Question

This video describes BancoSol, Latin America’s first commercial microfinance bank that is known both nationally and internationally. It walks the viewer through the growth process of the bank both in terms of its deposit and loan portfolios. Activity Instructions Why is microfinance important? How is a commercial microfinance bank different from a traditional commercial bank? What were the challenges faced by BancoSol in growing its loan portfolio? Also, what new products did BancoSol have to design in order to maintain the growth rate of its loan portfolio?

Answer 1

Why is microfinance important?

Microfinance is important because ir is that part of finance that studies, designs and offers financial products/services to people or groups whose accesos to tradicional banking systems is limited or non-existent due to their socioeconomic status. These financial services can be savings, investment ir loan mechanism -in which case one would be talking about the well-know microcredict.

Difference between a commercial microfinance bank from a tradicional commercial bank

Given the characteristics of the beneficiarse of microfinance, who are mainly vulnerable low-income people (poor) and micro-entrepreneurs, located in both urban and rural áreas. The difference lies in the fact that the tradicional commercial bank mainly has to face the problems of high transaction costs and información problems, a situación that is successfully resolved by microfinance institutions and that is why they exist.

Información problems arise from the fact that the process of producing, acquiring, and processing information is expensive because markets do not adequately provide it. Obtaining information can be very expensive in relation to the size of the credit.

The existence of adverse selection ends up excluding and discriminating against beneficiaries for whom the size of the loan is very los un relation to the cost of colletcting information on their moral solvency, while many of them do not have collateral of acceptance by the formal bank. Moral risk is also a factor that threatens the beneficiaries because they lack guarantees or the bank-lender finds it very difficult and expensive to monitor the use of credit.