Pilar Ramirez is the Board President of Fondo Financiero Privado FIE S.A. (FIE), a regulated financial institution in Bolivia. Ramirez shares her experiences on how her institution teamed up with NGOs to increase its outreach to small savers.
- Why did FIE decide to form alliances with the NGOs ProMujer and ANED, and what were the respective objectives and benefits for each institution?
FIE decided to form alliances with Asociación Nacional Ecuménica de Desarrollo (ANED) and Programa para la Mujer (ProMujer) as a way to increase its market share in the highly competitive Bolivian microfinance market. These partnerships allow us to extend our outreach, particularly expanding access to savings services for poorer clients.Prior to establishing the alliance with FIE, ProMujer’s village bank clients were depositing their savings in commercial banks. However, the relationship between the bank staff and ProMujer’s clients became tense due to their different approaches towards financial services. Moreover, several women were robbed on their way to the bank. In this context, FIE and ProMujer decided to join forces. While ProMujer wanted to provide its clients with safe and convenient deposit services without incurring the costs of transforming into a regulated institution, FIE saw this partnership as an opportunity to increase its deposit base and presence in peri-urban areas. The partnership has helped ProMujer gain a comparative advantage over its non-profit competitors by offering a larger range of financial services (deposits, transfers and bill payments). As of December of 2005, US$3,424,167 in savings have been mobilized for 65,538 ProMujer clients through 3,641 new group accounts.
A year after the partnership with ProMujer, ANED also proposed to form an alliance with FIE. This partnership allowed FIE to tap rural areas without needing to invest in new branches. ANED was able to better meet the needs of clients who demanded larger loan sizes as well as deposit and money transfer services. In the past, ANED referred their clients to FIE but now they can act as FIE’s agent. The alliance with a well-known financial institution also strengthens ANED’s reputation. As of December 2005, US$74,223 in savings have been mobilized through 375 group accounts for ANED’s rural clients.
- What kind of relationships did FIE establish with these two NGOs, and what have been the results of these linkages?
The alliance between FIE and ProMujer stipulated that FIE would build and equip teller windows within ProMujer’s offices. The tellers would be FIE staff and FIE would be in charge of all cash management. Since the launch of the alliance, 13 teller windows have been opened in ProMujer peri-urban branches. As a result, ProMujer and FIE overlap in certain geographical areas.
In 2004, FIE’s relationship with ANED is significantly different from the partnership with ProMujer in that ANED acts as FIE’s agent. Instead of FIE running the teller windows and handling the cash, ANED does it. Unlike ProMujer, ANED works exclusively in rural areas where FIE has no branches.
Neither NGO earns a fee from providing space to FIE. But there are other substantial benefits. ProMujer and ANED clients now can make deposits, and money transfers, and pay utility bills at the NGOs’ branches, as well as at FIE’s offices. Previously, neither institution offered any of these services.
It may be too early to claim success in both alliances. However, there are some very interesting results, such as:
- After much trial and error, the day-to-day operations between FIE, ProMujer and ANED now operate smoothly and each organization’s staff understand the idea behind the alliances: to broaden the scope of financial services in the markets where each one operates.
- Both ProMujer and ANED clients now have access to a regulated deposit-taking institution within the same offices where they do their other financial transactions. As a result, clients save time and money in transportation costs.
- FIE is mobilizing savings from new market niches: very poor women in the case of ProMujer and rural clientele in the case of ANED.
- The deposits mobilized have helped FIE lower its cost of funds by 0.32%, thus permitting FIE to lower interest rates on loans.
FIE's Cost of Funds Before alliance (03/28/03) 6.08% After alliance (12/31/05) 5.76%
- What changes in the Bolivian legal framework made alliances with Pro Mujer and ANED possible?
In 2002, the Bolivian Superintendency of Banks approved two regulations that permitted alliances for the first time. The changes were made to encourage outreach to rural areas and diversified financial services The alliance with ANED is based on the norm that allows non-regulated microcredit NGOs to act as agents of regulated MFIs or banks. The teller windows opened within ProMujer’s offices are permitted under a second new regulation called “caja externa”.
- What challenges did FIE face in implementing these partnerships?
There have been many challenges to operationalizing these alliances. In the case of FIE’s alliance with ProMujer, the biggest challenges included:
- ProMujer’s fear that FIE would use the alliance to “capture” their clients: To assuage concerns, FIE agreed to a noncompete clause and has remained in constant communication with ProMujer’s senior management to reassure them that FIE abides by the agreement. Also, FIE does not provide credit services through the teller windows placed inside ProMujer branches.
- Different management information systems (MIS): The lack of an online connection between the two institutions has created an additional administrative burden for FIE staff who operate in ProMujer’s offices. However, FIE is already working to complete a MIS linkage by the middle of this year.
- Friction between the staff of both institutions: Many misunderstandings occurred among the staff of ProMujer and FIE due to an unfortunate lack of staff buy-in at the beginning of the alliance. Staff were not consulted about the terms of the alliance and FIE tellers were not adequately trained to serve a new, poorer client segment after the launch. The fact that both MFIs operate in the same market and in many cases share clients strained the relationship. However, both institutions have already instituted joint trainings and marketing campaigns that improve staff understanding of the alliance. Unlike in the beginning, staff are now clear on the requirements and goals of this partnership.
FIE’s alliance with ANED has presented fewer challenges on the customer service side as there is very little interaction between FIE staff and ANED clients. On the other hand,, a lack of MIS integration has also delayed the processing of savings withdrawals or deposits. FIE is working to build a connection so that both institutions can better compete with other MFIs that are opening branches in the rural areas, such as PRODEM.
Suggested readings:
“Cajas Rurales y Edpymes afrontarán conjuntamente manejo de riesgo”. Microfinanzas.Net. February 2, 2006. Gestión.
Isern, J. and D. Porteous. “Commercial Banks and Microfinance: Evolving Models Of Success”, CGAP. June 2005.
Miller Wise, H., and J. Berry, “Opening Markets Through Strategic Partnerships: An Analysis of the Alliance between FIE and PROMUJER”, USAID, February 2005
“Proponen alianzas para combatir la pobreza”. FOLADE. November 11, 2005.