Case Study
Case Study on Profitability of Microfinance in Commercial Banks: Credife
What are the factors affecting the success of a microfinance unit associated with a commercial bank?
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This case study aims to measure the profitability of a microfinance unit related to a private commercial bank. It studies CREDLIFE, a service company in Ecuador, and its relationship with Banco del Pichincha (the bank), its parent company, for which it services the micro-enterprise loan portfolio.
The paper discusses the following aspects of CREDLIFE:
- Its profitable microfinance operations;
- External factors for success, like the macroeconomic situation in Ecuador;
- Internal factors like its:
- Ability to leverage the bank's infrastructure and liquidity;
- Controlled operating expenses;
- High portfolio quality;
- High interest rates;
- Adoption of the service company model;
- Ownership, governance and management.
The study conducts a performance analysis that looks at CREDLIFE:
- Breadth and depth of outreach;
- Profitability culture;
- Profitability factors, like revenues and expenses;
- Income statement and balance sheet and their reclassification;
- Financial ratios, operating efficiency, productivity;
- Challenges.
The paper concludes that:
- The success of a microfinance unit associated with a bank depends on a variety of factors like the ability to balance autonomy, specialization and efficiency, while leveraging the banks assets and taking advantage of the synergies derived from its relationship with the bank;
- CREDLIFE's apparent success, both in terms of rapid growth and contribution to bank profitability, demonstrates how a bank can become a significant player in the microfinance market in a relatively short time.
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