Corposol - Finansol : diagnosis of a crisis in the world of microfinance
The Corposol - Finansol case seems to me a very interesting one for anyone interested in the viability of microfinance institutions because after having obtained success and fame in the microfinance field, it has experienced a huge crisis which led to the bankruptcy of Corposol (the original NGO) and a deep restructuring of Finansol (the financial institution created by the NGO).
What I present here is a brief summary of the major conclusions made on this case in my Ph.D.
- The tremendous growth experienced by Corposol and Finansol has been an uncontrolled process. Indeed, the crisis which was about to come was not anticipated by neither the insiders (management and board) nor by the outsiders (Colombian governemental agencies and international organizations).
- The services offered by the Corposol group get diversified too quickly and without enough test. No true planification was made before developping the Agrosol, Construsol and Mercasol programs. Besides, the multiplication of the lines of credit which could be given to a same borrower damaged his/her repayment capacity. The same can be said for the required payment for training.
- It also seems that the total cost of a credit taken by a borrower was too high due to the excesive cost of training.
The knowledge of a credit methodology did certainly exist in the Corposol -Finansol group and it explains why it has so much success at the beginning. However it got lost in the growing process. This can be seen when studying the conditions for giving credit and for managing the arrears. For instance, in 1995, refinancing of credits were introduced eventough it was not acceptable with the group credit methodology used.
- The structures of the group have not been able to keep up with the growth process. Using Mintzberg's methodology (which we use in our Ph.D.), we can say that the strategic apex has kept too much power in comparison with what would have been coherent for a organization which was supposed to be decentralized. The ideology - still in Mintzberg's view -also followed a bad path as the sense of taking part to a social oriented program - which is important for a organization which aims at a large development process of its clients - changed into one where every member of the organization would first of all take into account his/her own personal interests. Besides, the coordination mechanisms have not kept up with the multiplication of the structures, each entity of the group lacking some autonomy.
- Except the Superintendencia Bancaria, the influent outsiders (banks, Northern NGO, Colombian officials,...) have not followed strictly enough the evolution of the Corposol - Finansol group. This is also true for the equity providers as they have not fully played their control function. Besides, if it is true that Corposol and Finansol received a lot of support form Colombian and international institutions, we must say that those supports were not always controlled enough.
- As for the dependence to subsidies, it appears that - even when considering hypothesis positive for the institution, Finansol could not have worked without subsidies in 1995 (the only year for which relevant datas were available).
- Financial management has also experienced some important weaknesses. There are various explanations to that. First, Corposol and Finansol have waited a couple years before implementing an appropriate information system. So, there were many mistakes in the accounting and financial datas available (too many for a multi-million dollar portfolio institution). Besides, the complexity of crossed deals made very difficult a true understanding of the financial state of each institution. Above that, we must also mention that it is only when the crisis started that a true will of assets management appears. Last but not least, considering the aimed growth, all the entities of the group were under-capitalized.
Labie, Marc (1997), «La perennite des systemes financiers decentralises specialises dans le credit aux petites et micro-entreprises. Etude du cas Corposol - Finansol en Colombie» Dessertation Thesis, Ph.D.in Business Administration, Universite de Mons Hainaut, Belgium
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