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Case Study on Profitability of Microfinance in Commercial Banks: Credife
2005, Curran, L. & Natilson, N.
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What are the factors that affect the success of a microfinance unit associated with a commercial bank?

This case study aims to measure the profitability of a microfinance unit related to a private commercial bank. It studies CREDLIFE, a service company in Ecuador, and its relationship with Banco del Pichincha (the bank), its parent company, for which it services the micro-enterprise loan portfolio.

The paper discusses the following aspects of CREDLIFE:

Its profitable microfinance operations;
External factors for success, like the macroeconomic situation in Ecuador;
Internal factors like its:
- Ability to leverage the bank's infrastructure and liquidity;
- Controlled operating expenses;
- High portfolio quality;
- High interest rates;
- Adoption of the service company model;
- Ownership, governance and management.

The study conducts a performance analysis that looks at CREDLIFE:

Breadth and depth of outreach;
Profitability culture;
Profitability factors, like revenues and expenses;
Income statement and balance sheet and their reclassification;
Financial ratios, operating efficiency, productivity;
Challenges.

The paper concludes that:

The success of a microfinance unit associated with a bank depends on a variety of factors like the ability to balance autonomy, specialization and efficiency, while leveraging the banks assets and taking advantage of the synergies derived from its relationship with the bank;
CREDLIFE's apparent success, both in terms of rapid growth and contribution to bank profitability, demonstrates how a bank can become a significant player in the microfinance market in a relatively short time.

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11 Aug 2010




Luca Maffucci Switzerland

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Publisher(s):
U.S. Agency for International Development