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SEB Fund Managers in Colombia: Unlocking growth and entrepreneurship through microfinance

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In Colombia, microfinance* plays a crucial role in empowering entrepreneurs by fostering economic growth and promoting social inclusion, particularly for the most vulnerable segments of the population. During a visit in November, portfolio managers Hanna Holmberg and Camilla Löwenhielm explored the potential for SEB's microfinance funds to make a difference in a country where small businesses often struggle with limited access to traditional financing.

Entrepreneurial spirit despite challenges

“One of the most important insights we take with us is the enormous drive of the entrepreneurs and their willingness to find new business models that can solve problems for the large mass of the population," says Camilla Löwenhielm.

The pandemic hit the poorest parts of the population very hard, but the country has now emerged from the worst phase. Inflation, which stood above 13% in March 2024 with subsequent high interest rates, has gradually declined over the year and is now down to 5%** (November 2024). This has created breathing space for the population.

Remy Contrera Alvarez, a farmer from Bogotá, gained access to microfinance, enabling him to acquire 0.5 hectares of land (the equivalent of a football field) where he grows and sells strawberries. Through three small loans totaling USD 1,680, he has not only been able to cultivate and sell his produce but also build a credit history by consistently repaying his loans. This has allowed him to achieve a stable monthly income of USD 800, more than double the minimum wage in Colombia, and secure a better future for his family. Additionally, he owns three cows, the milk from which he sells. This is one example of the financing SEB provides through the microfinance institution Contactar, with which SEB has collaborated for many years.

Striving for multiple sources of income to enhance stability

Diversifying income sources is common among Colombia's most vulnerable populations. Carpenter Juan Carlos and his wife, who run a family business a few hours north of Bogotá, make wooden furniture and rent out three smaller apartments. With the help of a two-year loan of USD 10,000, they built six more apartments, generating rental income of USD 1,200 per month. They used wood and machinery as collateral – assets accepted by the microfinance institution but not by traditional banks.

Fintechs and innovations open new doors

The portfolio managers also explored the possibility of financing new types of companies, including many fintechs, which provide payment terminals and real-time payments for micro and small companies. Today, these businesses cannot access card terminal services, which are typically reserved for larger companies.

"A kiosk owner in central Bogotá, whom we met, significantly increased his sales just by being able to accept card payments," says Hanna Holmberg.

She adds that renewable energy is high on the agenda. The team met a successful company specialising in solar energy. These are just a few of the many examples the managers encountered on site, highlighting innovative businesses that could eventually lift many people out of poverty.

Financial inclusion: a challenge for much of the population

Colombia, the third-largest economy in Latin America, faces major challenges, with poverty levels affecting 34% of its population of just over 50 million. Microfinance plays a crucial role in giving small businesses and individuals a chance to grow and participate in the global economy. While a large proportion (about 70%) *** of the population has access to some form of financial product, many lack services that truly meet their needs, such as loans or insurance. This is where SEB's microfinance funds can make a difference.

 


* Microfinance is defined as a business with up to 5 people involved. 
** La inflación sigue cayendo en Colombia: cierra noviembre en 5,2% | EL PAÍS América Colombia
*** Poverty and inequality | Colombia Reports

What is microfinance?

Microfinance is the provision of access to capital and financial services that meet the needs of underserved individuals and businesses, with the aim of improving social and economic development, particularly in lower-income economies. It encompasses credit, savings, remittances, payment services, insurance, and other basic financial products. Microfinance extends the reach of financial markets to areas they would otherwise not serve. It provides low-to-middle-income entrepreneurs with the tools they need to start or grow a business and improve their resilience to financial shocks, access essential goods, accumulate assets, and invest in human capital such as health and education.

Learn more about SEB Microfinance Funds

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