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Comparison between Performances of Microfinancial Institutions in Brazil and Latin America
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The last group consists of commercial banks, which in some countries such as Chile and Brazil have the largest microcredit
portfolio. These banks operate smoothly in the sector as a result of a previously established structure, able to easily integrate the
microfinancial segment. Many of them established subsections to operate on exclusiveness basis therein, and others incorporated
microfinancial institutions in their structure with a diversity of models adopted by the administration thereof.
In general, microcredit portfolio is relatively small if compared to commercial banks’ total portfolio; however, in some countries,
increase rate has been significant in this group, whose participation in the sector has been stimulated by increase of competition in
the banking sector after reforms of financial systems, by inflation reduction and, consequently, by reduction of
profit in its traditional product segments and also by successful performance of MIFs and NGOs.
One of the biggest challenges encountered by Latin American microcredit institutions was to reach an operational level as to
attain a profit-sustainable position. If the business model were socially and economically feasible, that would stimulate growth
and, consequently, increase the possibility to meet the enormous demand for services from microentrepreneurs of the area.
Moreover, the difficulty in operating with interest rates lower than rates fixed in the 1990’s due to increasing competition in the
sector caused many institutions to operate more efficiently, and therefore, reduce operational costs and improve services provided
to clients (Monteiro, 2005). Acquiring scale gains was essential to reduce operational costs. Table 3 indicates the evolution of
operational profitability and efficiency indicators in the last three years.
Table 3 – Profitability and Efficiency Indicators
ROA
ROE
Efficiency
ROA
ROE
Efficiency
ROA
ROE
Efficiency
Commercial Banks
0,5%
6,8%
29,1%
3,5%
26,6%
23,2%
4,2%
31,2%
22,6%
MIF's
4,7%
13,9%
23,3%
3,5%
17,9%
21,9%
3,5%
19,5%
20,9%
NGO's
6,0%
10,8%
24,3%
6,1%
14,7%
26,3%
5,6%
13,2%
25,8%
2004
Type of Institution
2002
2003
Source: Marulanda & Otero (2005)
An increase of profitability in relation to the net equity (ROE) is detected, more specifically, in commercial banks and MIFs. For
all, there has also been an increase of efficiency, which was measured by ratio between operational expenses and the portfolio
average balance. The gains of scale acquired by commercial banks are associated with indicators’ considerable improvement.
Another important factor regarding profitability is risk control, measured by insolvency. Table 4 indicates the level of Insolvency
by period of delay, according to which MIFs and NGOs indicate lower levels of insolvency than commercial banks’, due to the
fact that commercial banks operate with more provisions and, therefore, with more losses. Losses derived from insolvency do not
significantly affect the banks profitability as a result of low fund costs due to the access to large deposits (ibid., 2005).
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| | Authors: Gonzalez, Rodrigo., Savoia, José., Monteiro, Marcelo. and Fonseca, Ligia. |
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The last group consists of commercial banks, which in some countries such as Chile and Brazil have the largest microcredit
portfolio. These banks operate smoothly in the sector as a result of a previously established structure, able to easily integrate the
microfinancial segment. Many of them established subsections to operate on exclusiveness basis therein, and others incorporated
microfinancial institutions in their structure with a diversity of models adopted by the administration thereof.
In general, microcredit portfolio is relatively small if compared to commercial banks’ total portfolio; however, in some countries,
increase rate has been significant in this group, whose participation in the sector has been stimulated by increase of competition in
the banking sector after reforms of financial systems, by inflation reduction and, consequently, by reduction of
profit in its traditional product segments and also by successful performance of MIFs and NGOs.
One of the biggest challenges encountered by Latin American microcredit institutions was to reach an operational level as to
attain a profit-sustainable position. If the business model were socially and economically feasible, that would stimulate growth
and, consequently, increase the possibility to meet the enormous demand for services from microentrepreneurs of the area.
Moreover, the difficulty in operating with interest rates lower than rates fixed in the 1990’s due to increasing competition in the
sector caused many institutions to operate more efficiently, and therefore, reduce operational costs and improve services provided
to clients (Monteiro, 2005). Acquiring scale gains was essential to reduce operational costs. Table 3 indicates the evolution of
operational profitability and efficiency indicators in the last three years.
Table 3 – Profitability and Efficiency Indicators
ROA
ROE
Efficiency
ROA
ROE
Efficiency
ROA
ROE
Efficiency
Commercial Banks
0,5%
6,8%
29,1%
3,5%
26,6%
23,2%
4,2%
31,2%
22,6%
MIF's
4,7%
13,9%
23,3%
3,5%
17,9%
21,9%
3,5%
19,5%
20,9%
NGO's
6,0%
10,8%
24,3%
6,1%
14,7%
26,3%
5,6%
13,2%
25,8%
2004
Type of Institution
2002
2003
Source: Marulanda & Otero (2005)
An increase of profitability in relation to the net equity (ROE) is detected, more specifically, in commercial banks and MIFs. For
all, there has also been an increase of efficiency, which was measured by ratio between operational expenses and the portfolio
average balance. The gains of scale acquired by commercial banks are associated with indicators’ considerable improvement.
Another important factor regarding profitability is risk control, measured by insolvency. Table 4 indicates the level of Insolvency
by period of delay, according to which MIFs and NGOs indicate lower levels of insolvency than commercial banks’, due to the
fact that commercial banks operate with more provisions and, therefore, with more losses. Losses derived from insolvency do not
significantly affect the banks profitability as a result of low fund costs due to the access to large deposits (ibid., 2005).
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