In 1984 a group of Bolivian entrepreneurs with close links to the micro-enterprise sector came up with the concept of establishing an organisation that would support the development of small businesses within Bolivia.
The premise of the project was that one of the principal factors hindering the growth of micro enterprises was the lack of access to financial resources – mainly credit – because there was no formal financial or banking infrastructure in place. Two years later, having gained support from a group of both Bolivian and international investors, the ‘Fundación para Promoción y el Desarrollo de la Microempresa’ (The Foundation for the Promotion and Development of Micro Enterprises) was established, taking the form of a Non Governmental Organisation (NGO).
In the beginning, the company provided small-scale, working-capital loans using the ‘Crédito Solidario’ (solidarity-based credit) scheme. As CEO Kurt Koenigsfest says, ‘From the outset our aim was to provide loans to the self-employed and to family-owned small businesses, which would otherwise have had no access to capital other than from family members or even loan sharks. Our principle was to provide financial assistance to small enterprises in a country that did not have such a system in place.’
Over the next six years the institution had accumulated a portfolio of some 17,000 clients and loans totalling $4m. It had also established subsidiaries across Bolivia in La Paz, El Alto, Cochabamba and Santa Cruz. At this point the company began to realise that in order to fully satisfy the financial and credit needs of its clients some fundamental changes would have to be made.
A fundamental change
In 1992 the Fundación para Promoción y el Desarrollo de la Microempresa took a vote to decide whether to change its status from an NGO to a bank. This was not an easy decision to make, and caused a division between both directors and investors. Principally, there were a number of issues at stake. Firstly, as an NGO, the company could rely on government grants and other state contributions to fund its activities, whereas as bank these donations would not be available. Secondly, as a bank, it would be free to open its doors to accessing capital from a wider audience of shareholders and investors, which would further aid its ultimate goal of providing otherwise unobtainable funding to small businesses.
Koenigsfest recalls, ‘When we first started we had no intention of becoming a bank. But in order to achieve our social and financial goals we needed a wider pool of investors, and that was something we could not secure as an NGO. As a bank we would be able to raise capital from both deposit accounts and new shareholders. One of the major concerns expressed by our members was that as a bank we would risk losing sight of our original objective of being committed to social responsibility. But once the decision was taken and the transition made we quickly realised it was the right way forward.’
As a result, in 1992, the Fundación para Promoción y el Desarrollo de la Microempresa reinvented itself as ‘Banco Solidario’, Bolivia’s first commercial bank specialising in microfinance. As a banking institution it was able to expand the range of services it provides to its clients, which today ranges from deposit and savings accounts to micro-insurance, from, housing loans for foreign-based nationals to money transfers. Back in 1986 the principally focus of the organisation was small-business loans and asset-based finance, whereas today 97 percent of business is in personal loans such as working loans, housing loans and home improvement loans.
Success reaps rewards
BancoSol has grown in popularity and credibility and it is for these reasons that today it is one of only two banks in Bolivia that boasts a triple-A rating, accredited by Moody’s. Koenigsfest explains: ‘It is probably thanks to our stability as an institution that we have achieved the position we are in today. Although we have broadened our shareholding, we have nonetheless retained the same group of investors who backed us as an NGO. This reassures our clients that we remain committed to the same values as we have always had.’
A closer look at the figures reveals the true nature of the bank. There are approximately 800,000 micro enterprises – largely in urban sites – that form part of the Bolivian economy, which together generate over 1.7 million jobs. BancoSol’s clients operate in the informal economy, which contributes more than 20 percent of GDP and generates employment for over 65 percent of the employed population. Entrepreneurs with a small capital base but with dynamic adjustment capabilities are the core clientele of BancoSol. Additionally, women play an important role in terms of the volume and value of loans, accounting for 46 percent of BancoSol’s clients and 40 percent of its loan portfolio.
Another key factor is the specialism of the bank’s ownership structure, as the core of BancoSol’s backers are experts in microfinance, not just in Bolivia, but globally, with varied interests in, for example, the Indian and South East Asian markets. Also, BancoSol benefits from having installed from the outset a solid corporate governance structure, the likes of which are not easy to find in an emerging market such as Bolivia. Finally – and probably most importantly – the bank’s socially-responsible origins counts for a lot in the eyes of its customers. Koenigsfest explains: ‘Given our background as an NGO, and in view of recent occurrences in the global banking industry, our clients have faith that we are less commercially-driven and more socially-orientated than our competitors.’
A further reason for BancoSol’s continued success is its willingness to embrace new technology. In a country which is not at the cutting edge of technological developments, BancoSol has nonetheless been quick to roll out a range of services to customers, in the form of new ATMs, credit cards, foreign exchange facilities and even online and cell phone banking.
After nearly 25 years of trading, BancoSol has provided some $2bn across more than 1.5 million micro-enterprise projects. Currently, the Bank has more than 130,000 clients which account for a total loan portfolio of over $355m. In addition, BancoSol has almost $335m in deposits taken from over 260,000 clients. The Bank has a presence in eight of the Bolivia’s largest cities, including La Paz, Cochabamba, Santa Cruz, Oruro, Tarija, Potosí, Sucre and Trinidad, over a network of some 120 branches, employing around 1600 employees.
Looking to the future
And the future is looking bright for BancoSol. In three of Bolivia’s biggest cities, annual growth in the micro-entrepreneurial sector is estimated to be around five percent. Added to this is the fact that Bolivia has been relatively unaffected by the global recession, so tourism – one of the core recipients of microfinance – has remained buoyant throughout. Finally, the figures speak for themselves: the total value of the Bolivian commercial banking sector is $3.5bn, of which $1.5bn is in microfinance, showing just how important a part of the Bolivian economy microfinance plays.
Far from resting on its laurels, BancoSol is looking to broaden its service, and reach out to a new segment of Bolivian society that to date has been relatively underserved in terms of financial assistance; the rural community. To this end, BancoSol is planning to launch – as early as mid-2011 – a strategy to penetrate the rural areas of the country, providing loans for the agricultural community. This strategy has been carefully planned, and is driven by a team of analysts and branch manager who are from the rural areas so know their territories best.
From its origins as a Non Governmental Organisation, to its current status as a fully-fledged bank offering a full range of services, BancoSol has nonetheless adhered to a strict policy of social responsibility within the microfinance sector. At a time when many global banking institutions are under close scrutiny BancoSol can safely say that it is driven not by greed but by a sense of duty towards small businesses that otherwise would not have been able to grow and flourish.
