MICROCAPITAL BRIEF: GABV Report: Microfinance Institutions, "Values-Based” Banks Stronger than Mainstream Banks

The Global Alliance for Banking on Values (GABV), a nonprofit network of 15 “values-based” banks, released a report it commissioned at its recent annual conference in the Canadian city of Vancouver, British Columbia, suggesting that values-based banks (VBBs), banks that prioritize social progress, are financially stronger than mainstream banks. The report compares data from 17 VBBs, including microfinance banks BRAC Bank Limited of Bangladesh, BancoSol of Bolivia and Mibanco of Peru, with 29 banks listed as “Global Systemically Important Financial Institutions” by the Switzerland-based Financial Stability Board, such as Bank of America. The report was partially funded by the US-based Rockefeller Foundation.

According to the report, during the economic downturn from 2007 to 2010, lending by VBBs increased by 80 percent while lending by mainstream banks increased by 20 percent. VBBs also lent 70 percent of their assets on average compared with 38 percent for mainstream banks. The VBBs studied also had higher capital adequacy ratios and better quality capital than the mainstream banks based on their ratios of equity to assets. VBBs had an average equity to asset ratio of 9 percent, average return on assets of 0.50 percent and an average return on equity of 7.1 percent. Mainstream banks had an average equity to asset ratio of 5 percent, average return on assets of 0.33 percent and a return on equity of 6.6 percent.

By Courtney Snelling, Research Associate

About Global Alliance for Banking on Values (GABV): The Global Alliance for Banking on Values (GABV) is a nonprofit network of banks that was formed in 2009 and is based in the Netherlands. GABV members support sustainable development for previously unserved people. These banks have a triple bottom line, recognizing financial, social and environmental return. As of March 2012, the network comprises fifteen members including the microfinance banks BancoSol, Mibanco and BRAC Bank.

About BRAC Bank Limited: Established in 2001 by BRAC, a nonprofit formerly known as the Bangladesh Rehabilitation Assistance Committee, BRAC Bank Limited is a commercial bank owned by BRAC, the World Bank’s International Finance Corporation and US-based ShoreCap International Limited. BRAC Bank Limited aims to serve poor people and small and medium-sized enterprises inBangladesh. In addition to offering traditional loans and deposit accounts, BRAC Bank Limited provides small loans through its microfinance programme. Unlike BRAC, which also disburses loans, BRAC Bank Limited is regulated by Bangladesh Bank, the country’s central bank. In 2010, BRAC Bank Limited had total assets of USD 1.43 billion, a gross loan portfolio of USD 1.04 billion, USD 1.06 billion in deposits, return on assets (ROA) of 1.55 percent and return on equity (ROE) of 18.9 percent.

About BRAC (Bangladesh Rehabilitation Assistance Committee): BRAC, formerly known as the Bangladesh Rehabilitation Assistance Committee, is a nonprofit development organization that was established in 1972 and is headquartered inBangladesh. According to its website, BRAC offers development interventions intended “…to bring about change in the quality of life of poor people inBangladesh.” As of 2010, BRAC reported to the US-based nonprofit Microfinance Information Exchange (MIX) total assets of USD 1 billion, a gross loan portfolio of USD 620 million, approximately 5.4 million borrowers, return on assets (ROA) of 3.84 percent and return on equity (ROE) of 12.4 percent. As of 2012, BRAC works in nine developing countries. BRAC also owns a stake in BRAC Bank Limited, which unlike BRAC offers deposit services under the regulation of the Bangladesh Bank, the central bank of the country.

About Banco Solidario S.A.: Banco Solidario S.A. (BancoSol), a bank based in Bolivia, was founded in 1992 and provides traditional financial services as well as microcredit. As of September 2011, BancoSol reported to the Microfinance Information Exchange (MIX), the US-based nonprofit data provider, total assets of USD 657 million, a gross loan portfolio of USD 540 million, return on assets (ROA) of 1.71 percent, return on equity (ROE) of 22.7 percent and 162,000 active borrowers. BancoSol also reported total deposits of USD 503 million and 414,000 depositors.

About Mibanco (Banco de la Microempresa S.A.): Mibanco, created in 1998, is a private Peruvian bank that aims to assist the development of micro- and small enterprises (MSEs). Its strategy is to target markets “where demand for micro-credit is highest and supply weakest”, mainly focusing on the Lima and Callaoarea. Mibanco offers both credit and savings products and employs both individual and solidarity group lending methodologies. Loans are offered for working capital and fixed asset purchases in sizes ranging from the equivalent of USD 100 to USD 100,000, with loan terms of 3 to 60 months and with interest rates of 25 percent to 50 percent per year. As of June 30, 2011, Mibanco reported to the Microfinance Information Exchange (MIX), the US-based nonprofit data provider, total assets of USD 1.75 billion, a gross loan portfolio of USD 1.41 billion, return on assets (ROA) of 1.23 percent, return on equity (ROE) of 14.4 percent and 420,000 active borrowers. Mibanco also reported total deposits of USD 1.27 billion and 263,000 depositors. Mibanco is owned byPeru’s Grupo ACP, which also has holdings in nine other Latin American countries.

Sources and Additional Resources:

[1] TheFinancialExpress.com, “BRAC Bank Programme a Model for Sustainable Development”, http://www.thefinancialexpress-bd.com/more.php?news_id=123020&date=2012-…

Gabv.org Report, March 2012, “Strong, Straightforward and Sustainable Banking: Financial Capital and Impact Metrics of Values Based Banking” http://www.gabv.org/wp-content/uploads/Full-Report-GABV-v9d.pdf

MicroCapital.org Brief, November 17, 2011, “MICROCAPITAL BRIEF: International Finance Corporation (IFC) Mobilizes $40m to Support Peruvian Microfinance Institution MiBanco”, https://www.microcapital.org/microcapital-brief-international-finance-cor…

MicroCapital.org Brief, July 22, 2011, “MICROCAPITAL BRIEF: Social Performance Task Force (SPTF) Releases Proposed ‘Universal Standards for Social Performance’ in Microfinance”, https://www.microcapital.org/microcapital-brief-social-performance-task-f…

MicroCapital Universe Profile, Global Alliance for Banking on Values, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Glo…

MicroCapital Universe Profile, BRAC, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=BRA…

MicroCapital Universe Profile, BRAC Bank, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=BRA…

MicroCapital Universe Profile, Banco Sol, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Ban…

MicroCapital Universe Profile, MiBanco, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Mib…

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