Small Enterprise Development Journal (SED), vol.13(4), December 2002
Can commercial banks do microfinance? Lessons from the Commercial
Bank of Zimbabwe and the Co-operative Bank of Kenya
ROBIN BELL, ANNIE HARPER and DYSON MANDIVENGA
During the last five years, two commercial banks in Zimbabwe and Kenya have made the
decision to start microfinance operations, motivated in part by the increase in competition in the
financial sector, which has encouraged them to seek new markets. This article outlines the
institutional form their ‘downscaling’ has taken, the new loan and saving products they have
introduced and their progress so far. In these cases, donor-funded technical assistance has been
crucial in helping overcome considerable obstacles, including resistance to the new microfinance
culture from the mainstream bank staff.
It is desirable and indeed essential that commercial banks should be involved in microfinance. If
they are not, any impact that microfinance can have on global poverty will be negligible, for it is
the privately owned commercial banks which dominate the financial markets in most countries.
Currently, microfinance is being commercialised, but this still mostly involves MFIs becoming
commercial banks – such as K-REP (Kenya) and BancoSol (Bolivia), or the setting up of
commercial banks doing only microfinance, such as Centenary Rural Development Bank
Most of the commercial banks that have moved into microfinance are state banks – for
example Bank Rakyat Indonesia (BRI), National Microfinance Bank (Tanzania), and Banco
Nacional de Costa Rica. Cases of pre-existing, privately owned commercial banks ‘downscaling’
and starting microfinance operations are still relatively few and far between.
Although there are
success stories - examples include Hatton National Commercial Bank in Sri Lanka, and a number
of private banks in India through a programme started by the National Bank of Agriculture and
Rural Development (NABARD)
- many of the commercial banks that have tried to downscale
have faced considerable problems, and have not achieved impressive levels of outreach
(Valenzuela 2001). If microfinance is truly to ‘take off’ globally, such that it is no longer
dependent on donors, and no longer equated with ‘development interventions’, then this situation
There are many reasons why privately owned commercial banks are put off entering the
microfinance market, despite its apparent potential profitability, and why those banks that have
‘taken the plunge’ have in many cases faced problems. Commercial banks are answerable to their
shareholders, who live and die by the bottom line and demand maximum returns.
Most do not
feel that microfinance will guarantee them this. Standards and regulatory requirements with
which commercial banks have to comply, particularly regarding unsecured lending, and interest
rates, are inappropriate for microfinance operations.