Responsible Finance Forum

Factors Influencing Poverty Outreach Among Microfinance Institutions: Bolivia

guatemala-case-studyThe Global Microscope 2013 report placed Bolivia second in the ranking of best business environments to foster microfinance, after Peru, citing a strong and supportive regulatory framework.


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Bolivia has had the highest growth rate in South America since the global recession. The GDP growth rate was 6.8% in 2013, the result of a combination of factors. The main commodities exported by Bolivia, such as hydrocarbons and minerals, increased in price, resulting in export revenue soaring from $2.2 billion in 2004 to $6.8 billion in 2008. At the same time Bolivia benefited from a reduction in public external debt. Under the G8 initiative, its debt owed to multilateral organizations was reduced by $2.9 billion, equivalent to 64% of the stock of public debt Bolivia owed to these organizations at the end of 2004 (Overseas Development Institute, 2010). This consolidation of the fiscal balance has paved the way for a multitude of social policies. Martinez (2004) used a regression discontinuity approach to evaluate the impact of the BONOSOL pension which consisted of an unconditional cash transfer of US$120 per year to all people aged 65 and over. This was a substantial amount, equivalent to 33% of annual rural per capita consumption. Indeed, the paper found positive impact of household consumption and children’s human capital development, suggesting that cash transfers to poor and liquidity constrained households may facilitate productive investments which boost consumption through multipliers on the transfer. It is important to maintain a panoramic understanding of the factors at play which might affect poverty incidences, as this affects MFIs penetration, and poverty outreach. It is also important to understand the other variables at play in order to avoid misattributing the change.

The Global Microscope 2013 report placed Bolivia second in the ranking of best business environments to foster microfinance, after Peru, citing a strong and supportive regulatory framework. Over-indebtedness in the financial system is purportedly not a concern due to the strength of Bolivian credit bureaus, of which one specializes in microfinance—INFOCRED. The 2013 Law of Financial Services states that financial inclusion is a top priority of national policy. Regional data published by the financial regulator, the Autoridad de Supervisión del Sistema Financiero (ASFI), shows that as of March 2014, 46%–100% of localities with populations of over 2,000 had access to a point-of-service site—an ATM, an agent, or a branch (Economist Intelligence Unit, 2014). Under the 2013 legislation, interest rate restrictions are imposed on deposits and certain loans, and minimum levels of portfolio disbursements are established for production loans and loans for social housing. Banking institutions, including MFIs, have five years to ensure they keep an average 11.5% interest rate. ‘Multiple banks’ will have to disburse 60% of their portfolio to the productive sector and social housing credit, of which at least 25% is in the productive sector. SME banks must disburse 50% of their portfolio to small, medium, and micro enterprises in the productive sector. Financial institutions specialized in housing must disburse 50% of loans in social housing loans. The latter includes agriculture and livestock, hunting and forestry, extraction of oil and natural gas, metal and nonmetallic ores, manufacturing, production and distribution of electricity, and construction. MFIs are not mentioned in the regulation. It is clear though that these changes will increase the number of banks catering to poorer segments of the population. The resulting effects of competition between MFIs and formal banks are, as of yet, uncertain, but it is possible to imagine that MFIs may cater to increasingly poorer segments of the population. MFIs voluntarily subject themselves to transparency measures through the Asociación de Instituciones Financieras de Desarrollo (FINRURAL). The three Bolivian MFIs considered in this report work with FINRURAL. MFI B is altering its commercial strategy to set a target of 25% of loans to be made to the agricultural sector.


  • Financial services in Bolivia are strongly regulated and microfinance institutions in particular take voluntary measures to be transparent. Bolivia experiences one of the highest national poverty incidences of the countries in this report. Ahead of the 2015 election, the government is undertaking a range of changes to the financial sector. They are set to mold the landscape into one which caters to the sector in which most poor people work— agriculture.
  • This is leading some MFIs, such as MFI B in our sample, to diversify their portfolio to include wealthier clients. These clients can be charged lower rates in order to balance out the higher interest rates charged to the more vulnerable agricultural sector.
  • Both MFI A and C center their operations in regions which have incidence levels close to the national poverty line and achieve this through explicit regional targets. MFI A works in collaboration with World Vision, an NGO which requires the MFI to maintain at least 50% of operations in regions of their choosing. World Vision selects these regions based upon which are below the national poverty line. MFI C explicitly chooses regions to enter based upon the national poverty line and human development index (HDI). They focus on women, small holder farmers, and rural dwellers.
  • The poverty concentrations of these MFIs are all similar and high. The average client of MFI A has a 42% likelihood of living below the national poverty line, the average client of MFI B has a 39% likelihood, and the average client of C has a 38% likelihood.

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