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Colombia good illustration of the benefits of microfinance

Remy Contrera Alvarez from Bogotá standing in his strawberry field.
Remy Contrera Alvarez from Bogotá standing in his strawberry field.

Remy Contrera Alvarez from Bogotá acquired strawberry plants for his 0.5 hectares of land, when he gained access to microfinance. And the Carlos family could build and expand their carpeting business thanks to micro loans. These are two examples of how SEB’s microfinance funds are touching thousands of people in developing countries. 

On a recent trip to Colombia Hanna Holmberg and Camilla Löwenhielm, who manage SEB’s seven microfinance funds, could see for themselves how their investments create opportunities for people when they get access to financing.

“The most important insight when visiting end-clients is that businesses can look unassuming from the outside but have built up relatively large amounts of assets. These assets would, however, not be accepted as collateral by banks,” says Camilla Löwenhielm.

Through three small loans Remy Contrera Alvarez has not only been able to grow and sell his products, but he has also built a credit history by consistently repaying his loans. This has enabled him to achieve a stable monthly income of 3.4 million Colombian pesos (approximately 800 US dollars), more than double the minimum wage in Colombia. In addition to growing strawberries, he also has cows whose milk he sells.

The Carlos family meanwhile build and rent out small apartments and produce wooden furniture. With the help of a two-year loan of 43 million Colombian pesos (approximately 10,000 dollars), they could recently expand and finance six new apartments, generating an additional monthly income of 5 million pesos.

While it may sound like a large loan, the machines and wood inventory in the carpentry is worth significantly more and is an element in the credit assessment made by SEB’s local partner.

SEB’s microfinance funds collectively have a capital of 8 billion Swedish kronor (725 million dollars). These funds lend money to small entrepreneurs via partners in some 60 developing countries.

Colombia is the third-largest economy in Latin America, and the country faces major challenges. Local news publication Colombia Reports put the poverty rate at 34 per cent of the population of just over 50 million inhabitants. As in many other developing countries, microfinance is crucial in giving small businesses and individuals a chance to grow and participate in the local economy. 

Colombia poverty and inequality statistics (colombiareports.com) 

Financial services are often lacking

In Colombia, about 70 per cent of the population has access to some form of financial service such as a bank account. However, the supply often does not meet the needs, and this is where players such as SEB’s microfinance funds come into the picture.

“The microentrepreneurs we target usually don't qualify for a loan at a commercial bank.," says Hanna Holmberg. She says that local banks often require real estate as collateral and a credit history of those who want to borrow. In addition, the banks think these customers’ needs are so small that it becomes uninteresting, especially since they are often located in rural areas.

Fintechs and innovations open new doors

The fund managers also took the opportunity to explore the possibility of financing new types of companies. Among them was a fintech company, that provides simple payment terminals at low cost. In this way, even micro and small companies can handle real-time payments for small amounts via card or other methods.

“A kiosk owner in the middle of central Bogotá who we met had increased his sales significantly, just by being able to accept card payments,” says Hanna Holmberg.

Disclaimer: The fund is intended for professional investors only. Past performance is not indicative of future results. The fund can both decrease and increase significantly in value, and you may not get back the amount invested. Prospectus and sustainability-related disclosures are available from SEB. This material has been prepared by SEB Asset Management AB.

More about SEB's microfinance funds

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