Inside BancoSol, Bolivia’s largest microcredit bank

By Lily Leavitt

Late last year, I joined Accion staff from around the world on a trip to La Paz to visit BancoSol – the first private commercial bank in the world dedicated exclusively to microenterprise – and find out how this microfinance giant has become so successful despite the tight banking regulations in Bolivia.

Inside BancoSol

Lily (second from left) with (l-r) Robert Torrez, Assistant Director of Credit Underwriting for BancoSol's Regional Office at El Alto; fellow Accionista Jessica Cassel; client Javier Quiroga; and Accionista Luis Espinosa. Image courtesy of Lily Leavitt.

Lily (second from left) with (l-r) Robert Torrez, Assistant Director of Credit Underwriting for BancoSol’s Regional Office at El Alto; fellow Accionista Jessica Cassel; client Javier Quiroga; and Accionista Luis Espinosa. Photo courtesy of Lily Leavitt.By all accounts, BancoSol is a very impressive organization. The numbers certainly speak for themselves: historical growth rates of over 20 percent per year, return on equity of 29 percent, portfolio delinquency at only 1 percent. But what we found even more impressive was the pride felt by all the employees, from loan officers all the way to the CEO, Kurt Koenigsfest.

 

We were honored to spend an hour with Kurt himself, who spends a week each month visiting branch offices and interacting with clients and loan officers. Meanwhile, loan officers from most competing banks only interact with their CEO one way: by reading about them in the local newspaper.

This kind of personal association with the bank’s leadership helps foster trust between staff and management — which in turn creates an organization that is better equipped to serve its clients. BancoSol’s clients have expressed how committed the organization is to their own personal and business success. This, in turn, helps BancoSol retain its clients, develop its team, and ensure that more people in Bolivia continue to use formal financial services. There’s real value to this kind of interaction, and you can see it in BancoSol’s bottom line.

Believing in clients

All this employee dedication and pride in BancoSol translates to customer loyalty. We spoke with Javier Quiroga, a client who manufactures parts for auto and truck repair and is a self-proclaimed machine nut. He’s been a client of BancoSol for 14 years, and he’s still going strong despite tough competition. He still remembers how BancoSol believed in him when no one else did when they gave him his first loan, enabling him to launch his business and provide for his family.

Then there’s Andres Ticona, who offered us a Coke while showing off his amazing sound system and even more amazing ingenuity in building machines to create baking molds. His business savvy was highly evident. For example, he didn’t want to patent his invention until after the high-revenue Christmas season, for fear that competitors might try to copy his ideas. And he created one of his machines in two separate parts, again to make it more difficult to replicate his invention.

Last but not least, we met Doña Aurora, who sells men’s jeans and has been a BancoSol client for many years. Doña Aurora also recalls her first loan from BancoSol, back when the alternative was to borrow from a costly loan shark. BancoSol has helped her expanded her business to three stalls in various markets, and employ some of her relatives in the process. All the stalls sell men’s jeans. When asked why she doesn’t sell women’s jeans, she replied that women are a pain to sell clothes to because they keep changing their minds and returning the merchandise.

A new hurdle

Unfortunately, BancoSol and other banks in Bolivia are now facing a major challenge: in 2013 President Evo Morales’s administration mandated that 60 percent of bank portfolios must consist of productive and housing loans by 2018. Productive loans are defined as loans to businesses involved in agriculture or the process of transforming raw materials into intermediate or final goods — actually producing things. Retail businesses do not meet these criteria. Productive loans are regulated by the government, with a maximum interest rate of 11.5 percent.

Currently, a little more than one-third of BancoSol’s portfolio is considered productive loans, and average interest rates are 17-18 percent. BancoSol is meeting this challenge head-on, trying to find ways to boost productivity and revenue via technological advances (digital field applications, anyone?) and selling products other than loans through partnerships, such as debit cards; life, health and accident microinsurance; certificate of deposits to guarantee contract performance; and international wires, among others.

In contrast, many of BancoSol’s competitors are taking the easier route of increasing loan sizes to clients who work in the productive sectors and abandoning smaller or retail businesses which do not fit regulatory requirements. While there will be some increase in loan size, BancoSol is committed to its client base and is finding other ways to gain efficiencies and streamline costs in order to remain profitable while complying with the government mandate. In this manner, it can continue to serve Doña Aurora and others like her who have come to rely on BancoSol for microcredit and other financial services.

Looking forward

Given the focus and energy that BancoSol is dedicating to this challenge, the bank’s outlook for hitting its goals is optimistic. After all, what does it take to be the biggest, most successful microcredit bank in Bolivia? It takes focus on clients like Javier, Andres, and Aurora, by BancoSol employees who care about and are cared for by the organization. And the result is exemplified by BancoSol’s slogan – Juntos Crecemos – “together we grow.”

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