Profitability of Microfinance in Commercial Banks: Case Studies of CREDIFE and Hatton National Bank
This presentation explores the profitability of microfinance in commercial banks, based on the case studies of CREDIFE, a service company in Ecuador, and an integrated product from Hatton National Bank, Sri Lanka. It identifies the specific goal of this research as follows:
- To advise bankers and advisors on microfinance programs to understand the cost and revenue derivers and the potential profitability of microfinance in a commercial bank.
An initial comparison of the two cases reveals that:
- Neither bank had performed detailed profitability analyses;
- Both banks had considered the elimination of the microfinance program.
The presentation goes on to compare the following features of the banks:
- Loan portfolio;
- General cost allocation;
- Interest revenue;
- Investment income;
- Cost of funds;
- Provision expense;
- Direct and indirect operating expenses.
It finds the following challenges to the profitability of microfinance in these banks:
- Savings mobilization;
- Graduating clients;
- Management information system (MIS).
The presentation concludes that:
- Commercial banks introduce microfinance for social reasons;
- Determining the profitability of small microfinance programs has not been a priority for large commercial banks;
- Leaders are beginning to realize the business and profit potential of micro-enterprise clients.