Theme 3: Introducing Rural Finance into an Urban Microfinance Institution: the Example of Banco ProCredit, El Salvador

Banco ProCredit El Salvador (formerly Financiera Calpiá) was started as an NGO in 1988 to serve urban micro entrepreneurs. Over time it grew and developed a well-performing portfolio, but continued to limit its operations to urban areas. In 1992, it began to modify its individual lending technology to fit the demands of rural clients, and started experimental lending in favorable areas with lower risk farmers. A pilot project was initiated by granting loans to small farmers producing vegetables. The target areas were selected based on three criteria: accessibility, proximity to a Bank’s branch office, and a secure water supply to minimize the risks of crop failure due to drought. The success of this pilot led to an expansion in lending to riskier farmers. Over time, the rural portfolio has grown and the organization has successfully met two major external shocks, an earthquake and a collapse in maize prices.

This paper provides insights into the process undergone by Banco ProCredit El Salvador to introduce this innovation and into the lessons learned about the obstacles and facilitators to this process. It presents in detail:

  1. a brief review of the history and evolution of the organization
  2. a description of how this technology was introduced and integrated into the institution
  3. a description of the individual lending technology and adaptations made to serve rural areas, of the lending procedures as well as of the characteristics sought in rural loan officers and the training provided to them
  4. data reporting on the evolution and performance of the institution and its rural and total loan portfolio
  5. a discussion of how Banco ProCredit El Salvador has weathered major external shocks
  6. comparative data on the work load and performance of rural and urban loan officers
  7. characteristics of the rural clients

The paper ends with a summary of the lessons learned from the successful introduction of rural lending and its potential limitations.

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