Case Study
The Challenge of Growth for Microfinance Institutions: The BancoSol Experience
Meeting management and financial challenges of rapid growth
4 pages
This paper focuses on financial and management challenges that MFIs face as they grow and formalize. It presents insights from BancoSol's transformation from an NGO (PRODEM) to a licensed commercial bank in 1992.
BancoSol's successful expansion owes greatly to its inheritance from PRODEM. The NGO had cost-effective lending methods, and an experienced and highly motivated staff. PRODEM was perceived as a sustainable, committed and serious lender, with an important network affiliation with ACCION International.
The paper discusses how BancoSol dealt with financial pressures and changing demands on management. It states that:
- While total costs were accumulating rapidly, the expanded capacity at BancoSol was not immediately generating sufficient loans;
- BancoSol increased the revenue-generating capacity of each loan by increasing loan sizes and terms to maturity rather than raising interest rates;
- Management needed improved information systems to cope with an expanding portfolio;
- BancoSol was growing and required more standard lines of authority and communication, and a more businesslike approach to decision-making;
- BancoSol adapted by designing a stricter management structure, improved systems, and new chains of command.
This document is also available in French, Spanish and Arabic here.
About this Publication
Published