DOWNSCALING IN MICROFINANCE : A MARKET OPPORTUNITY FOR BANKS
In 2005, nearly 80% of the world population does not have access to financial services. Yet, according to the United Nations, over 500 million people run a micro or a small profitable enterprise and could further develop their income generating activity if they had access to credit. According to the statistics of the MicroCredit Summmit in 2004, close to 80 million people have access to microfinance services. More often than not, these services are available thanks to specialized Microfinance Institutions (MFIs), offering financial products and services adapted to the poor.
Despite the potential market represented by those who do not have access to
the classical banking system, traditional Banks and Financial Institutions are
reluctant to engage in Microfinance. Sometimes considered a charitable activity,
Microfinance proves to be socially efficient and financially profitable when
well-managed.
Taking into consideration this social and financial efficiency, a certain number
of commercial banks have moved into microfinance either indirectly by supporting
existing MFIs or directly through downscaling programs, implementing microfinance
services lines within the banks operations..
These microfinance operations can be carried out by banks and financial institutions indirectly :
As illustrated in the following examples, banks often present competitive advantages in Microfinance such as :
Bancolombia, the first bank of Colombia, currently has almost 600 branches operating throughout the country. Created in 2003, the program « Emprededor » aims at offering microentrepreneurs financing opportunities and the first microcredit was put in place in March 2004. In April 2005, the program has more than 3 800 clients and a portfolio of 8.8 million pesos (+/- 3 million euros). From now to 2010, the program intends to increase its client base by five and its portfolio by six. To help in the achievement of these goals, PlaNet Finance initiated a Technical Assistance program to support Bancolombia’s downscaling operations.
Financial Bank is a regional bank based in 6 West African countries. Financial
Bank specializes in financing of SME/SMIs, international trade operations, and
social credits since 2000 through its subsidiary Finadev.
Created in 1998, as a commercial counter for Financial Bank, Finadev became
a branch specialized in microfinance in 2000 with the help of international
partners such as the IFC and the FMO.
In 2004, Finadev SA had 6.8 million euros of loans outstanding and 11 147 borrowers.
The products offered focus on several types of clients : social credits to merchant
groups, social credits to employee groups, credits to individuals and micro-enterprises,
agricultural credits at year end, and education loans. PlaNet Finance supported
FINADEV through its rating unit
Created in 1924, Unibanco is the third private bank in Brazil and has been involved in microfinance for more than five years. In December 2000, Unibanco started acquiring holdings in Fininvest, the largest consumer credit organization in Brazil, until reaching its current 100% ownership position. Through Fininvest, Unibanco holds a majority participation in Microinvest S.A., a society which resulted from the transformation of NGO RioCred in 2001. In five years, Microinvest has lent almost 7 million reals to 4 800 micro-entrepreneurs. PlaNet Finance is supporting Microinvest through a number of Technical Assistance Programs (market survey, impact studies, etc.)