Turning around state-owned banks in underserved markets
Many state-owned retail banks in developing countries do not operate profitably and are reliant on repeated financial bail-outs from their governments and from donors. Given this situation, donors are often more inclined to invest in new MFIs than to attempt to revive problematic old ones. However, this article describes how external teams may be brought in to manage the restructuring of state-owned retail banks with some success. Two cases are described, Microfinance Bank of Tanzania and the Agricultural Bank of Mongolia. In both cases the banks' wide branch network was seen as a useful asset through which profitable new products and services could be sold to rural clients. The article describes the restructuring in each case, outlines the pre-conditions for successful restructuring of this kind (including a commitment on the part of the government to privatization of the bank), and discusses the lessons learned.