Microfinance catches up in Latin America

Financial penetration in Latin America and the Caribbean is low: in Peru, Colombia and Ecuador, for instance, more than half of the population over the age of 18 does not have access to financial services. The way forward, it seems, is to develop microfinance activities.

by IESE Insight
Last Updated: 23 Jul 2013

Two types of institutions are spearheading this endeavour: banks specialising in microfinance and the leading mainstream banks of individual countries.

Specialised institutions such as Banco Caja Social Colmena in Colombia or Mibanco in Peru have made it their business to reach individuals traditionally shunned by mainstream banks. Their business model has relied on innovative approaches such as electronic banking and new risk assessment tools.

The challenge for such institutions is that due to their small size, many of these microfinance institutions lack the infrastructure to reach out en masse and for handling the significant flow of remittances to Latin America.

Leading banks face different difficulties. Many have opted for alternative distribution models for low-cost financial services and rely on their infrastructure and technological advantages. Ecuador's Banco Pichincha-Credife in particular has the potential for reaching out to much of the 'unbanked' population thanks to a very efficient business model. Banco de Crédito, meanwhile, has extended its electronic services offering.

Along with favourable policy framework, this should ensure that Latin America's unbanked population comes down to developed world level, such as 2% in Spain or 10% in the US. Private sector credit will also take off from its current level: a timid 28% of GDP, compared with 43% in the Middle East and 72% in Asia Pacific.

Source: Microfinance: Latin American Style
Javier Santoma, Fransecs Prior
IESE Insight

Review by Emilie Filou

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