Banks can profit from microcredit

BANKERS CONFERENCE 2006

Microcredit, an important initiative aimed at financial inclusion, has proved to be a profitable business proposition both in short and long terms for commercial banks globally with micro-entrepreneurs gradually becoming part of their active clientele.

Delivering a special lecture on global experiences of inclusive growth initiatives at the Bancon-2006 here on Friday, Mercedes Benavides, manager, Global Network for Banking Innovation in Microfinance, Women's World Banking, while citing the experiences in Latin America, said more and more commercial banks are now entering the microfinance sector with the benefit of access to lessons learned by microfinance institutions in this area.

She also said the top performing microfinance institutions (MFIs) the world over are achieving high growth and profitability.

Stating that long-term commitment and change in attitudes and organised culture is needed to undertake microfinance activity, Benavides suggested that commercial banks identify champions of microfinance within their organisations and entrust them with the job of developing the new business activity.

"Someone who is able to champion the cause of microfinance has to be there in a bank to directly interact with the top management to sort out the issues of the sector on a daily basis," she said, while advising the banks with no long-term commitment to microfinance to avoid entering the scene altogether.

She said the banks which entered the microfinance activity in Venezuela and Colambia have adapted themselves to the needs of micro-entrepreneurs, contributing to their success.

She said the free interest rate is key to the health of microfinance sector.