On the one hand, ProCredit Bank in Germany is still very young: Its banking licence was issued by the German Federal Financial Supervisory Authority (BaFin) on 20 December 2011. On the other hand, ProCredit Bank AG has, as part of the ProCredit group, a prior history that spans decades. And because this prior history explicitly illustrates what distinguishes the ProCredit group from all other banks, it is described here in more detail for all those who are interested.
How it all began: Consulting for developing countries and emerging economies
The origins of the ProCredit group lie with IPC GmbH. IPC is a consulting company that since the 1980s has specialised in strengthening financial institutions – some of which were completely inefficient – in developing countries and emerging economies. For example, IPC was commissioned by international development organisations to provide consulting services to Latin American savings banks and also to credit-granting non-governmental organisations. Important lessons were learned during this time: If designed properly, lending to very small businesses can be profitable for banks and savings banks. This would also put an end to very small entrepreneurs’ dependency on informal and inefficient lenders. Then as now, it was important to finance the business activities of successful and reliable (small) entrepreneurs. In contrast, the consumer finance that was practised, or implicitly tolerated, in the context of microfinance projects was something that we regarded as counter-productive and dangerous, which is why we rejected it.
Above all, we learned: Strong and well-functioning financial institutions are the most important prerequisite for making financing available to small entrepreneurs – who play such a vital role in the overall development of the economy – on a fair and lasting basis. Because this proved to be possible to only a very limited extent within the organisational structure of NGOs, in the 1990s IPC shifted the focus of its consulting activities towards banks.
After succeeding in designing a lending approach for very small entrepreneurs in a manner that not only had a development impact but was simultaneously profitable, the company hoped to be able to implement this business model in banks. For one thing, the banks were (more or less) regulated, and were therefore assumed to be institutionally stronger than NGOs. For another, due to their deposit business, banks had better access to loanable funds. It was assumed that this would enable a more efficient and fair financial sector to take root in these countries and thus help to promote their overall economic development. Among the largest and most impressive mandates requiring this approach (also called “downscaling”) was the country-wide consulting services provided to banks in Russia beginning in 1995. To this day, IPC continues to advise banks with regard to the creation of organisational structures and the optimisation of work processes in the lending business with small and middle-sized companies.
Small bank, big step: The first bank is established
An important milestone for the establishment of the ProCredit group was the founding of the first “greenfield” bank, the Micro Enterprise Bank in Bosnia in 1997. At the end of the war, the banking sector was in shambles, while the economic structure was – and remains to this day – heavily dependent on small and medium enterprises. In this context, international public-sector development organisations, including KfW, the IFC (World Bank Group) and the EBRD, founded a new bank and contracted IPC to manage it. Aside from taking on the management of the bank, IPC was also to contribute to the bank’s equity. The shareholder structure, which was made up of financially strong public organisations, in combination with IPC’s entrepreneurial expertise, was a key factor behind the remarkable success of this bank as well as that of the microfinance banks which were established shortly afterwards in Albania and Georgia.
An idea catches on: Founding banks as Public-Private Partnerships
In order to extend this idea to other countries, IPC and its staff members, acting together as partners in ipc-invest (today's ProCredit Staff Invest), founded IMI AG in 1998. Very soon afterwards, the DOEN Foundation became a shareholder. By 2002, important development institutions such as KfW and IFC (World Bank Group) had become partners in the Public-Private Partnership and thus influenced its future development. Thus, efficiency and entrepreneurism were combined with a long-term development perspective and financial soundness, founded on a clear shareholder structure and strong corporate governance.
The necessity to co-ordinate these activities across many international borders required more and more centralised control. Because IMI AG was responsible for this, its shareholders decided to enable it to become the majority shareholder in the banks by providing capital increases. At the same time, IMI AG was given a new name: ProCredit Holding.
Since 2004, ProCredit Holding has issued annual financial statements according to IFRS and has an investment grade rating of BBB from Fitch Ratings (2022). Since then, the ProCredit business model has attracted additional private investors with a long-term perspective. At the same time, organisational structures were increasingly put in place in Frankfurt to support the subsidiary banks with specialists in the areas of marketing, auditing, risk management, etc. And ProCredit banks were founded in five more countries.
Group-wide standards: Uniform reporting and risk management
In 2007, the shareholders agreed to take the next logical step. As the individual banks had only been regulated by local supervisory authorities until then, it was decided that the entire group should be supervised on a consolidated basis by the German Financial Supervisory Authority (BaFin) and the German Bundesbank. For this purpose, group-wide reporting standards were introduced and risk management practices were implemented and further developed in all group institutions in line with German regulations (especially MaRisk). This led to a significant strengthening of all the institutions and substantially improved the exchange of information in the group.
Stability despite the crisis: Profit without rescue packages
The abovementioned measures proved to be effective in the financial crisis of 2008, which led to a serious recession in many countries. Despite the crisis-like developments in many of its countries of operation, the ProCredit group was able to record a profit each year and, thanks to its solid business model based on diversification and sustainability, was able to do without “rescue packages” of any kind.
Because crises can always be seen as an opportunity to learn, we decided to implement further changes after 2008: We opted to move away from our original role as a product-oriented microfinance provider, instead positioning ourselves more clearly as the “Hausbank” for small and medium-sized businesses. Another reason for this decision was that in many countries, microfinance had been replaced by aggressive lending practices – especially consumer loans – leading systematically to overindebtedness among many borrowers. This represented the exact opposite of our approach to lending, which focuses on sustainability. Furthermore, the developments in the economies of many countries had altered the structure of the markets, leading to a dramatic decrease in the demand for genuine microenterprise loans. At the same time, we saw an increase in demand from small (but no longer quite so small) and medium-sized enterprises, a group which had always been a solid partner for the ProCredit banks. As a result, these business clients increasingly became the focus of our activities.
Business model and staff policy: Only those who change remain true to themselves
Along with the changed business model, the ProCredit group also adopted a new approach to human resources. In co-operation with all of the ProCredit banks, common standards were established for the whole range of HR-related activities, from recruitment to training to remuneration. As responsible banking can only be successful if we have employees who identify with our values and respect them, we set new standards for staff selection and training. Our remuneration system does not provide any incentive to pursue short-term advantages. Our management staff are content to earn significantly lower salaries than would be standard for the market. In other words, the gap between the lowest and highest salary grades is considerably narrower than usual, the salaries earned by managers are relatively close to those of the other staff, and are also dependent – among other factors – on the successful completion of certain training programmes.
In order to ensure high quality management training, the group operates its own academies and has developed its own curricula for them. Alongside the teaching of fundamental banking principles and courses on communication and leadership skills, the instruction in anthropology and history forms an important third pillar, addressing the questions: why are we the way we are, and how did we come to be that way? For the prospective senior managers from the many different countries in which the ProCredit group operates, this is an important platform for intensifying their awareness of values and preparing them for their role as multipliers of values.
Staff development remains a priority for the group. We are convinced that our business model as a responsible, development-oriented commercial banks can only be successful if all employees and managers share these goals and actively pursue them.