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.

About this Publication

By Curran, L. & Natilson, N.
Published