What is the business model of CredR
Where we come from:
On the one hand, ProCredit Bank is still very young in Germany: it received its approval from the Federal Financial Supervisory Authority (BaFin) on December 20, 2011. On the other hand, as part of the ProCredit group, it already has decades of history. And because this history shows very well what distinguishes the ProCredit group from other banks, it is presented here in more detail for all interested parties.
How it all began: Advice for developing and emerging countries
The origins of the ProCredit group lie in IPC GmbH. IPC is a consulting company that has been working since the 1980s to improve the often completely inefficient financial institutions in developing and emerging countries. For example, the IPC went to Latin America on behalf of international development organizations to advise the savings banks located there, as well as lending non-governmental organizations (NGOs). Important findings from this time were: Even the lending business with very small companies can be made profitable for banks and savings banks. This would also end the dependence of micro-entrepreneurs on informal and inefficient credit providers. Then as now it was important to finance the business activities of successful and reliable (small) entrepreneurs. On the other hand, we viewed the consumer finance practiced or implicitly tolerated in the context of microfinance projects as counterproductive and dangerous and consequently rejected it.
Above all, however, it became clear at the time that the most important prerequisite for ensuring that the small businesses that are so important for overall economic development receive permanent and fair financing options are strong and functioning financial institutions. Because this could only be represented to a very limited extent with the NGO's organizational form, the IPC shifted more and more to advising banks in the 1990s.
After it had been possible to make the lending business with very small companies both development-relevant and profitable, it was hoped that this business model could be established in banks. On the one hand, the banks were (more or less) regulated and should therefore be institutionally more robust than an NGO. On the other hand, banks had better refinancing options thanks to their deposit business. In this way, a better functioning, fair financial sector and thus also the overall economic development of these countries should be promoted. One of the largest and most impressive mandates of this approach (also known as “downscaling”) was nationwide advice to banks in Russia from 1995. Even today, IPC advises banks on creating structures and optimizing work processes in the lending business with small and medium-sized companies.
Small bank, big step: founding the first bank
An important starting point for the creation of the ProCredit group was the establishment of the first “greenfield” Micro Enterprise Bank in Bosnia in 1997. After the end of the war, there was a desolate banking sector and an economic structure in which the small and medium-sized enterprises were of enormous importance (and still are today). Therefore, internationally active, public promotional institutes (such as KfW, IFC and the European Bank for Reconstruction and Development) founded a new bank and commissioned the IPC with the management. At the same time, IPC should participate in the bank's equity. This ownership structure of financially strong public organizations, combined with the entrepreneurial competence of IPC, was a decisive factor for the remarkable success of this bank as well as the microfinance banks founded shortly afterwards in Albania and Georgia.
An idea prevails: establishing banks as a public-private partnership
In order to take this idea to other countries, the IPC and its employees, organized in ipc-invest (today's ProCredit Staff Invest), founded IMI AG in 1998. Very soon afterwards, the DOEN Foundation became a partner. Major promotional institutions such as KfW and IFC (International Finance Corporation, a World Bank company) joined the company by 2002 and thus shaped the public-private partnership. The result was a combination of efficiency and entrepreneurial thinking with a long-term development orientation and solidity, enclosed in a clear ownership structure and corporate governance.
The need for coordination of these activities across many national borders increasingly required central control. Because IMI AG was responsible for this, the owners enabled them to become majority owners of the banks through capital increases. At the same time, IMI AG was given a new name: ProCredit Holding.
The holding company has been preparing consolidated annual financial statements in accordance with IFRS since 2004 and has (2020) the BBB “investment grade” rating from the Fitch rating agency. It then succeeded in attracting further, long-term, private investors to the business model. At the same time, more and more structures were set up in Frankfurt to support the subsidiary banks, with specialists for tasks such as marketing, auditing or risk management. And there were ProCredit banks in five other countries.
Group-wide standards: Uniform reporting and risk management
In 2007 the owners decided to take another logical step. Whereas the individual banks were previously only regulated by banking supervision in their respective country, consolidated supervision at group level by the Federal Financial Supervisory Authority (BaFin) and the Bundesbank should now follow. To this end, a standardized group-wide reporting system was set up and risk management was further expanded worldwide in accordance with German regulatory requirements (in particular MaRisk). This led to a significant strengthening of all institutions in the group and a considerably improved exchange of information.
Stable even in a crisis: With a profit and without rescue packages
The above measures proved their worth in the acid test of 2008, when the financial crisis triggered a deep recession in many countries. The ProCredit group has made a profit every year, despite the sometimes extremely crisis-ridden developments in some countries, and thanks to its solid business model based on diversification and sustainability, it has been able to do without any kind of "rescue package".
Because crises always offer an opportunity to learn from them, we then decided to make further changes: We have abandoned the original concept of a micro-credit bank for small businesses and are positioning ourselves even more clearly as the house bank for small and medium-sized companies. Another reason for this was that in many countries microfinance had been replaced by aggressive lending - especially consumer loans - which resulted in many customers becoming systematically over-indebted. But this is the exact opposite of our approach aimed at sustainability. In many countries, the demand for real micro-entrepreneur loans also fell drastically because the structure of the market changed thanks to economic development. At the same time, there were more and more (not quite so) small and medium-sized companies for which our ProCredit banks have always been an attractive partner. As a result, these corporate customers moved more and more into the center of our activities.
Business model and personnel policy: only those who change remain true to themselves
In line with the changed business model, the ProCredit group also broke new ground in terms of personnel policy. In cooperation with all ProCredit banks, uniform standards were created, from recruitment to training and further education to the remuneration system. Since responsible banking can only succeed with employees who are guided by and respect our values, we are setting new standards in personnel selection and training. Our remuneration system does not provide any incentives for short-term action. Measured in terms of standard market salaries, our executives are satisfied with significantly less, in other words: The gap between the lowest and the highest income levels is significantly smaller for us, the salaries of employees and management are relatively close and are also determined, among other things, by successful existence Dependent on further training measures.
The group has its own academies with specially developed curricula for management development. In addition to basic banking knowledge and training in communication and leadership, the lessons in anthropology and history form a third, important pillar: This is about the questions why we are the way we are and how we have become the way we are. This is an important platform for prospective managers from the many different countries of the ProCredit group to deepen their awareness of values in order to prepare them for their role as value brokers.
In general, personnel development remains a focus of the group. We are convinced that our business model of responsible, development-oriented commercial banks can only be successfully implemented if all employees and managers share and actively represent these goals.
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