Introducing Rural Finance into an Urban Microfinance Institution: The Example of Banco Procredit, El Salvador

This paper documents the experience of Banco ProCredit in El Salvador in designing an individual lending technology for its rural operations. It includes:

• Introduction and integration of the lending technology;
• Technology adaptation to serve rural areas;
• Lending procedures, characteristics sought in loan officers and training provided;
• Institutional performance and details on its rural and total loan portfolio;
• Description of how Banco ProCredit El Salvador weathered major external shocks;
• Comparison of the work load and performance of rural and urban loan officers;
• Characteristics of rural clients that help define requirements.

Banco ProCredits experience proves that an individual lending technology can be effectively adapted for small rural loans in poor, densely populated regions. Conditions that limit the use of this methodology include extreme poverty, low population density and higher risk because of difficult production, poor marketing and adverse climatic conditions. More suitable group methodologies face governance and other problems, and require high levels of group cohesion.