Commercial banks and microfinance: Downscaling versus equity investments in MFIs in Peru

Felipe Portocarrero M.; Charles Bélanger; Marcia Parada

doi:10.3362/1755-1986.2012.022

Commercial banks and microfinance: Downscaling versus equity investments in MFIs in Peru

Felipe Portocarrero M., Charles Bélanger, Marcia Parada

In recent years, more commercial banks have been entering the microfinance market as there are opportunities for sustainable growth and revenue. This study analyses and compares the cases of four major banks that acquired Peruvian microfinance institutions. The paper argues that banks have sought equity investments in MFIs to attain deeper outreach at the ‘bottom of the pyramid’. Conversely, MFI shareholders were motivated to sell because of attractive valuations paid by the banks, difficulty competing with larger investors interested in the MFI sector, and in order to offset the risk of portfolio concentration in microfinance investments. This paper concludes that bank participation in the microfinance sector will be both profitable and have a positive social impact in the medium term, since it will foster reduced interest rates, greater efficiency, and improved risk management.

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