The Swedish cooperation strategy with Colombia aims at contributing to peacebuilding, state building and sustainable development. In 2018, Sida approved the contribution “Financial Guarantee - Mibanco Colombia - Microcredits for rural sector” with the aim of supporting the goals for integral rural reform in the peace agreement, by providing incentives to financial institutions to give MSMEs the opportunity to finance their business.
Mibanco: Guarantee for MSME lending in Colombia
Abstract
Colombia has suffered more than 50 years of armed conflict that has destroyed the social fabric and has generated more than 8 million victims, including displaced peoples, kidnappings, mine victims and assassinations. Land issues and inequalities have been at the core of the internal armed conflict. In 2011, the Victims and Land Restitution Law was approved to guarantee comprehensive assistance and reparations for victims of the internal armed conflict and particularly to address land dispossession. The Mission for Rural Transformation concluded in 2015 that the main challenge faced by small farmers in Colombia was the lack of access to productive assets (land, technical assistance, credit and intrapredial irrigation). Only 2 percent of rural households in Colombia had access to all four productive assets and even more severe, 63 percent of rural households had no access to any of the four.
Colombia has made significant progress in financial inclusion in recent years. According to the 2023 Financial Inclusion Report, about 95 percent of Colombian adults owned at least one financial product, including savings accounts, transactional accounts, and formal financing options (the figure was 92 percent in 2022). Additionally, over 1.4 million Colombians accessed the financial system for the first time that year. Still challenges persist, particularly regarding access to credit. In 2023, only 35 percent of adults in Colombia had access to at least one formal credit product, where credit card and consumer credit were the most common types of credit.
The Swedish cooperation strategy with Colombia aims at contributing to peacebuilding, state building and sustainable development. In 2018, Sida approved the contribution “Financial Guarantee - Mibanco Colombia - Microcredits for rural sector” with the aim of supporting the goals for integral rural reform in the peace agreement, by providing incentives to financial institutions to give MSMEs the opportunity to finance their business. Target areas (i.e. geographical and market segment) were selected and the Colombian bank Bancompartir S.A., later acquired by Mibanco S.A., was identified as willing and capable to provide finance to borrowers under conditions set out in the guarantee agreement.
Sida’s contribution consisted of a USD 5 million loan portfolio guarantee with a 50 percent credit risk sharing between Sida and the bank, allowing Mibanco to extend loans of up to the equivalent of USD 10 million to qualified borrowers during a 5-year period. The facility was non-revolving meaning that loans that had been extended and repaid could not be lent out again. The Swedish National Debt Office calculated its price indication for the guarantee using an expected annual exposure and an estimated annual risk exposure for net losses. The bank paid a utilization fee calculated based on the average outstanding principal amount of all qualifying loans guaranteed by Sida, as well as an administrative fee for setup, follow-up and monitoring of the guarantee. The currency of underlying loans was Colombian Pesos (could be granted in USD in rare occasions).
The guarantee to Mibanco facilitated access to finance by reducing the bank's perceived high risk in rural areas. The guarantee thus incentivized Mibanco to extend loans and financial services to MSMEs (including women-owned businesses), and it targeted beneficiary populations in rural regions – mostly in the agricultural sector - that had been especially affected by armed conflict and had no or little access to financial services. According to Mibanco, the loans would not have been extended without the guarantee.
By end of 2023, Mibanco had reached 88 percent in cumulative utilization of the guarantee and 12,788 clients had been serviced through 14,316 loans in 188 of the 258 prioritized municipalities. 50 percent of the loans were granted to clients in the commercial sector, followed by 27 percent in the services sector. The bank reached 72 percent of loan disbursements in rural areas. Results were considered particularly consequential considering how illegal lending or loansharking - that exercise extortion tactics - was growing among borrowers excluded from the legal credit market.
Regarding access to financial services for women, the bank has implemented different strategies including an exclusive loan portfolio for women. This resulted in an increase in female borrowers to 52 percent in 2023, nearly reaching the target of 54 percent women borrowers. Mibanco submitted seven (7) separate claim requests in total under the guarantee (each batch including hundreds of underlying loans), representing an approximate loss rate of 5 percent for the loan portfolio.
The Sida contribution to Mibanco shows how guarantees can facilitate access to finance for underserved segments of the population by working through intermediary, local financial institutions. Borrowers often lack the necessary collateral and have insufficient experience and/or knowledge in managing businesses, and they are therefore perceived as risky and denied loans. Banks’ high perceived risk of defaults in challenging markets, sectors or segments of the population can be lowered to an acceptable level through guarantees thus unlocking loans to borrowers who otherwise would not have access to finance. The type of guarantees extended by Sida to Mibanco addresses small-scale opportunities that are often overlooked by traditional lenders due to their perceived risk. The approach can promote financial inclusion and foster local economic development.
In 2025, Sida is commissioning an independent evaluation of the guarantee issued to Mibanco. The evaluation will focus on both development effects and operational aspects of the guarantee scheme.
Mibanco S.A. - www.mibanco.com.co
Financial Inclusion Report 2023 - www.bancadelasoportunidades.gov.co
Superintendencia Financiera de Colombia - www.superfinanciera.gov.co
National Administrative Department of Statistics - www.dane.gov.co
Banco de la República - www.banrep.gov.co
The Colombian Banking and Financial Institutions Association - www.asobancaria.com
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