Colombian Micro and Small Businesses Part 2/3, August 2011

Joni AlWindi, Cali, Colombia

Multilingual, social and business entrepreneur from Sweden with experience in Colombia since 2003. Having lived and worked in Cali during five years, Joni is dedicated to global development through quality education and international business for all.

Colombian Micro and Small Businesses Part 2/3, August 2011

Small businesses in Colombia are facing interesting times. In 2010, Colombia climbed 12 places in the World Bank’s Doing Business report on the ease of doing business, ranking number 37 among the 183 countries analyzed. The country stands out on the matter of investor protection and ease of opening a business, the former increasing in the ranking from 25th to 5th place in only one year. Opening a business in Colombia requires only 9 procedures, 14 days and a cost of 14.7% of the national income per capita. The Latin American & Caribbean respective averages are 9.3 procedures, 57 days and a cost of 36.2% of the income per capita. Enforcing contracts and paying taxes are the areas with most challenges in Colombia. (Source: Doing Business in Colombia 2010).

This article series presents three topics that are especially relevant for the smallest of the businesses in Colombia: the role of micro businesses in the Colombian economy (1), the Colombian microcredit (2), and the formalization of small businesses (3), which will lead to an outline of the future outlook for small businesses in Colombia (and the Latin American region).

2) The Colombian Microcredit  
Main reference: PODER, February 2011, paper issue.

Microcredit has lately been discredited as a means to help poor entrepreneurs. It has even been said that they are sucking the blood out of poor people. A New York Times report indicate that the most protests against microcredit are in the very pioneer countries Bangladesh and India, as a result of the serious amount of increasing debts that have expired. These two markets are saturated because the financial segment grew too fast, without much control, and so led to too many loans granted over each other until thousands of families had ended up in a negative debt spiral. (Reference:, January 6, 2011.)

In Colombia, the situation is different. Despite the fact that microcredit has been in the country for more than twenty years, managed effectively by some NGOs, it was only some five years ago that it attracted more public attention. Financial entities of the sector suddenly saw an important business opportunity in an environment that until then had been completely controlled by local money sharks, charging interest rates beyond 120%.

Currently, the country has close to 6 billion USD granted to microcredit. Although this only means 3.3% of the entire portfolio of the Colombian financial system, it is of great significance. Behind this money are millions of small business owners, the majority from the lowest socioeconomic strata who only need little resources to keep getting by. The number of borrowers are increasing steadily and with the overdue payments under control, the sector is showing healthy dynamism.

Counting only the entities supervised by the financial superintendency, the number of beneficiaries amount to 1.1 million, and if NGOs and other cooperative entities are included, the number could be tripled. The entities dedicated to granting microcredit are increasing and the loans are continuously extended to remoter areas.

In general, the credits are small, between 1.5 and 2 million pesos on average (830-1100 USD), with payment due dates in 24 and 36 months. They are given to people with businesses such as neighbourhood shops, bakeries or hairdressers and even to ladies selling empanadas in the street corner. Among the approximately 90 entities (banks, financial companies, cooperatives and micro financial NGOs) identified to be dedicated to microcredit in Colombia, the largest 12 institutions capture 90% of the market. By the end of 2010, 69.3% corresponded to banks and financial companies, 25.4% to micro financial NGOs, and the remaining 5.3% to cooperatives. (Reference:, March 6, 2011)

It’s not only the micro-businesses and poor people that are included in the micro-credit category, but even exporting small businesses are included and benefit from microcredit. The average interest rate for microcredit lies between 33% and 39%, but for the micro-businesses it’s 7.5% of the credit value and the cost of analysis of the loan.

Despite the high financial costs, the sector insists on liberty of interest rates to motivate the business of handling the chores of the administration of microcredit, for example related to frequent visits to remote houses and businesses of borrowers.

The Economist rank Colombia as country number 9 in the business of microfinance, after its neighbours Peru, Bolivia, Ecuador and El Salvador. What Colombia is doing and can do to improve this important ranking will be discussed in brief in the end of this article series. More details about the Colombian microcredit will be presented and its progress will be followed also in the continuation.

On Colombian development and opportunities,

Joni AlWindi


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