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Juan José Marthans: “Microfinance institutions urge a new strategy to follow”

Juan José Marthans: “Microfinance institutions urge a new strategy to follow”

Yesterday concluded the International Microfinance Seminar in Arequipa. The theme was “Humanizing digital transformation”. How is our microfinance front?

It is urgent that our microfinance institutions consolidate a strategic vision. Beyond the challenging economic environment, they are losing distance from the competition that increasingly comes from the banking and technology front.

But what is the situation of microfinance institutions?

Although there is no cause for alarm, the basic indicators of capitalization, credit quality, operating costs, profitability and liquidity are moving further and further away in favor of the bank’s performance. The return per asset today in banking is almost five times higher than that shown by the average of municipal savings banks, for example. That’s not normal.

But the bank does not do microfinance and does not have the appropriate technology…

That was true a decade ago. The world changed. Today the banks have other specialized banks, subsidiaries in the form of financial companies. In addition, within their own organizations they already show specialized areas in microfinance. Watch out. On the other hand, technology allows even new entities to offer loans to entrepreneurs, to whom loans are channeled through agreements at more reasonable costs than before.

How much?

If you review the cost of a credit for 180-day installments, you will find that for the risk profile of a given client, on average, it is very similar in both banking and microfinance. On the other hand, for example, individuals with limited incomes and with dependent work today receive both national and foreign fintech credits via payroll discount. Only an agreement with the employer is enough for them and the salary advance credits are approved.

The SBS regulates financial activity in Peru. Therefore, that entity that does not have the corresponding authorization is not allowed to function. Photo: composition/El Popular

Could this lead microfinance institutions to lose ground?

Look, two decades ago, microfinance institutions were authorized to work in Lima. This was fundamental so that the municipal savings banks, for example, today capture 30% of their deposits in Lima. What would have become of these if it was not allowed? As a result, microfinance institutions expanded their market and became stronger.

What should they do to avoid deterioration in the market?

They are distracted by minor issues and do not realize that their best sustainability card, from a strategic point of view, is to seek the development of activities in an associative manner in order to share or reduce costs. It is time to have agencies that operate for all of them, it is time for the correspondent agent channel to be a service that does not imply the burden of high fixed costs, it is time to work with a single large electronic wallet for all of them. Thinking of exclusive physical and virtual channel infrastructures will lead them astray.

But is it essential?

More than essential. The banks themselves are seeking to share costs to gain sustainability and competitiveness. They already have shared electronic wallets, they are already reducing the number of traditional agencies and some of them are thinking of sharing them to reduce cost burden. In the case of microfinance institutions, this is much more urgent.

Technology will also play an important role…

Undoubtedly. The problem is that digitalization, if it does not have a human arm, at least in the transition, could generate the feeling of an inadequate quality of care. How many times has a bank application crashed? How many times do they not attend properly through automated telephone banking? The public refuses to work with a machine that operates improperly. In Europe there are movements against digitization that has gone wrong. Senior citizens have a motto: “We are old, but we are not idiots”.

What else does microfinance require to consolidate in the market?

In some cases the quality of governance is poor, their boards are not very technical. In other cases, their capitalization possibilities are limited because their sole owners are municipalities. In others, they have an extremely limited geographical coverage or their ownership and management structure revolves around people and not institutions.

And is it possible to lower the cost of credit?

Of course. Three conditions. First, that credit and deposit rates be intensively disseminated comparatively for all financial entities. The SBS has made a lot of progress preparing that information on a daily basis and could be more aggressive in disseminating it. Second, that surplus public sector resources be auctioned in favor of the entity that charges the lowest cost of credit. Third, that the market be expanded at the level of the Pacific Alliance, harmonizing regulation. That is possible and would allow the entry of first-rate banks, generating more competition.

Why is this not done?

I wonder the same thing.

Source: Larepublica

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