A Story of Mutual Growth: BlueOrchard and Banco Solidario

13/03/2021 Blog

One of the microfinance institutions (MFIs) BlueOrchard has been partnering with since its earliest days is Banco Solidario S.A. Banco Solidario started in 1995 as a finance company at a time when microfinance was still unique in Ecuador and became a regulated bank in 1996. Banco Solidario was therefore the first microfinance initiative in Latin America that did not begin as an NGO. The founders wanted to demonstrate that microfinance can be profitable and have a social impact without donations.

Crisis-resistant MFI pioneer

Plans to transform the bank fully into a microfinance bank were delayed by the Ecuadorian banking crisis of 1999. This crisis destroyed one third of all banking assets in the country. Banco Solidario was still a small bank and therefore assumed to be more vulnerable to the crisis than large banks. However, due to adequate crisis management the bank survived the crisis and made good use of the subsequent dollarization of the country, by attracting funding and equity from impact investors.

One of the lenders that showed confidence in Banco Solidario´s ability to grow its microfinance portfolio was BlueOrchard. The early loans provided strengthened the balance sheet of the bank as the local deposit market had become very volatile due to the recent crisis. It also allowed the bank to become a pioneer of microfinance in Ecuador with tailor-made products and distribution mechanisms, like the use of remittances from Ecuadorians living abroad to leverage social housing projects, or the use of agent networks. Being the first in product development also meant that the bank had to invent the wheel many times and deal with regulatory restrictions before anyone else.

As of 2006 a new majority shareholder allowed the bank to conclude its conversion to a truly specialized microfinance bank, attending the Ecuadorian micro-entrepreneurs in an efficient way. Since then Banco Solidario became famous for its so called “microfinance factory” by breaking down the credit origination and approval processes into two separate teams of loan officers (located at the branches and closer to clients) and credit risk officers (who evaluate the loan applications and are independent from the branches).

The current Covid-19 pandemic has been affecting Banco Solidario’s clients at different extents, with higher incidence in its main markets in Guayaquil and Quito. The bank offered payment reliefs including deferrals, adjusted payment schedules, and additional grace periods to cater for its clients’ restricted payment capacity during the pandemic. Thanks to its strong liquidity levels Banco Solidario honoured its financial obligations without requesting debt rescheduling to lenders.

One of the strongest brands in Ecuador

Over the years Solidario has become one of the strongest brands in Ecuador. After Banco Pichincha and a state bank, Solidario is the third largest bank in microfinance in Ecuador. It currently has 262,100 borrowers and 379,520 deposit clients (up from 76,000 borrowers and 147,000 twelve years ago). Over the last 20 years BlueOrchard has contributed to this positive development. With its loans BlueOrchard supported the bank both in critical and in booming times and became a close witness to the development of a leading microfinance bank.

Written by Gustavo Muchotrigo, Senior Investment Officer at BlueOrchard.
We would like to thank Banco Solidario for their support in creating this blog post. The picture shows clients and staff of the bank. Copyrights are ownned by Banco Solidario.