Case Study

The Challenge of Growth for Microfinance Institutions: The BancoSol Experience

Meeting management and financial challenges of rapid growth

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

By Chen, G.
Published