaires de mieux estimer le risque individuel de licenciement. Nous construisons un modèle où les individus sans emploi demandent plus de régulations et de protections en dépit de l’augmentation du chômage et de la part des contrats temporaires
The first contribution studies the complementarities between the strength of social networks and the stringency of procedural formalism. While procedural formalism increases the cost of legal dispute resolution between landlords and tenants, social networks allow conflicts to be solved without recourse to justice. Procedural formalism is thus a way to provide a market advantage to local individuals embedded in dense local social networks at the expense of nonlocal agents without access to such networks.The second contribution deals with the importance of the sun on the demand for regulation in the rental market. Southern European countries with good climate amenities are attractive by their mildness of life. This potential immigration increases the pressure on the rental market. To reduce it, individuals in Southern Europe develop complementarities between social capital and local regulations. This strategy explains a Mediterranean equilibrium characterized by high levels of local social capital and procedural formalism. Conversely, the lack of attractiveness of countries with low climate amenities leads to an Anglo-Saxon and Scandinavian equilibrium with opposite features.The third contribution explains the support for labor market regulation by the presence of regulations on the rental market. When the rental market is very regulated, landlords screen applicants with regard to their ability to pay the rent. Protecting regular jobs offers a second-best technology to sort workers, thereby increasing the rental market size. We provide a model where non-employed workers demand protected jobs despite unemployment and the share of short-term jobs increase

In this article, the author tell us regarding the main function of the consumer protection system, which is to maximize the making good decisions consumption by consumers. Likewise, he tells us about the  information asymmetry and how it should be considered, as well as the inequality between a consumer and a seller. To end, he points out the discussion of whom and why would be considered as consumers as well as the effects of this decision.
En el presente artículo, el autor nos habla sobre la principal función del sistema de protección al consumidor, que es la de maximizar la toma de buenas decisiones de consumo por parte de los consumidores. Asimismo, el autor nos habla acerca de la asimetría de la información y cómo debe ser tomada en cuenta, así como de la desigualdad entre un consumidor y un vendedor. Finalmente, plantea la discusión acerca de quiénes y por qué deben ser considerados como consumidores así como los efectos de esta decisión.

The thesis deals with the issue of excessive debt of households. In the first part the analysis of development of indebtedness of households was made and it was found out, that consumer loans are the most risky. Consumer loans are associated with the highest ratio of defaulting loans and are the leading cause of bankruptcies of individuals in the Czech Republic. The following chapter analyzes institutional environment of credit market and detects current weaknesses. These weaknesses consist in insufficient oversight of nonbank provider of consumer loans, absence of upper limit of annual percentage rate for consumer credit and credit availability to risk groups of households. Another cause of overindebtedness of households is insufficient financial literacy in Czech Republic. The reduced consumption has been identified as the most significant impact of overindebtedness of households. It is caused by transferring funds from households with a higher propensity to consume to households with a lower propensity to consume. Lower household consumption leads also to lower government revenue collected through the value added tax. Another economic impact we can see for example in increasing poverty of households, increasing criminality, higher government spending on health care or potential political radicalization. The thesis results are proposals of legislative measures that would mitigate the economic impact of overindebtedness of households. These measures lie primarily in the regulation of consumer credit market and greater consumer protection. The specific options are an extension of supervision by the Czech National Bank on nonbank providers of consumer loans, determining the upper limit of annual percentage rate, more thorough application of the legal obligation to examine the ability of borrowers to repay loans. Another option is to reduce the limit of 30 % of paid-up commitments in insolvency law.

Abstract RNA interference (RNAi) is an innovative technology of gene silencing which offers great opportunities for the development of sustainable solutions for crop protection. This chapter discusses the market potential of RNAi innovation, the application of RNAi for biocontrol, and stakeholder and consumer perceptions of RNAi technologies.

Abstract RNA interference (RNAi) is an innovative technology of gene silencing which offers great opportunities for the development of sustainable solutions for crop protection. This chapter discusses the market potential of RNAi innovation, the application of RNAi for biocontrol, and stakeholder and consumer perceptions of RNAi technologies.

The need for financial transparency is way beyond reducing fluctuations on financial markets, the protection of small investors or fighting against money laundering. Asian crisis in 1997, Dot-com bubble in 2000, company crises such as Enron and the global financial crisis in 2008 have shown that a crisis caused by the lack of transparency in companies might not only affect the company and its stakeholders in a negative way but also the country and the region the company is in. After the financial crisis of 2008 many countries made various arrangements in capital accounts about increasing transparency and accountability which was seen as one of the reason of the crisis in addition the short and long term precautions. Dodd–Frank Wall Street Reform and Consumer Protection Act which came into force in the United States in July 2010 is one of the most significant arrangements. In this study, practices of increasing transparency in capital markets after global financial crisis have been discussed. In this context, in light of the new regulations and the Corporate Governance Principles, transparency and disclosure practices in Turkey have been examined. The results of these practices have been analyzed in the short term and its possible effects on capital markets, companies and shareholders have been discussed in the long term. Increasing transparency has been expected to help financial markets process more effectively and to provide benefits to all stakeholders.

Rigidity of the financial reporting model in contemporary business conditions the era of the „knowledge economy” influenced the creation of significant differences between the market and book values of companies. Characteristic of enterprises in the „new” economy is the high share of knowledge and other intellectual resources in the structure of total assets, which are at the same time the basic source of competitiveness of enterprises. Given the changing habits of consumers who are inclined to buy products on the market that identify a high degree of „embedded” knowledge, companies base their business on investing in R&D and investing in various types of intellectual property and protecting them. Due to certain limitations of financial reporting when identifying and measuring intellectual resources in an enterprise, users of financial statements are unable to get a realistic picture of the value of assets and the corresponding investments when it comes to certain types of intangible assets. Blurred financial reality can lead to irrational decisions, stagnation in business and major financial crashes, which is often the practice of large companies listed on the world stock market due to the overestimation / undervaluation of their book value. The aim of this paper is to explain the treatment of intangible assets through international accounting standards concerning the identification, recognition and measurement of intellectual resources and intangible assets, to analyze their limitations and to point out possible directions for their further development in order to provide reliable and credible reporting on assets and capital of economic entities.

One of the effects of the COVID-19 crisis is the significant acceleration of e-commerce. The number of companies and the varieties of products in the online markets increased, as well as the numbers of consumers and consumers’ segments diversification. The e-commerce in pandemic times offered clear benefits and opportunities for the consumers. It also created situations where the lack of confidence in e-commerce may intensify. This comes from the consumers’ uncertainty on their key contractual rights and it is particularly a case when it comes to the contracts for supply of digital content and digital services. The European Union considered that legal certainty for consumers (and businesses) will increase by full harmonisation of key regulatory issues and that this would lead to growth of the potentials the e-commerce has on the common market. Aiming to achieve a genuine digital single market the Council of the European Union and the European Parliament in May 2019 have adopted the Directive (EU) 2019/770 on certain aspects concerning contracts for the supply of digital content and digital services (the "Digital Content Directive") and the Directive (EU) 2019/771 on certain aspects concerning contracts for the sale of goods (the "Sales of Goods Directive") that regulate the supply of digital content and digital services and sale of goods with digital elements, respectively. Both directives lay down specific rules on the conformity of digital content or a digital service i.e., goods with digital elements with the contract, remedies in the cases of a lack of conformity or a failure to supply, as well as the modalities for the exercise of those remedies. The paper analyses the mechanisms for regulation of the contracts for the supply of digital content and digital services and the specific rights and obligations of the parties to these contracts. The main objective of the research is to assess to which extent these mechanisms are novelty in the European Consumer Law and to examine the obstacles that the application of consumer law to digital content contracts may encounter.

Market-based pipeline projects are initiated by the pipeline-owning company and require focused attempts to secure a customer or develop a market for the product transportation. The development of Market-based pipeline investments in the international arena has fundamental differences from projects sponsored by consumer or pipeline user needs, government endeavors or producers desiring to sell their product. Whereas these User-driven projects were the traditional way of developing projects in the past, current global political and economical trends are forcing private pipeline companies to develop new ways of creating business opportunities: the development of Market-based Pipeline Projects. A proactive strategy for developing energy transmission businesses (i.e. market-based projects) involves finding sufficient energy users and linking them with pipeline infrastructure to viable supplies of natural gas. These Market-based business opportunities are uniquely developed and require strong corporate vision and support before it can be successfully implemented. This paper will provide an insight to the challenges, risks and uncertainties to be faced when developing Market-based pipeline projects. The discussion focuses on the project development phase of the project, from the moment the business opportunity viability has been confirmed to the time when the decision is made to proceed with large capital commitments. The paper includes a description of the pipeline project development process and a review of the variables influencing important steps and decisions prior to commencement of project implementation and hence capital investments. While the content of this paper is mostly applicable to all types of pipeline projects, the discussion will focus on natural gas transmission pipelines.

Directive 2005/29 / EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market has been applied in the Republic of Bulgaria since 2007. The Directive performs its functions, but at present the Consumer Protection Act needs additions related to the text of the Directive, as well as additions on some aspects, so as to achieve its purpose.

Structured financing solutions encompass a range of investment approaches that provide liquidity to investors without the need for a traditional equity exit event, such as a strategic sale, sale to another financial investor, or public market listing. Structuring mechanisms across the debt-to-equity spectrum determine the exit terms of the deal, therefore providing considerable downside protection to investors. Structured financing solutions are an incipient but increasingly important set of tools for investors active in Latin America to address the financing gap for companies that lack access to bank financing and are not attractive targets for traditional PE and VC players. Many investors employing these strategies are in an experimental phase, reporting new lessons learned with each deal completed. Impact investors have been among the top drivers of these structuring innovations, as they have grappled with the additional limitations associated with the straight equity model for environmental or social enterprises. However, the use of structured financing is by no means restricted to the impact investing space. Fund managers have invested USD4b in private credit deals in Latin America since 2018, more than the previous ten years combined. PE and VC investors have also increasingly employed quasi-equity and debt instruments. ACON Investments, for example, has employed mezzanine structures in several deals from its latest funds. Brazil-focused venture capital firm SP Ventures has recently begun investing from its debut venture debt fund. Growing experimentation by fund managers demonstrates the opportunity for investors across ticket sizes, strategies, and the impact-to-commercial spectrum. The structures discussed and the case studies highlighted in this report contain some of the major lessons applicable to a wide group of private capital investors in Latin America targeting certain and timely exits with consistent returns.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.

The Colombian financial system has not suffered major structural disruptions during these months of deep economic contraction and has continued to carry out its basic functions as usual, thus facilitating the economy's response to extreme conditions. This is the result of the soundness of financial institutions at the beginning of the crisis, which was reflected in high liquidity and capital adequacy indicators as well as in the timely response of various authorities. Banco de la República lowered its policy interest rates 250 points to 1.75%, the lowest level since the creation of the new independent bank in 1991, and provided ample temporary and permanent liquidity in both pesos and foreign currency. The Office of the Financial Superintendent of Colombia, in turn, adopted prudential measures to facilitate changes in the conditions for loans in effect and temporary rules for rating and loan-loss provisions. Finally, the national government expanded the transfers as well as the guaranteed credit programs for the economy. The supply of real credit (i.e. discounting inflation) in the economy is 4% higher today than it was 12 months ago with especially marked growth in the housing (5.6%) and commercial (4.7%) loan portfolios (2.3% in consumer and -0.1% in microloans), but there have been significant changes over time. During the first few months of the quarantine, firms increased their demands for liquidity sharply while consumers reduced theirs. Since then, the growth of credit to firms has tended to slow down, while consumer and housing credit has grown. The financial system has responded satisfactorily to the changes in the respective demands of each group or sector and loans may grow at high rates in 2021 if GDP grows at rates close to 4.6% as the technical staff at the Bank expects; but the forecasts are highly uncertain. After the strict quarantine implemented by authorities in Colombia, the turmoil seen in March and early April, which was evident in the sudden reddening of macroeconomic variables on the risk heatmap in Graph A,[1] and the drop in crude oil and coal prices (note the high volatility registered in market risk for the region on Graph A) the local financial markets stabilized relatively quickly. Banco de la República’s credible and sustained policy response played a decisive role in this stabilization in terms of liquidity provision through a sharp expansion of repo operations (and changes in amounts, terms, counterparties, and eligible instruments), the purchases of public and private debt, and the reduction in bank reserve requirements. In this respect, there is now abundant aggregate liquidity and significant improvements in the liquidity position of investment funds. In this context, the main vulnerability factor for financial stability in the short term is still the high degree of uncertainty surrounding loan quality. First, the future trajectory of the number of people infected and deceased by the virus and the possible need for additional health measures is uncertain. For that reason, there is also uncertainty about the path for economic recovery in the short and medium term. Second, the degree to which the current shock will be reflected in loan quality once the risk materializes in banks’ financial statements is uncertain. For the time being, the credit risk heatmap (Graph B) indicates that non-performing and risky loans have not shown major deterioration, but past experience indicates that periods of sharp economic slowdown eventually tend to coincide with rises in non-performing loans: the calculations included in this report suggest that the impact of the recession on credit quality could be significant in the short term. This is particularly worrying since the profitability of credit establishments has been declining in recent months, and this could affect their ability to provide credit to the real sector of the economy. In order to adopt a forward-looking approach to this vulnerability, this Report presents several stress tests that evaluate the resilience of the liquidity and capital adequacy of credit institutions and investment funds in the event of a hypothetical scenario that seeks to simulate an extreme version of current macroeconomic conditions. The results suggest that even though there could be strong impacts on the credit institutions’ volume of credit and profitability under such scenarios, aggregate indicators of total and core capital adequacy will probably remain at levels that are above the regulatory limits over the horizon of a year. At the same time, the exercises highlight the high capacity of the system's liquidity to face adverse scenarios. In compliance with its constitutional objectives and in coordination with the financial system's security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions that are necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth operation of the payment systems. Juan José Echavarría Governor