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Expanding Borders:
Inclusive Finance at
BancoEstado in
ChileJosé Manuel Mena V.
C.E.O.
Access to Finance: Building an Inclusive Financial
SystemThe Brookings Institution/ World Bank Washington DC, May 30-
31, 2006
BancoEstado
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I. BancoEstado highlightsHistory and future outlook
• Founded in 1953, with origins going back 150 years• Total assets US$ 20.5 billion
Role / aims
• To improve the quality of people’s lives by expanding access to finance
• To promote economic and social development
• To be a public commercial bank of excellence and to strengthen competition in the banking sector
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Our Bank’s Vision and Status
To enhance our economic and social roles while continuing to be competitive, efficient and profitable
• No. 1 in client base: ~8 million (1 out of 2 Chileans)
• No. 3 in loans (13% market share)
• Profitability similar to the industry’s. Contributed an annual average of US$ 100 million to the government treasury in taxes and profits over the last 15 years
• Best international risk rating for a commercial bank in Latin America -- together with Banco Santander
• New positioning in the market and in public opinion
Market positioning
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II. The challenge of expanding our borders
Inclusive Financing – Basic Principles:
• Market solutions to social challenges: competitive, mass-market products and services
• Bank sustained by its customers: profitable, receives no subsidies
BancoEstado
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Leader in traditional products• Savings accounts (80% of market)
• Mortgages (2 of every 3 bank mortgages)
• Network of branches (only bank in 41% of localities)
Challenge: mass penetration of products• Retail cross-selling of products
• Microfinancing (details later)
Main requirements for success:• Customer orientation (competitiveness, better service)
• Faster and more efficient operations, lower costs• Remote banking (Internet, Contact Center)
• Automated transactions
BancoEstado
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0.6%
41%37.3%
21.4%
Branch network
No coverage BancoEstado only
Other banks only
BancoEstado and other banks
Percentage of Localities
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Automated transactions Automated Transactions (Through December of each year)
Source: BancoEstado
69.064.2
60.8
54.352.152.4
0
2
4
6
8
10
12
14
16
18
2000 2001 2002 2003 2004 2005
Millions month
0
10
20
30
40
50
60
70%
N° of transactions % of total transactions
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Barriers to accessing financial system:
• Informal nature of sector
• Information non-existent or of poor quality
• Low profitability per loan
High assessment
costs
High potential risk
Initial target (1996): 100,000 clients and 30% market share within 7 years
III. Microfinancing experience
Objective: encourage entrepreneurship
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• Created a microbusiness subsidiary in 19XX• Commercial design
• Field assessment (credit scoring, no collateral requirements)
• Variety of products / specialized branches• Full service to sector, segmentation of customers
• Technical design• Fully integrated information network• Information management Business intelligence
• Georeferencing system
• Mobile units
Actions / Innovations
11 Internet, red fija,Celular, etc
Optimize field work
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BancoEstado Micro-Business Loans and Number of Clients
71
124161
272
138
170
90
56
0
50
100
150
200
250
300
2002 2003 2004 2005
US$ millions dec. 2005
0
20
40
60
80
100
120
140
160
180
thousands
Loans No. clients
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Identity Card Account – designed for people with no
or partial access to banking or payments systems
• Providing accounts or payment media with no prior requirements and at minimal cost per transaction
• Enables users to:
• Receive paychecks and other payments
• Make payments and deposits, withdraw cash
• Electronic wallet for new “Transantiago” bus system
• Target number of beneficiaries: 3 million
IV. New projects
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Transantiago
Serving people in many daily environments:
A modern, efficient public transport system
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• Extend distribution network through alternative low cost channels (eg., Lottery Shop / Caixa Economica Federal and Lemmon Bank, both in Brazil)
• Services: transaction and teller facilities at POS terminals (withdrawals, deposits, utility payments)
• 2,500 service points in 270 localities by 2010
• Social benefits
• Beneficiaries: 3 million users
• Transaction cost savings: approx. US$ 400 million
Caja Vecina (Neighborhood teller)