FINANCIAL SERVICES Banco Agrícola: Catalyzing Financing for Microenterprises in El Salvador CLIENT Banco Agrícola S.A., established in 1955, is the largest bank in El Salvador providing retail and banking services. As part of its business strategy, Banco Agrícola will expand its portfolio with the purpose of downscaling and providing financial services to base of the pyramid (BOP) microenterprises, a segment that has been traditionally underserved by commercial banks.
IDB SUPPORT The Inter-American Development Bank’s Opportunities for the Majority (OMJ) initiative is sharing the credit risk of Banco Agrícola’s downscaling strategy through the provision of a credit guarantee of up to $5 million. The guarantee provides Banco Agrícola with credit-risk coverage to support its entrance into the BOP microenterprise segment through the provision of financing to mom and pop shops in El Salvador with limited or no access to credit.
THE CHALLENGE
THE SOLUTION
Microenterprises are crucial to the Salvadoran economy as a whole. They contribute 43% of GDP and employ approximately 65% of the active workforce. Moreover, they represent a critical sector for women’s economic participation, as almost two-thirds of microenterprise owners are women. Yet, it is difficult for these microentrepreneurs to obtain commercial loans. Information asymmetries prevent commercial banks from expanding their financial services to microentrepreneurs. Banks encounter a variety of challenges to analyzing their creditworthiness and risk profiles, given that they generally don’t have the business or financial track record, or the assets needed to qualify for a bank loan. This makes banks uncertain of whether the benefits outweigh the risks of serving this segment of the population.
Banco Agrícola has partnered with Industrias La Constancia (ILC)—El Salvador’s largest soft drink distributor and a subsidiary of SABMiller—and FUNDES—an international private organization that works to improve market access to small and medium-size enterprises—to expand access to finance for productive and working capital for BOP micro and small entrepreneurs in El Salvador. ILC is committed to helping Banco Agrícola overcome information asymmetries by selecting and pre-screening microentrepreneurs from its supply chain that have good repayment histories and could qualify for financing from Banco Agrícola. At the same time, FUNDES will support this selection and will also provide technical assistance to microentrepreneurs who receive financing from Banco Agrícola. The bank will provide microentrepreneurs with financing for working capital, acquisition of equipment and physical infrastructure improvements. The value-added financial products plus the technical assistance will help BOP microentrepreneurs achieve sustainability in their business and improve their management skills.
Beneficiaries of Banco Agrícola’s downscaling program. They are among an estimated 8,000 entrepreneurs expected to gain access to finance by 2017.
INNOVATION MAKES THE DIFFERENCE The partnership between Banco Agrícola, Industrias La Constancia, Fundes and the IDB allows different stakeholders to leverage each other’s resources and market expertise in order to effectively serve microentrepreneurs and solve the market failures that undermine the long-term growth of the sector. The business model capitalizes on the organizations’ own expertise and core business in order to benefit an important sector of the Salvadoran economy. With the IDB’s support, Banco Agrícola is expected to increase its microenterprise portfolio by 23.5% and reach an estimated 8,000 entrepreneurs by 2017.
OMJ 2013 Portfolio
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