For Bolivian bank BancoSol, unsecured individual loan is its key differentiator

BancoSol, a Bolivian commercial bank that focusses on microfinance, has been successful in serving the underserved in Bolivia by assessing their businesses rather than adopting a collateralised approach to lending, a top official said.

Nearly 98 per cent of the microfinance bank’s $1.6-billion loan portfolio is in the form of unsecured individual loans, and 90 per cent of this is without any collateral, Kurt Koenigsfest, Chief Executive Officer, BancoSol, told BusinessLine .

“We offer loans for home improvement, working capital, and even consumer loans for our clients’ needs. We have a variety of products,” he said.

The remaining 2 per cent is in the form of group lending. The proportion between individual and group loans is in sharp contrast to the Indian situation, where most microfinance institutions (MFIs) are focussed on group lending and are yet to evolve to individual loan providers. Also, the emphasis is high in India on some form of collaterals, according to MFI experts.

As on date, BancoSol, which has US-based non-profit Accion as an important shareholder, has non-performing loans of just 0.8 per cent of its advances. In Bolivia, non-performing loans are categorised on a 30-day time period, unlike in India, where the loan default beyond 90 days results in them being counted as an NPA.

BancoSol, which was the first commercial bank in the world to be entirely dedicated to microfinance, had, in the mid-nineties, evolved from a non-government organisation to a commercial bank focussed on microfinance.

With this transformation, it also moved away from group lending to an unsecured individual loans provider.

Sharing some of the best practices adopted by this microfinance lender in Bolivia, Koenigsfest also said the bank has always ensured that the ‘operations’ team and the ‘risk management’ team are separate.

“We have credit and risk. They are separate teams. This is because the credit side always looks at how to push business. On the other hand, the risk team is not like the ones in banks. Our risk team is focussed on the process and makes sure they are well designed and cover all potential risks,” he said.

BancoSol makes 15,000 loans a month, and it will not be possible for the risk team to look at each transaction. “They (risk team of about 100 people) oversee the process step-by-step and check if there are deviations in the process,” he said.

The other interesting approach is that the responsibility of loan recovery/collection is only on the person who initiated the proposal.

“We don’t have separate team for recoveries/collections,” he said. This is unlike India where most large microfinance institutions have separate teams for sales lead generation, underwriting, and loan collections. Koenigsfest also said that BancoSol currently reports its loan transactions with as many as four credit bureaus, including the one owned by the country’s central bank. “By law, it is mandatory for us to consult two credit bureaus. One of the biggest learnings for us is that these bureaus are good for the development of the microfinance industry,” he said.

However, in India, it is not mandatory for MFIs to consult two credit bureaus before deciding on a loan. A single bureau will do.

Digital India

Koenigsfest said that he was currently visiting India to see what digital practices are being used by MFIs, and how these could be adopted back home to reduce operational costs.

“Doing everything on paper is less efficient. We want to adopt digitalisation to cut costs and be a more sustainable organisation and keep doing microfinance. We don’t want to close branches or fire people to reduce costs,” he said.

Cutting costs has become an imperative, especially after interest rate ceilings and other restrictions were placed in 2015 on microfinance players by the Bolivian government.

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