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09.23.2013

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A favorable climate for microfinance emerged in Bolivia

Economic inequalities in the country have created an ideal climate for the establishment and success of microfinance in Bolivia. The microfinance institution (MFI) BancoSol is the leader in this sector.

Bolivia has evolved significantly in recent years. Indeed, the national economy has shown a continued rapid growth even during financial crisis, allowing a large number of people to benefit from new financial products and services.

Despite the difficult situation in the country, "Microfinance has provided a way out of poverty for many people affected by poverty. This is one way that has been proven to provide jobs and investment in the hands of those who, before its creation, had no access to financial services" said Kurt Koenigsfest, CEO of the largest microfinance institution in Bolivia, BancoSol.

Bolivia has seen emerge a new class of entrepreneurs and small businesses, each of them require access to capital support without necessarily going through the traditional banking system.
According to BancoSol, traditional commercial banks do not have the same philosophy as the microfinance market. This is a totally different market with completely unique requirements. In addition, for a large commercial bank, the market is considered too low to justify an investment of time and efforts.
Microfinance institutions have become a model in perfect harmony with the changing demands of economic growth in Bolivia. BancoSol is an example: its products and services are adapted to the changing economic situation.

BancoSol began as an NGO in 1986, and without knowing the impact it would have, the MFI had a very good market response in terms of repayment and demand, even from poor rural areas. Today, "after more than 20 years, many of our customers wouldn't have access to banking services if it was not from our services" says Kurt Koenigsfest.
Today in Bolivia, there are nearly 20 regulated microfinance institutions that followed BancoSol, all providing financial products and services to small businesses and budding entrepreneurs.

According to Kurt Koenigsfest, despite there being a number of organizations competing microfinance, market competition remain rare. Indeed, commercial banks would not seek to focus on the microfinance market. They are not considered as a threat by MFIs but just as another market.
BancoSol has grown at a rate of 25% per annum on the entire portfolio. Many customers in Bolivia are beneficiaries of the rapid economic growth and BancoSol is well equipped and remain on the market to capitalize on that.

In reference to the Bolivian crisis of 2000-2003, Kurt Koenigsfest said: "What was the most interesting is to see that our customers were actually more effective than larger firms in terms of adapting their activities to change. Due to their smaller scale environment, it was much easier for them to move from one activity to another. Same process for large enterprises requires fundamental structural change and adaptation plans of companies : costly and time consuming procedures to implement. For microentrepreneurs it is a matter of survival."

Even if microfinance operates on a smaller scale than traditional commercial banks, the range of products that offer MFIs can also be very diverse: loans for working capital, equity, home improvement, micro-insurance, debit cards, remittances ....

One of the main challenges in the field of microfinance in Bolivia, is to extend its coverage to poor and underdeveloped areas. Many rural communities in Bolivia are without efficient infrastructure, making it difficult for companies such as BancoSol to access.

In addition to traditional branches, BancoSol also has mobile branches, which are small trucks with banking facilities. These allow you to move in small rural villages that do not have access to traditional banking services and follow a weekly routine so that people can plan their finances accordingly. The program is still in a pilot position, but the response from users has been very positive so far.

One of the biggest challenges of microfinance today is the introduction of new technologies in the procedures without impacting on the sector approach focuses on the client. "Our main concern is that, as technology becomes a more important part in the banking industry, we lose the customer-centric philosophy of our organization - which is a principle on which we are based and on which we continue to act" said Kurt Koenigsfest.
"Unlike the traditional banking system, we want to stay close to our customers, but at the same time increase efficiency and reduce our operating costs through technology."

Today, about 35% of BancoSol transactions are carried out on non-traditional channels, and the number is growing exponentially. This rate is really importance because for many customers this refers to a first experience in the field of non-traditional bank.
A new banking law scheduled for August 2013, impose a higher financial reforms in order to fight against corruption and to control the potential profitability.

Source : World Finance

Tags : Bolivia, MicroWorld, microfinance, BancoSol, banking systems, financial products, mobile branches