Latam microfinance may reach $20 bln by 2012 -IADB

By Adriana Garcia

MIAMI, April 5 (Reuters) - Microfinance loans could offer more than $20 billion in credit to the poor in Latin America by 2012, up from $8.6 billion last year, as services expand and rates fall, an Inter-American Development Bank official said on Saturday.

"The reason (for growth) is that you'll find millions of new borrowers in markets like Mexico, Brazil and Argentina," Donald Terry, the IADB's Multilateral Investment Fund manager, told Reuters at the bank's annual meeting in Miami.

Growth will come as the regulatory environment for these types of loans, which try to stimulate productive activity among the poorest, improves in those countries, he added.

Up to 600 microfinance institutions served 8 million clients last year in Latin America, up from just 2 million and a portfolio of $1 billion in 2001, the bank said in a report covering 25 countries. Average loans ranged from $748 to $1,337.

Microfinance institutions in only a few countries, such as Bolivia and El Salvador, had interest rates of less than 25 percent. The interest rates charged by such institutions in Paraguay and Mexico exceeded 40 percent, with an average rate in Mexico last year of 64.9 percent.

Terry said Mexican rates had been about 80 percent two years earlier, but needed to come down further.

Interest rates are heavily influenced by the competitive and regulatory environment and institutional efficiency but, on average, the microfinance institutions charge a premium of about 6 percentage points over commercial bank rates, the report said.

COST AND POTENTIAL

Only 30 percent of the households in Latin America have a bank account and 18.9 percent have loans, IADB President Luis Alberto Moreno said, noting there was room for growth as the financial sector expands and technology drives costs down.

"Rates have dropped in our region and particularly in markets where the industry is most mature and competitive," he said in a speech.

Lending small amounts to small businesses can be costly. But Terry denied that microfinance was not lucrative in the long run, noting bigger, commercial banks were starting to expand into the sector, forcing microfinance institutions to adapt.

Peru's microfinance organization MiBanco, for example, is now facing the challenge of competing with banks with large branch networks, better salaries and products, said Rafael Llosa, MiBanco's general manager.

"A few months ago the fourth biggest bank in the country tried to hire all our branch and loan managers," Llosa said.

In Bolivia, President Evo Morales' leftist government is challenging microfinance institutions to achieve single-digit interest rates, Banco Sol general manager Kurt Koenigsfest said.

The bank, which started as a nongovernmental organization, has 1 million clients in a country of 10 million, and offers rates at about 18 percent, he added. (Reporting by Adriana Garcia, Editing by Michael Christie and Peter Cooney)