In his inaugural speech this month, Colombia’s President Alvaro Uribe outlined plans to create a new microcredit bank. Capitalized with 120 billion Colombian pesos (equivalent to $50 million) from the state-owned bank, Bancafe, the new Banco de las Oportunidades will focus on low-income groups and microlending. President Uribe promised that this will create credit opportunities for more than six million low-income Colombians.
The question though is how successful another state-owned bank will be. Eduardo Pierces Flórez, President of the National Federation of Colombian Banking Unions, called the idea “A campaign joke.” In his article, Mr. Flórez points out that President Uribe has considered the project a “policy” rather than a solid organization which will provide support to the sectors most in need of credit.
State banks have had a bad track record, and most literature has focused on how to privatize them (for example, refer to the Microfinance Gateway Library). One paper for example, suggests that disappointing performance can be attributed to high administrative and operational costs, low or no deposit mobilization, and even incentives at odds with sustainability. Yet according to another, state-owned banks have been successful where they have ensured accessible points of service and offered diverse financial services. Will Colombia’s Banco de las Oportunidades in fact succeed in creating opportunities?
Additional Resources:
1) Market Watch: Colombia's Uribe promises economic reforms in second term
2) Indymedia Colombia: The privatization of Granbanco - Bancafé: More benefits for the private capital (Spanish only - translated by Google)
3) MIX Market: Colombia Country Profile
4) CGAP Focus Note No. 10: How can governments transform state-owned banks into successful microfinance institutions?
5) Microfinance Gateway: Assessing the Social Costs of State-owned Agricultural Credit Institutions: The Role of the State and the Development Community
6) USAID: State-Owned Retail Banks (SORBS) in Rural and Microfinance Markets: A Framework for Considering the Constraints and Potential
