Financial Guarantee -Mibanco Colombia - Microcredits for rural sector -2019-2025

On December 14th, 2018, after almost two years of an assessment process, the first Sida guarantee instrument was signed in Colombia and in Latin America. The agreement foresees the delivery of several reports to Sida Headquarters and to the Embassy in Bogotá.    By December 31st,2023, the Bank had serviced 12,788 clients through 14,316 loans in 188 of the 258 prioritized municipalities. This represents 2,723 additional clients and 2,949 additional loans since the last report of February 2023 that covered the period until September 2022. It is important to highlight that, in August 2021, an amendment was signed to increase the number of municipalities from 76 to 258. In the second half of 2022, the bank stopped disbursements as it was waiting to confirm with Sida the exchange rate to determine the remaining guaranteed amount. Once confirmed, the total amount covered by the guarantee instrument was $43,786,585,010 COP (approximately $10.9 million USD). This means that 96.2% of the guarantee was used, which represents a significant increase from the 85% in use in September 2022. Antioquia, as in previous years, was the region with most clients with 27.93%, followed by Nariño, with 16.23%. The report shows that most of the loans were granted to clients in the commercial sector with 50.3 %, followed by the services sector with 26.5%. The agricultural sector had dropped from 4% in 2021 to 0.3% in 2023. This was of concern to the Embassy as the objective was to originate 48% of loans in rural areas and therefore, we raised the question several times with the bank. They explained that in the commercial sector the clients are also involved in agricultural activities in rural areas, but they classify their main activity as commerce. They also explained that the low percentage of the actual agricultural sector was a consequence of the unsafe conditions on the roads and an increase in transport costs, so the bank did not visit the clients in the rural areas, but these clients travelled to the municipalities. Nevertheless, the Bank classified 71.8% of the disbursements as originating in rural areas, higher than the objective of 48% and higher than the 41.7% reported in the previous report. Given the importance of providing access to financial services to women, the bank has implemented different strategies including an exclusive loan portfolio for women. This has resulted in a slight increase in female borrowers, from 51.5% in 2022 to 52.16% in 2023. However, the goal of having 54% of women as borrowers has not yet been achieved. The Embassy's assessment is that the commercial advisers, in charge of issuing the credits, are evaluated for the actual number of credits rather than the gender of the recipients. A raising awareness strategy in the bank could help improve results of these strategies. Regarding other characteristics of clients, these have not significantly changed when compared with the previous report. 52% of clients had completed secondary school of which 52% were women. Very few clients have professional training (5.93% of clients of which 3.36% were women). 46.03% of the borrowers are in socioeconomic category 2 followed by: 36.13% in category 1; 15.9% in category 3; and 1.56% in category 4. This is an official measurement scale that goes from 1 to 6 (with 1 being the poorest) and is linked to the place of residence (urban or rural), which determines the level of prices for public services and also determines the allocation of public subsidies. This classification shows that the bank is providing financial inclusion for the poorest people. Clients in socioeconomic categories 4, 5 and 6 are included in the narrative report, but these are clients whose businesses are located in socioeconomic areas 4-6, but their residences are located in socioeconomic areas 1,2 and 3. In May 2020, the Bank made their first guarantee claim from Sida, covering 665 operations for a total amount of $960,081,305 COP (approximately $267,000 USD), given that despite the recovery efforts made by the Bank, it was not possible to receive the payment on time. In August 2021, the Bank made a second guarantee claim from Sida, covering a further 473 operations for a total amount of $573,147,372 COP ($154,904 USD). In May 2022, a third such claim was sent to Sida, covering another 923 operations for a total amount of $989,031,444COP (Approximately $220,000 USD). In 2023, two additional claims were sent to Sida, covering 2,638 and 247 operations for a total amount of $3,076,656,418 COP and $225,999,028 COP respectively (Approximately 825,666 USD). All the claims have been paid. The Bank continues to administrate the claims of the agreement established under the terms of their policies, through their offices, call centres and co-operative management system as well as through external agents. The Embassy's assessment is that this corresponds to 8 145 380 SEK (approximately 1.5million USD) that is in line with the risk analysis made at the beginning. Sida is prepared to pay up to 5 million USD so the 30% is still within a normal range. This is also an indication that the guarantee was needed, no claims whatsoever it could be argued raises even more questions. Unfortunately, in 2022 and 2023, despite the Memorandum of Understanding signed between Mibanco and other Sida partners (FAO, RECON, ANDI Foundation), no progress was made in strengthening the collaboration between Mibanco and the other partners. Mibanco explains this by referring to insufficient budgets for transportation and logistics for the trainers who were meant to travel to rural areas. This was the reason why the financial education workshops done with FAO and RECON in 2021, had to be covered by these partners. The Embassy's assessment is that there is a disconnection between the financial training and the commercial sections at Mibanco to follow up with potential clients. However, there is also a reluctance by traditional cooperation partners to work with commercial banks due to current high interest rates. The experience of other guarantees supported by Sida in other countries, such as Zambia for instance, is that the combination of technical assistance together with the guarantee instrument is a more effective way of reaching the planned objectives of financial inclusion. In Colombia, we only had a small amount of money for subsidies and no money for technical assistance and therefore the Embassy tried to link this instrument with other traditional partners such as the UN or NGOs that are only used to grants. With lessons learned, a new assessment is going on as explained below. As requested by the Embassy, this report also includes life stories. This provides valuable information about the level of vulnerability of clients and helps us to conclude that the guarantee instrument is being used by the poorest people who, without this instrument, would have no access to commercial loans. Below are three such examples: a) Silvia Marlene Quistanchala in Aldana Nariño. The client started her business with farm animals (pigs, chickens, rabbits and hens) a few years ago, with only a few such animals. Thanks to the support of Mibanco, she has been able to increase her number of animals, increase her productivity, increase her clientele, obtain better profitability and generate a good income through her business. Subsequently, Silvia has been able to make payments on time, thereby demonstrating a strong responsibility as a businesswoman and loan-taker. b) Jhon Alexander Sandoval Pinto in Piedecuesta Santander. The client specializes in cell phone and accessory sales, and providing technical services, and is well recognized in the community. With the support of Mibanco, Jhon Alexander has been able to expand his services, from sales to also providing a technical service, and is today proud to see the growth of his business, despite having faced many difficulties along the way. c) Yannifer Smith Rozzo in Piedecuesta (Santander). The client has managed a hairdressing salon for over 5 years. Despite challenges during the pandemic, her business has strengthened her economic empowerment and enabled her to improve the quality of life for her and her family. Both her operating capital and her number of clients have increased successfully during these five years, as has the reputation of her and her hair salons. After receiving this supplementary information on February 23rd, the Embassy´s assessment is that the narrative report provides important information for determining that the guarantee-instrument is being used correctly. The narrative report was approved.

This contribution aims to facilitate loans and financial services to micro-, small- and medium-sized rural and urban-based enterprises, women-owned businesses, and targeted beneficiary populations (Colombian victims of the conflict, ex-combatants in the process of reintegration, people with disabilities, Afro Colombian and Indigenous peoples) in rural regions that have been especially affected by armed conflict and thereby have no or little access to financial services.