MICROCAPITAL STORY: Colombian Financial Holding Grupo Aval SA Considers Opening its Doors to the Microfinance Industry and Become the Third Financial Institution in Colombia to Specialize in Microcredit

Luis Carlos Sarmiento Angulo, President of Grupo Aval SA informed financial newspaper La Republica, he intends to provide micro-lending services to the poorest sectors of the economy.  If Grupo Aval SA enters the microfinance industry, it will become the third financial institution on Colombia to specialize in microcredit.  Mr. Angulo is also exploring the possibility of a joint venture with Bangladesh’s microfinance firm Grameen Bank.

In fact, ProCredit (owned by German consultancy Internationale Project Consult, the German development bank KfW and the Dutch foundation DOEN) opened the first branches in Colombia in May 2008.  By October 2008, Bancamia SA, introduced itself to the micro-lending market.  Recent data provided by the Mix Market as of Decmber 31, 2008 reported Bancamia SA’s (controlled by Spanish financial giant Banco Bilbao Vizcaya Argentaria SA) Gross Loan Portfolio (GLP) at USD 162 million with GLP to Total Assets as 80 percent. 

According to Superfinanciera de Colombia, loans to the poor have become a profitable business for companies such as Codensa that issue credit in Colombia  Codensa reported that the average loan increased to USD 260 dollars with a portfolio of 750,000 clients.  Moreover, the state’s usury rate on microcredit in 2007 was at 33.93 percent.  While there is legitimate concern that usury limits can provide obstacles for microcredit lenders, Carlos Moya (program director of Banking Opportunities in Colombia) warns La Republica that there is greater concern for possible saturation of similar microcredit products to the population of Colombia with the introduction of additional banks specializing in microfinance. 

MicroCapital reported in February 2009 the state of the microfinance business environment in Latin America and the Caribbean region. According to the Economist Intelligence Unit (EIU), Colombia ranks 5th out of 20 countries in the 2008 microfinance index with an overall score of 58.6 (out of 100).  The country’s credit bureaus are highly rated with the World Bank’s Doing Business report for 2008 rating Colombia with a score of 5 out of 6 (6 being the best score) on its Credit Information Index.  Governance standards have improved but still have room to grow. 

Furthermore, Colombia has one of the largest non-regulated MFI sectors in the region.  The EIU has determined that one significant hurdle is that non-regulated MFIs face a 40% withholding tax on external loans for 180 days   While Colombia is subject to high usury rates, NGOs face no significant regulatory barriers in becoming active in microcredit. 

The 2008 microfinance index cites that while the country has improved the most in its regulatory and investment climate when compared to any of its peers in the region, Colombia’s biggest weakness is still its general investment climate since their judicial system and capital markets infrastructure are in need of significant improvement. 

Colombia also lacks a special-purpose microfinance vehicle according to the EIU.  While some finance companies operate beyond microfinance, they still have invested a significant portion of their portfolio in microfinance.  Moreover, more foreign banks and financial groups are creating specialized divisions to operate in the microfinance sector in Colombia.

By Zoran Stanisljevic

La Republica, March 2009, Grupo Aval abrirá banco para las microfinanzas este año  

MicroCapital Paper Wrap-Up, February 2009: PAPER WRAP-UP: 2008 Microscope on the Microfinance Business Environment in Latin America and the Caribbean (LAC), (Part one of a two part series)

Mix Market, Bancamia SA

Grupo Aval SA: Homepage

ProCredit: Homepage

Bancamia SA: Homepage

 

 

 

 

 

 

 

 

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