Microfinance, Reaching the base of the pyramid
Not long after the pandemic reached Colombia last March, Banco W contacted IDB Invest to finalize a deal they had been discussing for several months. Like other experienced microfinance institutions, they knew that the imminent crisis would severely limit their clients’ ability to pay back their small loans. They also knew that a recovery would demand even more credit.
IDB Invest leapt to the opportunity to aid one of Colombia’s oldest and largest microlenders, an institution that serves hundreds of thousands of informal entrepreneurs who would otherwise have little or no access to formal financial services.
Banco W was established in 2011, after the non-profit Fundación WWB (the acronym for the global microfinance network Women’s World Banking) decided to become a regulated financial institution in order to provide its clients savings and insurance products, besides small loans.
Microenterprises comprise more than 80% of Banco W clientele, and more than half of their customers are women. They operate in 30 of Colombia’s 32 departments through a network of 142 branches and 150 non- banking agents, as well as 16,500 electronic collection points.
Besides their calling to serve low-income entrepreneurs and households in areas and activities underserved by traditional banks, Banco W offers borrowers several advantages. For example, for loans of up to 3 million Colombian pesos (roughly US$850) they do not require a co-signer and the money is usually disbursed from one day to the next.
Even though it has long been a well- capitalized and solvent institution, the economic slowdown would harshly test Banco W’s sustainability. Colombia’s GDP contracted about 8% in 2020, hitting the
less fortunate the hardest. According to one assessment, 45% of Colombian micro, small and medium-size businesses saw their revenues plunge by as much as 75% last year.
In a bid to provide borrowers some relief, the Colombian government decreed that financial institutions would have to temporarily postpone loan repayments and extend loan terms by as much as one year, which placed an additional burden on lenders of all sizes, who were also asked to make larger loss provisions.
IDB Invest came to Banco W’s aid with a novel proposal: it would help them issue a gender impact bond, a first for a microfinance institution in Latin America and the Caribbean.
Over the next few months, they worked together to structure a four-year, COL $150 billion (about US$40 million) bond that will help Banco W extend microloans to some 25,000 women, who traditionally have had less access to credit than men.
“It’s crucial for us to assist those who have taken on the mission of banking the unbanked. Banco W does exactly that, in a country where labor informality is around 50%, and as high as 70% in some regions,” says IDB Invest team leader Sandra Angarita. “We hope this deal will serve as a template for other financial institutions in the region interested in serving women microentrepreneurs.”