MICROBANKING BULLETIN - Microfinance Information Exchange

CASE STUDIESIn Their Own Words: Pro Mujer, BoliviaNancy Natilson1999 was a challenging year for many Bolivianmicrofinance institutions, including Pro Mujer. Thestellar performance of Pro Mujer Bolivia in 1998was not as stellar in 1999. Pro Mujer Boliviareached operational and financial sustainability of,respectively, 148 and 119 percent in 1998, provingto itself and others that village banking programscan be impressively sustainable. In 1999, however,these ratios were reduced to 110 and 100 percent,respectively—still sustainable, but only at abreakeven level (Figure 1).Figure 1: Sustainability and Profitability of ProMujer (1997-1999)1997 1998 1999AROA (%) -4.4 6.0 0.0AROE (%) -5.0 6.8 0.0Operating Self-sufficiency (%) 90 148 110Financial Self-sufficiency (%) 87 119 100Source: The MicroBanking Bulletin.What accounts for these increased pressures onPro Mujer’s bottom line, and how are weconfronting these challenges?Growth IssuesAlthough the number of borrowers has grownsteadily over the last couple of years (17 percent in1998 and 13 percent in 1999), our portfoliodecreased 6 percent in 1998 and remained flat in1999 (see Figure 2). This combination of trends isdue to a substantial reduction in average loan size.Reasons for this phenomenon are many, including:(a) economic crisis, (b) increased competition, (c)low client retention rates, and (d) continuedcommitment to serve the very poor.Figure 2: Outreach of Pro Mujer (1997-1999)1997 1998 1999Borrowers (no.) 14,226 16,669 18,919Total Portfolio (‘000US$) 2,336 2,200 2,197Staff (no.) 68 89 105Avg. Loan Balance (US$) 164 132 116Depth (%) 16.9 13.1 11.5Source: The MicroBanking Bulletin.Bolivia has been experiencing an economic crisissince 1998. In these conditions, the poorestsegments of the population – which is Pro Mujer’starget market – are the most vulnerable. While ourclients are struggling to maintain quality of life,increased debt is not necessarily the answer.Bolivia is one of the world’s most competitivemicrofinance markets with over-indebtedness fromoversupply. Traditional financial institutions thathave entered the microfinance sector are usingmethodologies unfamiliar to them and causingmarket distortions. Pro Mujer applauds the resultsof competition that have lowered interest rates andhave forced MFI’s to become more efficient. But,the other side of this competition story is increaseddelinquency. Pro Mujer has had some portfolioquality problems, but it is difficult to know how ourexperience compares to other Bolivian MFIs sincedata on write-offs and refinanced loans are notoften shared.Client retention remains a challenge. To this end,Pro Mujer analyzes client desertion and uses theinformation to make changes to communal bankmethodology and to pilot new products. Some ofthese improvements include increasing theefficiency of group meetings, raising the maximumloan size, and revising the saving requirements.We are also piloting individual loans designed toretain our clients whose credit needs have grownbeyond what communal bank loans can offer. Ourinitial experiences with this product are interesting.We were surprised to discover that many of ourexperienced clients who qualified for individualloans were reluctant to leave their communal banksand the required saving program, both of whichthey consider supportive and vital to their successas microentrepreneurs.Finally, Pro Mujer is proud of its commitment toserving the very poor. Reduction in average loansize bothers us only in that it negatively affects ourproductivity ratios and challenges our efforts to besustainable.Pro Mujer challenges the assumption among villagebanking practitioners that repeat clients willautomatically want larger loans. If theirmicroenterprises are not growing (which is often thecase), we do not encourage our clients to increasetheir loan size so that Pro Mujer’s institutionalsustainability can improve. Our target market isclients whose primary access to credit has beenexpensive moneylenders and who do not havecollateral to offer as a guarantee. The communalbank methodology offers them a good introductionto credit; we remain committed to providing pre-MICROBANKING BULLETIN, SEPTEMBER 2000 21