The story of BancoSol, the first private commercial bank for microentrepreneurs
ACCION International is a U.S.-based private non-profit organization that currently provides technical assistance to a network of institutions in thirteen countries in Latin America and six cities in the United States. Its network of eighteen independent organizations in Latin America has lent over $1 billion to microenterprises in the last five years, in loans averaging less than $500.
Three of the most advanced institutions in the ACCION network started their programmes as non-profit organizations and have, in the last five years, converted into regulated financial institutions that are part of the financial system in their countries but specialize in serving the microenterprise sector. One of the most successful of these institutions is BancoSol in Bolivia.
Solidarity groups
Banco Solidario, S.A., or Bancosol, grew out of a non-profit joint venture created in 1986 by prominent members of the Bolivian business community and ACCION International. The latter brought with them leadership and seed capital, while the former provided technology and methodology. PRODEM, as the programme was named, provided credit and training to broaden employment opportunities for the very poor self-employed, encourage investment in microbusinesses, and increase the income generated by this sector. PRODEM used the group lending technique of "solidarity groups" and began making small working capital loans.
In its first five years of operation, PRODEM financed loans to over 13,300 microentrepreneurs, 77 per cent of whom were women, disbursing over $27 million in loans averaging $273. The default rate remained close to zero during this time. In five years, PRODEM was unable to recover only about $2,000 fo the $27 million it lent.
Many factors contributed to PRODEM's success. The most important were the organization's commitment to total quality, including 100 per cent repayment; investment in training employees; and a powerful management information system. By the end of 1991, PRODEM had a portfolio of $4 million and realized that despite its success, it was only reaching a small percentage of the market that needed its services.
The enormous demand, coupled with PRODEM's desire to provide savings services to its borrowers and to access capital markets for funds, moved PRODEM's leadership towards the transformation of this non-profit institution into a fully chartered privated commercial bank specializing in microfinance--the first in the world.
The transision required two years' work which began in 1989. The process included raising the equity capital required by Bolivian law before it would charter a bank; designing the bank's financial structure, as well as its projection for profitability; training staff; and meeting the requirements of the Bolivian Superintendency of Banks.
BancoSol opened its doors in 1992. PRODEM transferred to BancoSol its $4 million portfolio in exchange for shares, making PRODEM the largest shareholder of this newly formed bank. Other shareholders included ACCION, Calmeadow from Canada, which had been very instrumental in the formation of the bank, Fundes from Switzerland and ICC, the Inter-American Development Bank's private arm.
Small is profitable
After four years of operation, BancoSol is currently serving nearly 70,000 clients through twenty-nine offices. This clientele constitutes about 40 per cent of all the banking clients in the Bolivian banking system. It is interesting that while BancoSol's loan loss remains very low and in 1994 it registered the highest return on assets in the Bolivian banking system, its clients--very low income people of indigenous background, mostly women requiring very small loans--are not considered bankable clients by other banks. Currently, BancoSol lends approximately $80 million a year, in short-term loans averaging below $600. BancoSol's outstanding portfolio is some $35 million, about one fourth of which is funded through savings deposits. Its plans are to continue expanding its coverage in Bolivia, to increase its mobilization of savings, and to maintain itself as a profitable bank that services a population that has never had access to financial services.
BancoSol's success is helping reshape Bolivia's financial system. In 1994 the Superintendency of Banks created a new type of regulated financial institution to enable other financially strong non-profit organizations to become regulated and thereby expand the availability of financial services to this sector. Institutions in other countries are also learning from the experience of BancoSol and adapting it to their own settings. K-Rep in Kenya, Accion Comunitaria del Peru, and Genesis in Guatemala, for example, are following BancoSol's lead and in the next two years plan to become regulated financial institutions specialized in microfinance.
MARĶA OTERO, of the U.S.A., is Executive Vice-President of ACCION International. She is co-editor of The New World of Microenterprise Finance (Kumarian Press, 1994) and has written several studies and articles on microenterprise and related issues.
Copyright 1998 Computing Research Lab.