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February 22, 2024

Daniel Morales Jaramillo, ILG 2015, Ecuador, 2024 ILG Impact Award Winner

Daniel Morales, ILG 2015, was selected as the winner of the 2024 ILG Impact Award for his longstanding career leading innovative initiatives for the transformation of processes and the acquisition of new technologies that support financial inclusion and education in Ecuador.

Daniel Morales Jaramillo, ILG 2015, Ecuador
Daniel Morales Jaramillo, ILG 2015, Ecuador

By Cristina Ruiz (EML'21)

One of the innovative projects that Daniel led was the Microcredit Fomento al 1X30 project of BANECUADOR BP, a public bank that finances the agricultural, productive and service sectors in Ecuador, with loans aimed at promoting production with emphasis on microcredit. BanEcuador's Credit of Opportunities, also known as 1x30, was created to finance Ecuadorian entrepreneurs at the base of the country's social pyramid, with amounts of up to $5,000 dollars with an interest rate of 1% and up to 30 years in order to open new financing opportunities and help the formalization of new ventures. This project, which was launched in 2022, has so far benefited 102,476 families nationwide with a total amount of $305.49 million U.S. dollars.

Daniel recalls that one of his professors in the ILG program reinforced the idea that changing the world is possible, but to do so, you have to change the culture, and to change the culture, you have to start by changing processes.
 "By changing those small processes, we can impact the culture, and thus, we can change the world.” -Daniel Morales
During his participation in the 2015 ILG program, Daniel presented his change management project for the Superintendency of Companies in Ecuador, for which he worked as the National Intendant of Strategic Management. Daniel and his team were able to introduce automation processes in the creation of companies and online collections, implementation of IFRS standards, and establishment of an Enterprise Risk Control system which aimed to predict which companies could incur bankruptcy due to the deterioration of their main financial indicators. Likewise, the proposals for changes that he presented during the program were adapted when he changed roles, first when he was in charge of the Comprehensive Risk Administration of the Bank of the Ecuadorian Institute of Social Security (BIESS), where he led the automation of risk management, portfolio control, liquidity and operational risk management of that public bank. Later, from his position in the risk management team of BANECUADOR BP directing Microcrédito Fomento al 1X30, he provided formal mechanisms for entrepreneurs to access low-cost and long-term credit in order to start a business to reactivate the economy after COVID.

In this new role, Daniel was concerned about the very low rate of financial penetration, a factor of poverty, in Ecuador. To improve these indicators, Daniel and his team had to find a realistic way to offer low-cost loans to groups that were not traditionally included in the financial system, taking into account the natural costs of bank lending.
"This bank expense was 16%, a prohibitive rate for entrepreneurs. We realized that we had to coordinate with different ministries to channel through the bank those funds that they used for different programs in order to reach the direct beneficiaries." Daniel Morales
In this sense, BANECUADOR managed to sign agreements with each of the different ministries involved so that these programmatic funds could cover the difference between the interest charged to entrepreneurs and the real bank cost. To this end, the program managed to secure a state subsidy to cover operating costs, funding costs, and risk premiums through investment programs from several ministries such as the Ministry of Agriculture, the Ministry of Production, and the Ministry of Tourism, among others, thus bringing together several public institutions around a public financial institution to channel these resources directly to citizens. In addition, the Opportunity Credit includes a Financial Education Program that has helped the beneficiaries of these loans to acquire basic accounting and finance techniques.

Daniel remembers the arduous negotiations at all levels with all the entities involved and how they managed to convince others through actions and results, but he highlights that the biggest challenge was internal: how to achieve consensus within the team to support non-traditional programs. The BanEcuador team achieved this paradigm shift by focusing on the realities of the communities that would be impacted by offering these loans.
A representative from BANECUADOR speaking to people in an outdoor auditorium
A representative from BANECUADOR speaking to people in an outdoor auditorium

But in addition to the challenges they faced while grappling with the high costs of this type of product, Daniel, as the Risk Manager of BANECUADOR, faced another significant challenge, namely the credit analysis of these beneficiaries, who live in remote areas. Taking advantage of the bank's infrastructure with agencies throughout the country, Daniel and his team were able to design a new rating using sociodemographic origination scoring techniques to implement these microcredits.

At the same time that they were facing these challenges in the country, BanEcuador had to be accountable to large multilaterals, which were evaluating the series of measures that the country was undertaking to reduce the political and economic crisis that it had been experiencing since 2019.

“Many did not trust the economic results of this type of loan. They told us, ‘This is not a loan, it's a bond,’ but we managed to show that what we were offering was a loan and with very low delinquency rates. After two years, it was no more than 2%, well below the 22% NPL ratio of the bank's other loans.” -Daniel Morales

Part of the overall project included a second phase for those customers who had paid at least 50%, allowing them to access a higher amount, with an equally subsidized rate aimed at the growth of the initial business. The program is currently in a transition period due to the change of administration. But Daniel is confident that it will be possible to move forward and continue opening up opportunities to groups who have historically lacked access to the banking system, such as women in Ecuador. In any case, Daniel believes that this type of microcredit has a place and can be replicated in the region.

“Having been able to help more than 100,000 families get out of a state of poverty, to see in each of those faces not only the gratitude but also the responsibility of later canceling those loans, at a low cost and a comfortable term, credits that were always elusive, is something that really makes an impact, as the multiplying factor of these products is extremely powerful in Ecuadorian families.” -Daniel Morales

Daniel reflects on how the program and being part of the ILG network have helped him lead these types of innovations.

“Personally, ILG allowed me to reaffirm many things, but also to acquire new ideas from both professors and my cohort colleagues and an alumni network with whom we have shared projects and initiatives.”

We congratulate Daniel for his longstanding commitment to leading innovation processes to promote financial inclusion and economic development in Ecuador, and we appreciate his active work in the ILG alumni network supporting the new generations of graduates of the program.

Source: Daniel Morales (ILG 2015) and ILG Alumni Network