Page 80 - STRATEGY Magazine (G)

In Latin America, more than 200 million people remain unbanked, a number the World Bank ambitiously hopes to eliminate by 2020. Banking experts say this process must rely more on responding to customers’ needs than on selling traditional banking products.
As the 2010 small-loan crisis in India showed, it is vulnerable to exploitation by predatory lenders who lend at exorbi- tant interest rates and plunge their cli- ents into a downward spiral of increasing debt. It has also been demonstrated that microfinance is best suited to businesses and products that are relatively well known in the marketplace. To avoid be- coming mired in debt, entrepreneurs will avoid microloans for products their clien- tele does not know, even if those products will markedly improve their lives.
A prime example is modern cookstoves that use fuel more efficiently and vent smoke out of living quarters. Another
is reading glasses—well known to aging populations in urban areas, they are largely unheard of in many rural commu- nities, where carpenters, woodworkers,
mechanics, tailors, and other craftspeo- ple depend on their eyesight to do their jobs well and fear the loss of their income as middle age progresses and their eyesight begins to deteriorate. To reduce their exposure while still introducing new products to remote areas, some Guatemalan entrepreneurs have begun accepting new products on consignment rather than pay for them outright or finance them with microloans.
MEETING NEW NEEDS
While Guatemala’s banks serve their constituencies reasonably well with traditional banking products, practic- es and methods, they are not used by the majority of the population. While the financially excluded often do not have the assets to justify maintaining a
traditional savings or checking account, the rapid growth of mobile money in Guatemala is testimony to the need for banking services, even if they are offered in a non-traditional package. Likewise, the successful utilization of microfinance indicates a need for business credit that is largely not being met by the tradition- al banks.
Guatemala’s continued development depends in large part on the expansion of its middle class, an objective that itself depends at least in part on the continued successful penetration of the rural popu- lation by both mobile money and micro- finance. While the low-hanging fruit in this particular orchard may already have been harvested, there is still a great deal in the upper branches, enough to justify entry into the market.
78 STRATEGY
SPECIAL REPORT