Microfinance

GLOBAL INVESTOR FOCUS
Microfinance—12
A closer look at Ecuador reveals some of the different approaches used in the
field of microfinance.
Klaus Tischhauser ⁄ responsAbility
Ecuador: The market, credit
systems and clients
Ecuador is one of the Andean countries in Latin America that hosts a
diverse microfinance industry made up of banks, non-banking financial
institutions, cooperatives and NGOs. The Superintendencia de Bancos
supervises the entire banking sector, including the regulated microfinance
institutions. In 2004 alone, these institutions posted a volume
growth rate of 174%. With a total of USD 360 million in assets at the
end of 2004, the microfinance industry accounts for just 6% of the
entire financial sector’s USD 6 billion in assets. But the impressive
growth rates indicate that the microfinance sector serves a segment
of the market that is still largely underserved.
The largest Ecuadorian bank, Banco del Pichincha, has now
become a serious player in the country’s microfinance sector. Within
a short period, through a specific microfinance program, the bank has
attained a microfinance market share of close to 15%, which is already
half the microlending volume of the former uncontested dominator
Banco Solidario. In this so-called downscaling process, established
traditional banks reach out to client groups that they had previously
regarded as unbankable. In October 2001, German ProCredit Holding
Group entered the market and opened a specialized microfinance
institution called Sociedad Financiera Ecuatorial (SFE). Since then, the
three players have shared nearly 60% of the Ecuadorian microfinance
market. The good results achieved by the microfinance pioneers have
finally induced mainstream banks to turn their attention to the majority
of the country’s population.
Village banking: The credit system to reach the masses
On Friday, 3 March 2005, 14 women gather in a small grocery store.
Situated on a side street in Ecuador’s capital city of Quito, every other
week the tiny shop serves for an hour or so as a bank. All members
of the group, including the shop owner, Fernando Garcia, are clients
of FINCA Ecuador, an affiliate of the international microfinance network
FINCA International, the pioneer of so-called village banking credit
systems. The group is just one of nearly 2,000 throughout Ecuador,
with a combined total of more than 40,000 clients.
Today is a special day; a credit cycle comes to its end. On this
occasion, the members not only repay the last installment of their
loans (comprising principal, interest and a savings component), but
also dissolve and reinstate their own “village bank.” Supervised,