BANCOSOL: EL RETO DEL CRECIMIENTO EN ORGANIZACIONES DE MICROFINANZAS

This paper focuses on the difficulties inherent in the prudent management of growth of microfinance organizations and on potential limits to the increased efficiency, profitability, and sustainability expected from growth and large size. The paper addresses both positive and negative implications of rapid growth for microfinance organizations. The experience of BancoSol in Bolivia is used to illustrate these questions. Building upon the successful experience of PRODEM, BancoSol was chartered as a private commercial bank in 1992. The paper discusses the intangible assets inherited from PRODEM that gave BancoSol a head start and the additional advantages that resulted from formalization as a bank, in particular from the authorization to mobilize deposits. BancoSol shows outstanding success in terms of breadth, depth, and quality of outreach and in terms of sustainability. It is the microfinance organization with the largest number of clients in Latin America and it reaches poor clients who could never expect to gain access to conventional financial institutions. The paper discusses the incentive structure associated with a lending technology that has resulted in low loan arrears and the cost-effective supply of small loans. Success is explained by a strong concern with financial viability, development of a lending technology appropriate for the market niche, a long learning period, and upgrading into a formal intermediary. As it grew, BancoSol had to face a reduction of revenues as a proportion of productive assets and an increase in the average cost of funds, which combined reduced its operating margin by 13 percentage points. This challenge was fully met by reducing operating expenses as a proportion of productive assets. While growth of PRODEM had been mostly constrained by too rigid access to donor funds, growth of BancoSol has been constrained by threats on asset quality and by diminishing marginal economies of size. Portfolio efficiency has grown steadily. This growth has been the net outcome, however, of reductions in transactions efficiency and of increases in average loan size after transformation into BancoSol. The paper explores the sources of increases in average loan size and it concludes that mission drift has not occurred at BancoSol, which continues to focus on small loans to microentrepreneurs. The evolution in transactions efficiency is related, in turn, to sources of extensive (installed capacity) and intensive (productivity) growth. Extensive growth has been rapid at BancoSol and it tends to dampen productivity increases. Finally, the paper reviews the pressures from growth on the original informal culture of the organization and the gradual establishment of more formal structures.