CASE STUDY

Banco Santander: Extending financial se vices to low-income communities in azil

Initi ti e Descriptio

In September 2013, Santander Microcrédito joined the Business Call to Action with a commitment to serve 124,799 low-income consumers with microfinance services and to disburse up to US$490 million in microcredit loans by 2015.

The goals of Santander Microcrédito are to:

• Disburse R$540 million (US$230 million) in microcredit operations by the end of 2014; and R$600 million (US$260 million) in 2015; and

• Attain 126,000 active microcredit clients by the end of 2014 and 131,000 additional clients Business Model Santander Microcredit is an example of how Banco in 2015. In Brazil, 52 million people and contributes to approximately 25 million informal reducing social inequalities in entrepreneurs lack access to the for- the country. When we started mal banking system. Santander Brasil thinking about how to launch Microcredit, a company affiliated with the microcredit programme, we Brasil, was founded decided that it should be a in 2002 to offer microcredit operations model in which all involved to support business entrepreneurs parties could benefit. that could not access formal banking services. To this end, Santander Brasil Microcredit offers loans that con- tribute to employment and income generation for low-income people. Currently, Santander Microcredit The average monthly income in Brazil operates in more than 600 municipali- is US$6801 and 21 percent of the pop- ties (in 10 Brazilian states), and has 25 ulation live below the poverty line2. branch offices. Of these, 20 percent

1 http://www.worldcrunch.com/business-finance/in-booming-brazil-census-shows-income-gap- persists/c2s4115/#.VGNgoltHtA0 2 https://www.cia.gov/library/publications/the-world-factbook/geos/br.html are located in the southeast and In addition, credit agents help to assess to become members of a ‘solidarity Results Achieved 80 percent in the northeast of Brazil, the context and potential clients’ group’. These group comprise five to six where poverty and social inequality project or business plans, and identify members – usually entrepreneurs from are high and where the majority the most efficient way to use the the same community – who function Business Impact of people lack access to education microcredit. Through this personalized as guarantors of each other’s loans. Santander Microcrédito is the leader and financing. From the US$222.3 and tailored assistance, the credit Santander grants microcredit to these among private sector banks operating million available for this programme agents built a close relationship with solidarity groups, which then decide microcredit in Brazil. It holds a market in 2012, 94 percent of funds were clients, thereby enhancing client how to use the money and when to share of 16 percent and thus represents disbursed as credits to clients from retention at the bank. repay it. the second largest Brazilian company this region. in this segment. Since 2002 Santander Risk management In addition, Santander supports the disbursed credit to 182,000 clients for Another core component of Santander´s financial recovery of clients if their a total of US$1.6 billion throughout microcredit programme is its thorough ventures fail. In this case, Santander Brazil. Currently, the microcredit team How It Works risk-management system, which offers supplementary financial guidance is formed by 277 employees, of whom mitigates clients social risks related to or, if needed, additional credit support. 206 are microcredit agents operating in By including credit agents and local indebtedness and business failure. Risk the communities where Santander has organizations in the provision of credit, management entails measures aimed Applying this risk management offices. the company contributes to the social at improving prevention and recovery approach contributes to the success of welfare of the communities where its among Santander´s clients. Santander’s microcredit programme. While these figures are impressive, the clients live and work. Santander also In 2012 for example, also encountered a number of provides small entrepreneurs with: To prevent its clients from becoming Microcredit achieved a default rate of 3 challenges associated with working at • working capital; indebted, the company offers financial percent, while in the Brazilian financial the bottom of the pyramid. guidance on credit management. In system, the rate was 3.7 percent. • fixed investment loans to buy addition, Santander requires its clients Despite these challenges, microcredit equipment and adapt technologies is an important part of Santander’s to become more eco-efficient; and long-term competitive strategy. The • financial guidance through microcredit program improves the classroom training. reputation of Santander and shows its social responsibility. Furthermore it Currently, Santander Microcredit helps to grow their customer base. provides loans ranging from R$500 (US$244) to R$15,000 (US$7,320)3. Development Impact Loan terms and conditions include Santander promotes banking program remains in the community Santander organizes events to raise interest rates of 2 percent to 3.95 inclusion via the granting of loans. while boosting trade and other local local communities’ awareness about percent per month for a duration of The microcredit program provides activities, thereby reinforcing the social cancer prevention and mosquito-borne 4 to 24 months. productive and focused microcredit to impact. Furthermore Santander directly diseases. Furthermore, Santander offers small entrepreneurs with no access to creates employment opportunities by the web series “Colcha de Sonhos”, The provision of microcredit services is traditional bank products and services. hiring their credit agents from local which targets microcredit clients based on two core components: In this way, Santander helps small communities. There are now 206 credit and their families with know-how on entrepreneurs to leave the informal agents whose lives have improved financial education, income generation, Credit agents sector and to formalize and scale and who now contribute to further eco-efficiency and citizenship. Credit agents are the core actors in up their businesses. Consequently, development in their own communities. Santander’s microcredit programme. Santander contributes to increased Santander constantly strives to improve They serve in more than 600 Brazilian Key Success Factors employment and income generation at their skills by offering credit and cities and support customers in the bottom of the pyramid. financial guidance, and encourages Close customer relation managing their microcredit. Santander In comparison to other banks, Santand- selects and hires credit agents from them to share their knowledge with er’s microcredit program does not offer local communities. The agents are Since 2002, Santander has disbursed their communities. then trained to provide Santander´s credit to 182,000 clients for a total over-the-counter transactions in which clients with financial advice and share of US$1.6 billion throughout Brazil; In addition to generating income clients walk into a branch to apply for knowledge on business management women constitute 70 percent of the and employment, Santander also a loan. Instead, Santander goes into and sustainability, including energy credit holders. According to research promotes education, health and communities and hires and trains local efficiency, recycling, residue conducted by Fundação Getulio sustainability initiatives in order to credit agents. Thus Santander is close management and water consumption. Vargas, approximately two thirds of further improve the quality of life of to its clients, their daily activities and the income growth generated by the clients and their families. For example, businesses. As a result, its credit agents

3 1US$ = R$2.049 offer personalized, tailored services and advice, and can pinpoint risks early Next Steps and Spin Off ects on. This close relationship with clients allows the agents to jointly assess the context and the potential for each ven- ture, and decide how the money is best Based on the success of its microcredit used. In turn, Santander benefits from program, Santander wants to continue high customer retention rates. to grow the program and serve more clients. New technology Another aspect of the microcredit program’s success is the use of new technology by credit agents, which makes the execution of loans more agile and straightforward. The use of computers reduces the average time to obtain the loan from five days in 2011 to two days today.

Training on sustainability In addition to and guidance, Santander also provides advice to clients on basic sustainability issues. Knowledge is conveyed in a clear, direct manner to show that meeting sustainability goals (i.e. more efficient usage of water and energy) does not necessitate additional hurdles, but offers direct benefits such as cost reduction and risk management, which in turn also improve the quality of the Bank’s portfolio.

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Written by Juliane Schmidt, Endeva Reviewed by Anna Peters, Endeva and Tatiana Bessarabova, Business Call to Action