Twenty-six years ago in the Andes Mountains of Bolivia, the microfinance industry was transformed. Accion and a local partner transformed a Bolivian nonprofit institution into Banco Solidario S.A, the first regulated commercial bank in the world dedicated to serving micro and small entrepreneurs. Today, BancoSol serves almost one million clients, nearly half of which are women.
Bringing needed banking services to low-income Bolivians isn’t easy. Bolivia has the lowest GDP per capita, and it’s the second lowest in South America on the Human Development Index, which measures quality of life. It is one of only two landlocked countries on the continent and is bordered by the Atacama Desert, Andes Mountains, and Amazon Rainforest, making access to international markets challenging. Bolivia’s regulatory environment presents challenges as well, involving strict regulations for the productive sector, which includes tourism, mining, agriculture, and manufacturing. As of 2013, the interest rates for productive sector loans have been capped at 11.5 percent, and by 2018, 60 percent of all universal bank portfolios must consist of loans directed to this sector.
Despite these obstacles, BancoSol has managed to continuously improve its performance by expanding its outreach to underserved clients. Its success has attracted competition to the industry, thereby decreasing costs for borrowers and enhancing the quality of the products offered. BancoSol has been able to create a notable demonstration effect, changing the perception of microfinance as a high-risk sector to a worthwhile venture capable of achieving a double bottom line of social impact and revenue generation. Even in a growing industry, the bank serves more clients in the microenterprise sector than any of its competitors.
Bolivian regulations combined with BancoSol’s client-focused model have propelled its business forward. Microfinance interest rates vary from one country to the next, from about 30 percent in Ecuador to as high as 80 percent in Mexico. Bolivia’s average microfinance interest rate of 13.5 percent is one of the lowest in the world. When the government introduced interest rate caps, all microfinance lenders except BancoSol opted to drop their lower-ticket clients. BancoSol embraced this challenge as an opportunity to reinvent the bank’s business model by leveraging technological innovations to lower costs and increase efficiency. For example, although the bank has a mobile app, it also made essential banking activities accessible through SMS to address low smartphone penetration. BancoSol even introduced insurance policies to meet customers’ needs for resilience and security. By exploring ways to better serve its target market with new products, alternative delivery channels, and technological solutions, BancoSol has maintained client trust and continued to grow.
In recent years, Accion has played a leading governance role in BancoSol. Recently, we acted as an anchor investor to bring in a grid of like-minded shareholders strategically aligned to the bank’s social mission. Much of BancoSol’s success can be attributed to its outstanding management and staff. CEO Kurt Koenigfest has led the bank through difficult times, guiding with a disciplined management style, a focus on results tied to the bank’s social mission, and an effort to establish personal connections with clients and employees. His dedication to the bank’s mission has paid off. Today the bank serves more than 650,000 savers, over 260,000 borrowers, and close to 190,000 microinsurance clients. Furthermore, BancoSol’s delinquency rate hovers at less than 1 percent, the lowest in Bolivia’s microfinance industry and one of the best in the world.
BancoSol is actively involved in Bolivia’s community development through the implementation of programs that cover topics ranging from financial literacy and business tactics to sports and music. Because BancoSol’s core clientele lack formal education, they typically do not have the capacity or experience to manage their businesses properly at the start. BancoSol recognized there was a gap that needed to be filled. Coupling microloans with proper training programs empowered business owners to leverage capital while developing their skills, allowing their small businesses to lift off the ground and become profitable.
With nearly two-thirds of Bolivians employed by the informal economy, and the microenterprise sector expanding at 5 percent annually, BancoSol is fueling growth by providing solutions at financial, strategic, and operational levels. BancoSol has set a precedent for the success of the industry in Bolivia, and it continues to be an example of a model microfinance institution across the globe.