Commercial Bank Downscalers in Latin America

This brief report highlights some elements of a relatively new trend of traditional banks in Latin America entering the field of microfinance in great numbers. The report explores following seven questions:

• Why are the commercial banks entering the microfinance market: As banking systems become more competitive and profit margins are squeezed, many banks have begun to look at new niche markets;
• What products do they offer: Small individual loans based on repayment capacity of the enterprise;
• What issues do they face: Staffing, commitment and administrative;
• Are they profitable: Most banks agree that microfinance market is profitable as shown by BancoSol, Caja Los Andes in Bolivia and Financiera Calpa in El Salvador;
• What innovations are they bringing to the field: Their main area of innovation and emphasis is on system and technology to reduce the cost of processing tiny loans;
• Are the reaching the poor: For the moment their reach is limited and they are unable to serve clients in remote and rural areas;
• What is the future: These institutions principally offer loans and not microsavings or other financial services. The market dynamics and their own commitment will determine the future strategy.

The authors opine that given that these institutions are using their own resources, the role of donors for microfinance will begin to change over a period of time.