History of microfinance and comparison of Grameen Bank and

BancoSol

Barbora Smoradova

6.12.2010

Content

1 Introduction.........................................................................................................................3

2 Microfinance.......................................................................................................................4

2.1 History of microfinance...............................................................................................4

2.2 Microfinance vs. Microcredit.......................................................................................9

Types of products................................................................................................................9

Microcredit........................................................................................................................11

3 Grameen Bank..................................................................................................................12

3.1 History of Grameen Bank..........................................................................................12

3.2 Is Grameen Bank just a bank?....................................................................................13

3.3 Services......................................................................................................................14

4 BancoSol...........................................................................................................................16

4.1 BancoSol on the stage................................................................................................17

4.2 Products......................................................................................................................17

5 Comparison of BancoSol and Grameen Bank..................................................................21

6 Conclusion........................................................................................................................23

7 References.........................................................................................................................25

8 Supplementary literature and resources............................................................................26

1 Introduction

Microfinance as an economy sector has evolved in the world for centuries. Recently, it is

experiencing great boom in the economical, business and investment world.

I would like to introduce reader to history of microfinance from the early beginning up to

progress in 21st century.

I would like to explain and set differences between terms “microfinance” and “microcredit”

that are often getting confused in media these days.

The aim of this project is to compare services provided by Asian largest microfinance bank in

Bangladesh, Grameen Bank, with Bolivian number one in microfinance, BancoSol. This

project will talk about background and historical development of these institutions. Mostly, it

wants to examine types of services provided by Grameen Bank and BancoSol. I would like to

find out whether they work on the same basis or whether their systems of loan providing and

running the bank differ from each other.

In the end, I would like to find differences or common factors for both institutions.

2 Microfinance

Microfinance has started to gain its part in economical, business and financial world in recent

30 years, but its roots dates back more than to 1970s.

2.1 History of microfinance

Microfinance has long-dated history. About 500 years ago people could have operated on

microfinance systems in India on „chit funds“, in Ghana on „susus“, on „tandas“ in Mexico

and similar to today´s credit groups and burial funds used to be in Bolivia, Sri Lanka, West

Africa and many more countries, too.

As the history start of microfinance in Europe can be thought a poverty crisis in 16th century.

Afterwards, Ireland launched loan funds in 1720 on Jonathan Swift´s motives, these funds

provided small interest-free loans donated from resources. People were controlled by peers

and they had to pay money back every week. This initial phase picked up speed a century later

by adoption of two laws. The first from 1823 allowed charities to charge an interest on loans,

the second law established a control institution Loan Fund Board in 1836. Four years later

there were 300 funds around Ireland and they annually provided loans to 20% of Irish

families.

In 19th century many European states followed the Irish example. That caused birth of many

credit and savings institutions of various types, mostly among rural and urban poor.

Economists in Germany watched precisely Irish development and found out that charities are

not sustainable. Germany established saving funds, they were later forced to enlarge their

credit services also with agricultural lending. The giant of German history of microfinance is

Friedrich Raiffaisen who developed concept of the credit union. Raiffaisen´s aim was to give

help poor people who were dependent on usurers and try to better their lives.

Together with Raiffaisen is German history represented by Schulze-Delitzsch’s urban credit

association that gave this sector a new touch by not wanting any charity help from the early

beginning. Later on, Raiffaisen based the first rural credit association called Darlehnskassen-

Verein on Schulze-Delitzsch’s basics. These institutions lead the in year 1997 the German

financial system with 75 million customers, 51.4% of all banking assets and 64% of all

financial intermediation.

Microfinance was getting to people´s conscious all over the world from the end of 19th

century. The Asian representative from Indonesia established their microfinancial institution

The Bank Perkreditan Rakya in 1895, now it has around 9000 units. It makes them the biggest

Indonesian microfinancing system.

In early 1900´s micro financial wave hit Latin America. Although the main aim in Europe was

to fund and improve agricultural area, people in Latin America set two major goals: increased

commercialization of the rural sector, by mobilizing "idle" savings and increasing investment

through credit, and reducing oppressive feudal relations that were enforced through

indebtedness.(Nurkse 2009)

The other difference between European and American style was in the ownership. European

banks and institutions for poor were owned by poor themselves, on the other hand American

banks were owned by government agencies or private banks.

Around year 1960 the emphasis in the USA was put on agriculture and rural development

through targeted small directed credit to small farmers and rural producers. By doing this they

wanted to raise incomes and productivity. This approach can be called „poverty lending“.

Wenner writes that norms and polices governing global credit operations issued during

the1970s meant that in the field of rural finance, the predominant intervention was a

subsidized line of credit to a state-owned development bank for on-lending to small-scale

agricultural producers. (Wenner 2002)

There has started doubts about directed subsidized credit schemes in the 1980s, later banks in

America implied policies on agricultural sector in 1832. Policies had in mind to check the

agricultural sector and to redouble of efforts to improve the performance of agricultural credit

programs. Evidence shows that targeted subsidized rural credit loans had to deal with high

administrative costs, disappointing performance of directed credit programs, especially poor

loan recovery, agricultural development bank insolvency and accrual of a disproportionate

share of the benefits of subsidized credit to larger farmers. (Wenner 2002)

The problems of traditional system based on directed credit loan were exposed and new

school took it over with method called "financial systems approach" or „the financial market

paradigm“(FMP). According to Wenner,

“new ideology viewed credit not as a productive input necessary for agricultural

development but as just one type of financial service that should be freely priced to guarantee

its permanent supply and eliminate rationing. The FMP school held that the emphasis on

interest rate ceilings and credit subsidies retarded the development of financial intermediaries,

discouraged intermediation between savers and investors, and benefited larger scale producers

more than small scale, low-income producers.(...)As a result, loan proposals adhering to the

directed credit paradigm encountered greater difficulties in winning approval in the early to

mid-1980s.“

(Wenner, 2002: 3-4)

Usually the idea of microfinance is seen as an economical product of 1970s when scholars

started to focus on two basic questions that are essential. First, can poor people pay money

back? Second, can be help provided though market without any charity help or state

donations?

As to the book Access for all: year 1970 is a start date for experimental projects focusing on

providing tine loans to poor women who want to start their small microbusinesses. We can

find examples of these projects in Bangladesh provided by Grameen Bank, Brazilian project

ACCION that later spread to United States and Africa. The microcrediting is aimed at credit

for income generating activities and poor working women.

During 1980s economic world experienced a step in microfinancing: microcredit programs

throughout the world improved upon the original methodologies and defied conventional

wisdom about financing the poor. (Helms 2006)

Results from researches had answered the asked questions. The findings were very pleasant.

Poor people, especially women complied with their commitments more reliably and the

repayment rate was much higher than in conventional banking system in developed countries

in the world. Second, poor people asked for loans themselves, they were able and willing to

pay interest rates that allowed microfinance institutions (MFIs) to cover their costs, start to

run business and provide commercial loans, deposits and investment services. The new

financial system not limited by state donations or uncertain subsidized funds allows lending

money to millions of people.

In the 1990´s started microfinance be known as a way how to fight and reduce poverty around

the world. Microfinance institutions began to grow all around the world. MFIs started services

concentrating on poor households and entrepreneurs in developing countries. Terms

microcredit and microfinance began to be distinguished in mid-90s. The profit of banks raised

enormously, mostly in densely populated and urban areas and a substantial part of low-income

families were for the first time served by activity not by state donations.

The beginning of 21st century was noticed an enormous growth of Grameen Bank´s figures.

India establishes a substantial microfinance system based on self-help groups (SHG). MFIs

started to transform to for-profit organization to attract even more people, spread MFI´s

awareness, gain more capital and reach more stable place in financial system.

Over past 30 years microfinance has consolidated its status, has grown remarkably and

confirmed that poor people repay borrowed money and that microfinance in this terms has

future in business making and at the same time it can help people out from poverty.

According to Brigit Helms, she sees that

“Despite these achievements, there is still a long way to go to extend access to all who need

financial services. Specially, there are three major challenges define the frontier of financial services

for the poor:

1. Scaling up quality financial services to serve large numbers of people (scale);

2. Reaching increasingly poorer and more remote people (depth); and

3. Lowering costs to both clients and financial service providers (cost).”

(Helms, 2006: 5)

The Pakistan Institute of Legislative Development (aka Pildat) published a report where they

claim that in 2005 was 35 regions covered by microfinance and met at least 15 % of overall

credit requirements of low-income families. The largest coverage was shown in Bangladesh

and Sri Lanka, where microfinance spread to 60% of the poor. (Pildat, Microfinance of the

society)

„In June 2004, the Group of Eight (G8) endorsed the “Key Principles of Microfinance” at a

meeting of heads of state in Sea Island, Georgia, USA. Developed (and endorsed) by CGAP’s 28

public and private member donors, the Key Principles are translated into concrete operational

guidance for staff of donors and investors in these Good Practice Guidelines.*

1. Poor people need a variety of financial services, not just loans. In addition to credit,

they want savings, insurance, and money transfer services.

2. Microfinance is a powerful tool to fight poverty. Poor households use financial

services to raise income, build their assets, and cushion themselves against external

shocks.

3. Microfinance means building financial systems that serve the poor. Microfinance

will reach its full potential only if it is integrated into a country’s mainstream financial

system.

4. Microfinance can pay for itself, and must do so if it is to reach very large numbers

of poor people. Unless microfinance providers charge enough to cover their

costs, they will always be limited by the scarce and uncertain supply of subsidies

from donors and governments.

5. Microfinance is about building permanent local financial institutions that can attract

domestic deposits, recycle them into loans, and provide other financial services.

6. Microcredit is not always the answer. Other kinds of support may work better for

people who are so destitute that they are without income or means of repayment.

7. Interest rate ceilings hurt poor people by making it harder for them to get credit.

Making many small loans costs more than making a few large ones. Interest rate

ceilings prevent microfinance institutions from covering their costs, and thereby

choke off the supply of credit for poor people.

8. The job of government is to enable financial services, not to provide them directly.

Governments can almost never do a good job of lending, but they can set a supporting

policy environment.

9. Donor funds should complement private capital, not compete with it. Donors

should use appropriate grant, loan, and equity instruments on a temporary basis to

build the institutional capacity of financial providers, develop support infrastructure,

and support experimental services and products.

10. The key bottleneck is the shortage of strong institutions and managers. Donors

should focus their support on building capacity.

11. Microfinance works best when it measures—and discloses—its performance.

Reporting not only helps stakeholders judge costs and benefits, but it also improves

performance. MFIs need to produce accurate and comparable reporting on financial

performance as well as social performance.“

(CGAP, 2006)

2.2 Microfinance vs. Microcredit

In the mid-1990s the term "microcredit" began to be replaced by a more general term “micro

finance”. It included not only credit, but also savings and other financial services.

Microfinance serves for providing loans to:

1. poor people

2. people who cannot be provided loan by commercial bank

3. groups that can suffer from natural disasters, diseases or lack of opportunities

Microfinance is broader area that consists of:

1. microcredits

2. micro savings

3. micro insurance

Types of products

When we have a look at the scheme made by Brett Matthews, we sort microfinancial services

to eight categories: various insurance plans, pension plan or long time deposit, medium time

deposit, demand or short time deposit, fund transfers and cheques, emergency loans, short-

termed loans and longer term loans.

According to household financial goal they are provided a certain type of microfinancial

product. Microfinancial services and products are tailored to the biggest people´s needs.

(Roubini Global Economics, Late Securitization and Micro-insurance)

In the book The Poor and Their Money Rutherford (1999) writes about what the needs of poor

people are and how we can divide these needs.

Besides clothing and paying for food, poor people sometimes need bigger amount of money

in case to cover unpredictable costs. These needs are less controversial than in developed

countries and we can say that in most cases they can save lives.

Needs can be categorized into these categories:

1. ´Life-cycle´ events: although many of occasions can be anticipated but nobody knows

the precise date, this concerns mostly weddings, burials, childbirth, education, home-building,

widow-hood, old-age and traditional feast such as Eid, Christmas, or Diwali

2. Emergencies: these needs are unanticipated and can be needed in two types: personal

and impersonal.

Among personal needs we can categorize sickness, injury or loss of employment

Impersonal include wars, natural disasters and bulldozing homes by the authorities.

3. Investment opportunities - besides needs to spend large amounts of money there are

opportunities to do so, for example: to invest in businesses, productive assets, paying bribes to

get a job or to better roofing and home accessories

Microcredit

Microcredit is a part of micro finance. Microcredit is usually small amount of money lent to

poor people who own entrepreneurial trade. These people usually cannot afford to draw loan

from commercial bank. Microcredit is charged with interest but the primary aim is to help

people in need.

Micro credit has to cover costs or make profit in order to MFIs could lend money to other

people. Credits were made to help people and to improve their life standard by such a

investments.

System of microcredits is based on principles. For example:

The entrepreneurial talent is highly valued even more when is improving together with ethical

codex and serving to others.

The aim is to run a functional project and basically ensure the return on investment and cover

costs.

Microcredit providers believe that investment is more appropriate than a donation. The debtor

is in case of a loan seen as more reliable and hard-working in order to meet his/her obligations

to repaying instalments. Moneylenders do not make differences between entrepreneurs in

developed and undeveloped world. They believe that poor businessman could have the same

talent as big businessman in developed world.

3 Grameen Bank

is a microfinance bank providing loans to poor people in Bangladesh. According to latest

update from October, Grameen Bank has 8.33 million borrowers (in September 2010 they had

8, 32 million borrowers), 97 % of whom are women. They provide loans through 2,565

branches to 81,373 villages that cover more than 97 % of the total villages in Bangladesh.

3.1 History of Grameen Bank

Grameen Bank was founded by professor Muhammad Yunus, Head of the Rural

Economics Program at the University of Chittagong. It is said that Mr Yunus provided his first

microcredit in 1974 when Bangladesh suffered badly from plague. Professor with his few co-

workers started experiment that wanted to examine validity of hypothesis that poor people

could create a self-employment for themselves in case they would be provided with

appropriate amounts of credit along with proper counselling.(Grameen-info, History)

Muhammad Yunus defined poor people as those possess less than half an acre of land or

assets not exceeding the value of one acre of medium-quality land. The Grameen Bank

“Project came into operation with following objectives:

1. extend banking facilities to poor men and women;

2. eliminate the exploitation of the poor by money lenders;

3. create opportunities for self-employment for the vast multitude of unemployed people

in rural Bangladesh;

4. bring the disadvantaged, mostly the women from the poorest households, within the

fold of an organizational format which they can understand and manage by themselves; and

5. reverse the age-old vicious circle of "low income, low saving & low investment", into

virtuous circle of "low income, injection of credit, investment, more income, more savings, more

investment, more income". “

(Grameen-info, At A Glance)

The project began with 42 borrowers who needed small loans to avoid rural money-lenders

that charged high rates of interest. Although Professor Yunus took this project very

responsibly, it lasted almost 6 months to get 10 loans in total sun less than dollar 200 from a

local bank. The uniqueness of this idea was first proved in town Jobra (the town where

University of Chittatong is situated) in 1976-1979; afterwards the project was financially

supported by Central Bank and commercial banks of India. This helped to extend

microfinancing to Tangail region in 1979 and then to other parts of Bangladesh.

Yunus tried hard to convince the government of Bangladesh to take in mind the potential of

his research. He harvested fruits in 1983 when Grameen Bank was by government legislation

established as an independent bank.

His ambitions and effort were recognized by The Norwegian Nobel Committee that in 2006

awarded him and Grameen Bank by Nobel Peace Prize for their efforts to create economic

and social development from below.

Now Grameen Bank is owned by the poor borrowers of the bank who are mostly women. It

works exclusively for them. Borrowers of Grameen Bank nowadays own 95 % of the total

equity of the bank. Remaining 5 per cent is owned by the government.

3.2 Is Grameen Bank just a bank?

According to Grameen´s Bank article Is Grameen Bank different from conventional banks?,

we can tell that Grameen Bank is not typical banking institution. The typical banks run and

make money on collateral. Grameen Bank runs on collateral-free system.

As I mentioned above, Grameen Bank is owned by poor women who live on poverty line, on

the other hand, typical banks are owned by rich men in developed world.

The main aim of typical banks is to maximize profit, the major goal of Grameen Bank is to

help poor women and their children, give them an assets ownership, stay profitable, ensure

education and the most importantly win the struggle with poverty.

Typical banks want to gain attraction and interest of people in the cities, so branches of these

banks are as close to the business and city centre. On the other hand Grameen Bank branches

are located in countryside. That helps 22 249 staff members to visit borrowers every week to

deliver bank´s service to 81 373 villages around Bangladesh. We can honestly say that this

way of running a bank is very costly. According to latest update, the revenue in 2009 was US

$ 209.80 million, total expenses were US $ 204.42 million. The largest part (50%) on expenditure was

paid on interest payments on deposits. The second largest expenditure was on salaries, allowances and

personal benefits in total sum of US $ 55.33 million what make 27% of all the expenses

Typical banks work on punishment system. Every service is provided on legal basis and

signed contracts are followed by laws, whenever contract is broken, the person (either bank or

customer) who caused it, has to pay for inflicted damage. Typical banks do not care about

families of borrower, they assume people will be able to repay loans and still they have a

signed legal deal.

There is no such a legal contract between poor people and Grameen Bank. This non-typical

bank does not have any legal instrument for borrowers, so there is no guarantee that debtor

will be taken to court after not paying back. Grameen´s system works on solidarity and trust.

If the debtor is in financial trouble, Grameen makes its biggest effort to help people with

instalments and with getting back to their standard of living, for example by rescheduling

their loans. We can say that Grameen Bank care about its clients: it observes education of

children, health of elderly people and family´s situation.

In conventional banks charging interest does not stop unless specific exception is made to a

particular defaulted loan. Interest charged on a loan can be multiple of the principal,

depending on the length of the loan period. (Grameen Bank, Is Grameen Bank Different)

In the bank of poor cannot total interest be higher than borrowed amount of money.

Grameen Bank wants to accomplish a higher goal of their bank activity. Not only they want to

help people now- in their current activity, they also see further. They want to better this world

in the future.

3.3 Services

Grameen Bank provides different types of services of help to the poor people. These loans

should reduce poverty and bring more people above the poverty line. People can ask for a

loan in these categories:

1. Struggling Members Programme - beggars are big problem in India for a long time.

This program offers loans without an interest; loans are long-termed in case to have pay very

small repayments. Life insurance is included in loan insurance without incurring any

costs .Total amount disbursed stands today at Tk. 153.60 million. Of this amount of Tk.

120.16 million (78% of the amount disbursed) has already been paid off. (Grameen Bank,

2010)

2. Housing for the Poor - this service was launched in 1984, the highest amount of money

people can get in this program is 15 000Tk (218 USD). Loan has to be repaid for 5 years in

weekly instalments.

3. Micro-enterprise Loans - the amount of the money provided by this service is not

limited. Usually women borrow money when there is a man in their household.

4. Scholarship - this is a kind of reward given to children of high performing borrowers.

Grameen Bank focuses on girls and wants to support them to follow their education.

5. Education Loans - loans are given to students who reach tertiary level of education.

6. Pension Fund for Borrowers - this program has become very successful right after

launching. It gives advice to save a little money for time period of 10 years. In the end they

get almost twice money they saved.

Grameen Bank charges four different types of interest rates for loans that diverse according to

purpose they are used for:

“20% for income generating loans, 8% for housing loans, 5% for student loans, and 0%

(interest-free) loans for Struggling Members (beggars). All interests are simple interest, calculated on

declining balance method. This means, if a borrower takes an income-generating loan of say, Tk 1,000,

and pays back the entire amount within a year in weekly instalments, she'll pay a total amount of Tk

1,100, i.e. Tk 1,000 as principal, plus Tk 100 as interest for the year, equivalent to 10% flat rate.

Grameen Bank offers very attractive rates for deposits. Minimum interest offered is 8.5 per cent.

Maximum rate is 12 per cent.”

(Grameen Bank, At A Glance)

Grameen Bank has created a network of companies bearing Grameen word in the front.

The network consist of companies donated by Grameen Bank but also by companies that are

not funded by Grameen Bank (Grameen Bank does not own any share of these companies.

4 BancoSol

BancoSol is microenterprise organization acting in Bolivia. Its birth is closely joined with

ACCION International that helped to create this world´s unique organization.

ACCION´s history started in 1961 when law students, with Joseph Blatchford in the lead,

were concerned about a poor situation in Latin America. They gathered initial capital of total

sum $90,000 from private companies to run a new organization: a community development

effort designed to help the poor help themselves. (ACCION, 2010) The major founder with

other volunteers made a trip to Venezuela where they installed electricity, initiated a nutrition

program and supported education by building schools and centres for children.

In ten years they invested more than $9 million to Latin America and spread their field of aid

to Brazil, Peru and Bolivia.

In the 1970s ACCION knew that their provided help did not reach the major problem of

poverty- the lack of job opportunities in Latin America and wage not high enough to survive.

This lead inhabitants to start their own enterprises, they had to take a loan often charged by

interest 10% per day. ACCION in Brazil came up with idea of providing micro credits. This is

how term “micro enterprise” was born.

Over next 10 years ACCION reached other 14 countries in Latin America. They found out

that interests could pay for organization´s costs and cover loans for other customer.

Covering costs was supported by establishing new loan guarantee fund, called Bridge Fund.

This fund enabled to provide loans to even more microentrepreneurs.

ACCION believed that potential of microfinance sector could change landscape of Latin

America and they were aware of fact that MFIs will need much more capital to make this

thought come true.

Through the times ACCION International has become one of the most important organization

fighting the poverty in Latin America, Africa, Asia and United States.

4.1 BancoSol on the stage

The history of BancoSol began in 1986 when ACCION brought with them leadership and

seed capital, while the members of Bolivian business community provided technology and

methodology and established programme called PRODEM. PRODEM provided credit and

training to broaden employment opportunities for the very poor self-employed, encourage

investment in microbusinesses, and increase the income generated by this sector. PRODEM

used the group lending technique of "solidarity groups" and began making small working

capital loans. (Otero 1997)

Later in 1992 PRODEM joined with ACCION, Calmeadow Foundation, Bolivian banks and

other investors to found BancoSol, the first commercial organization in the world focusing

exclusively on microenterprise. Among 80 000 customers we can find market vendors, sandal

makers or seamstresses.

Year 1994 was important year for BancoSol and whole business world, because ACCION

International sold certificates of BancoSol to U.S. Financial markets. These certificates were

bought by financial institutions not because of aid-providing, but because it was a great deal.

By this act the world invested to the microenterprise for the first time.

BancoSol is currently serving in 8 cities and 100 branches more than 130 000 clients, their

total loan portfolio account for 335 million USD. Over 260 000 people decided to save money

in BancoSol, BancoSol disposes with USD 335 million.

Institutions in other countries are also learning from the experience of BancoSol and adapting

it to their own settings, for example in Kenya, Peru, and Guatemala. According to ACCION

International, BancoSol is no longer unique: more than 15 ACCION-affiliated organizations

are now regulated financial institutions.

4.2 Products

Like in Bangladesh the most of clients of Banco Solidario are women, they account for 46%

of borrowers and 40% of loan portfolio. The clients are between 35-40 years old and mostly

with low education.

Clients work in informal economy, which generates 20% of GDP and create opportunities for

65% of employed population. The entrepreneurial sector in the three biggest cities in Bolivia

grow by 5% every year and with 800 000 enterprises make generate around 1,7 million jobs.

BancoSol provides services divided in following sections:

1. Credits – will be discussed more below.

2. Savings – savings account and time deposits are offered in bolivianos and USD. For

savings account Bolivians do not have to deposit a minimum amount of money. Time deposit

expiration starts at 30 days and is required minimum deposit USD 200.

3. Money transfers - BancoSol enables to transfer money throughout 60 branches in

Bolivia as well as around the world through any bank with SWIFT code.

4. Microinsurance - Banco Solidario provides insurance on three levels distinguished on

monthly payments: Sol Salud, Sol Salud Plus, Sol Seguro. The first two services provide

whole family with medical and hospital care. Sol Seguro offers service when client can

together with savings get life and funeral insurance, and he can protect the future of his

family.

5. Services – consist of services that should make clients’ lives easier. Among these

services we can find Tax Payments, Utility Payments, SolNet (conduction bank services on-

line), Mobile Branch, Sol Amigo (bank transactions: accessing savings accounts, micro

insurance, phone banking), Debit Cards, InfoSol SMS (getting information through cell

phone) and Bank Guarantees

6. Services for Bolivian migrants – BancoSol thinks of Bolivians who moved to Spain

and US and still have families or households in their home country. Migrants can apply for

savings accounts, credit or debit cards, time deposits and housing programme for house in

Bolivia.

Each section differs to specific types in order to better fulfil people´s needs.

Since BancoSol was founded as microcredit institution, credits can be distinguished to eight

categories:

1. Sol Productivo - this type is available just in Bolivian currency bolivianos. People can

be provided loan up to 70 000 bolivianos. Time period is in range from 6 to 24 months among

for working capital and maximum 48 months for investment to capital.

Guarantees are based on amount of loan and time period.

2. Sol Individual - it is focused on microentrepreneurs with stable businesses that make

cash-flow and cover their obligations

Bank can provide loan in range between USD 50 to 250 000 with maximum term of 15 years.

Interest rates move between 21, 00% to 24, 50 %.

3. Solidario - the first loan built on solidarity group lending.

The loan cannot be higher than USD 2 000 per member, or USD 6 000 per group

The aim is to start with small initial loans and then to enlarge a loan that is based on a

repayment history.

Interest rates are from 25, 5% to 28%.

4. Sol Vivienda - this housing loan programme funds 80% of the beneficiary´s primary

house.

People can borrow in range from USD 200 to USD 150 000 for max. 15 years.

To get the loan people must insurance the house against life, fire and allied risk.

Interest rate differs from 20% to 25, 5%.

5. Sol Efectivo - it is consumer loan for wage earners who work for companies with

proven track record. The provided loan is up to USD 10 000 and can be used for working

capital, investments and other personal consumer needs. The longest time period is 3 years.

The borrower has to have life, unemployment as well as collateral insurance.

Interest rate moves between 21% and 28, 5%

6. Sol Vehículo – BancoSol support buying public and private cars.

When we are talking about private transportation, BancoSol finance 80% of the commercial

value of new of used cars to max. amount of USD 35 000. Loans for public transportation are

offered to entrepreneurs who provide public transportation services. A lien on the vehicle

and/or a mortgage is required as well as the applicable insurance coverage on both types of

Sol Vehículo.

The lowest available interest rate is 14, 5%, meanwhile the highest is 23, 5%.

7. Sol 1000 – these loans for not longer than 24 hours in range USD 50 to USD 1000. It

is about to be used for working capital or other inputs and it is charged by 24, 5% of interest

rate.

8. Sol DPF - to finance immediate needs of micro, macro and medium entrepreneurs who

have their own businesses and employees.

Interest rate is uniform for every amount of loan of 5%.

Table: Interest rates

(ACCION, Products)

5 Comparison of BancoSol and Grameen Bank

My whole seminar work should give basic information about two important microfinance

institutions acting on two different continents: Asian Grameen Bank situated in Bangladesh

and Latin American BancoSol in Bolivia.

Meanwhile Grameen Bank work on charitable basis and BancoSol was founded as sustainable

type of MFI.

Grameen Bank is not just a typical bank, it tries to take care about single persons as well as

whole families and when we take in account that people mean country and state, Grameen

Bank wants to help whole Bangladesh to improve life standard and to cross poverty line.

Grameen Bank´s main aim is to help very poor people and to use financial services to

promote self-employment.

On the other hand, BancoSol´s main goal is to make profit and use high quality services to

improve future of low-income Bolivians who have already crossed the poverty line, BancoSol

provide services not to very poor but richer of the poorest who still need microfinance

products.

Grameen Bank started as a small charitable project in Bangladesh and in 1983 it was

institutionalised as a bank. In the beginning it was dependent on donor fund. Nowadays their

all loans are covered by bank´s deposits.

BancoSol is a child of ACCION that in 1986 aimed at cost-covering interest rates, in 1992 it

became the first private microcredit bank. Initially it was supported by businesses and

charities but it never received funds for operating expenses. BancoSol is self-sufficient since

1993.

The biggest difference between these two institutions is collateral and legal instrument.

On one hand is Grameen Bank that does not ask for collateral and their lending is based on

trust and solidarity lending where members of solidarity group encourage themselves to repay

the loan, there is not legal instrument. They may also rely on data evidence that 97 % of loans

is repaid, so there is no need to have collateral or laws.

On the other hand, BancoSol requires collateral, either it is a lien on house or different types

of insurance, but still it is needed for getting the loan. And their loans are provided on legal

basis.

Grameen Bank provides a smaller range of loan types. They focus more on basic needs such

as housing, education or taking care of struggling members of society. The Grameen Bank´s

intention is to help.

Services of BancoSol are more detailed and they offer many different types of products.

BancoSol is more complex bank; they improved and expanded their services. Among credit

products we can find insurance, money transfers, savings, services to Bolivian migrants and

services included to these products.

This Bolivian microfinance bank wants to make profit and that drives them to provide high-

quality services. Bolivian clients of BancoSol can use credit or debit cards, watch their

accounts on-line through SolNet and do other services that were few years ago available just

to very rich Bolivians. BancoSol still wants to help people but also make profit.

6 Conclusion

According to history of microfinance, I can say that from old years there has existed a kind of

small loans providing within society. In the late history we can see a big jump forward came

during the 19th century. In Ireland by adoption laws that allowed to charge an interest on loans

and established a control institution Loan Fund Board, later Germany freed lending from

dependency on charity donations.

In the end of 19th Latin America tailored microfinance to their own conditions and Latin

microfinance banks were owned by government or by private sector.

In 1960s USA started with term “poverty lending”, they should have provided targeted small

directed credit to small farmers and rural producers, but in fact subsidized loans reached

richer and larger farmers. The problems with poverty lending gave way to new school called

FMP which thought that interest rate ceilings and subsidized loans caused damage of the

development of financial intermediaries.

The biggest step forward in microfinance occurred in 1970s. Few projects have shown that

women repay loans more reliably and return-of-loan rates are higher than in conventional

bank systems. The researches have also shown that people were able to pay higher rates that

meant that MFIs could have covered their costs and started to run businesses without help of

government or subsidized funds.

The 21st century recorded great success of microfinance all over the world. Many MFIs started

to change into for-profit institutions, gain capital and stabilise their status on financial

systems. Microfinance spread into many countries and helps many people to improve their

standard of living and cross the poverty line.

The second part of my work focused on comparison of two important microfinancial

institutions: Bangladesh Grameen Bank and Bolivian BancoSol. I found big difference in the

basic foundation and aims of these microfinancial banks. Grameen Bank was founded as

charitable microfinancial institution and it is aimed to very poor people who want to get out of

poverty, meanwhile BancoSol was established as first profit-making microcredit bank aimed

at richer than people in total poverty. The profit making fact causes that the interest rates

charged by Grameen Bank are lower than BancoSol´s. Grameen Bank wants to help people at

the first point and their services are mostly aimed at basic living conditions.

The banks vary also in requiring the collateral for loans. Grameen Bank relies on solidarity

lending where people are gathered in a group, members of a groups encourages themselves

and are bound to repay money on time. Bolivian bank asks for collateral at almost every type

of loan. It is their breaking piece in case a debtor will not be able or willing to pay back,

usually they request lien on house, or different types of insurance.

To sum up, Grameen Bank offers fewer services to people in worse situation charged by

smaller interest rates. It takes care of borrowers as much as of their families.

BancoSol provides products to more developed people in better situation than in Bangladesh.

In BancoSol´s portfolio of services we can find everything from loans providing, through

paying by credit cards, money transfers up to keeping oneself updated about an bank account

on the internet.

7 References

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8 Supplementary literature and resources

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