The study of MFIs Serving Very Small to Small Enterprises in LAC published by IFC

This post is also available in: Tiếng Việt (Vietnamese)


Increasing access to finance for small and medium enterprises (SMEs) has become an important goal for many governments and development agencies as SMEs are seen as drivers of economic growth and creators of employment. Especially in developing countries, these firms have traditionally been ignored by banks because they are viewed as either too small, too risky or too costly to serve, yet their financial needs generally far exceed the product offerings of microfinance institutions (MFIs).

In recent years, many banks in Latin America and worldwide, have begun to recognize the market potential of the sector and started downscaling their operations to serve these enterprises. Despite their enthusiasm, however, only a fraction of SMEs have access to loans from a financial institution today. Smaller firms are at a particular disadvantage. Most banks have concentrated on the larger and more formal SMEs, excluding many very small enterprises (VSEs) due to their size, formality or inability to meet collateral or guarantee conditions.

Microfinance Institutions (MFIs) are starting to move upmarket to serve SMEs, and in particular, VSEs within this segment. However, they use varying definitions, methodologies and products to do so and to date there has been little research or documentation of their experiences. This report highlights the results of a recent study of the existing practices in Latin America of MFIs serving VSEs.  It includes several checklists for MFIs interested in expanding upmarket into the VSE space, as well as more detailed discussions and examples of the most relevant points.

This document provides a synthesis of information and lessons learned during a four-month research process. The research included a review of literature and data to understand what types of financing are currently available to VSEs in Latin America and to explore the challenges MFIs have encountered when entering the VSE segment in Latin America. It also included a series of phone interviews with industry practitioners and MFIs that have expanded upmarket in Latin America as well as in-depth visits with four MFIs in Bolivia and Peru.

The research focused on experiences in Colombia, Peru, Ecuador and Bolivia as these countries are considered to be “leading markets” for MFIs that expanded upmarket to serve small and medium enterprises, but in particular, the segment of VSEs within the more broadly defined SME sector. Each of these countries has a relatively well-developed microfinance sector as well as several MFIs that are serving both VSEs and microenterprises. Each of these countries has also benefitted from strong economic growth over the past decade, a liquid financial sector and growth of both microfinance institutions and the clients they serve. As such, their models have not really been fully tested and the lessons drawn from their experiences are evolving. Nonetheless, for those that are interested in this market segment, there is much that can be learned from these leading players.