This Research Paper was written for the International Master in Microfinance for Entrepreneurship at the Universidad Autónoma de Madrid, under the supervision of Claudio González-Vega (Ph.D.) and Paloma Pérez Castañares (M.Sc.). The research has attempted to answer the question: is the adoption of an individual credit technology, as an alternative product, an effective innovation in overcoming the limitations of village banking and what are the challenges that must be faced by those involved in this process?

From their emergence in the 1980s, the Latin American microfinance institutions with a village banking technology have evolved in response to changes in the environment, their own limitations and other challenges. This Research Paper reviews the village banking technology and its main features, with a focus on its main limitations, and it attempts to bring light over a potential solution to those limitations: the adoption of individual credit alongside village banking. The analysis is illustrated with two case studies: CRECER (Bolivia) and Fondo Esperanza (Chile), and it includes open interviews with representatives of both institutions. The main hypothesis is that the adoption of individual credit alongside the village banking technology has been, despite the challenges encountered, a promising solution to overcome the key limitations of village banking technologies, in particular the problems emerging from loan amount and term to maturity rigidities and from the costs of frequent meetings. Nevertheless, the adoption of individual credit might not be a definitive factor, on its own, to promote increases in the client retention rates. In particular, individual credit would have to be complemented with other interventions, to preserve client trust and the building of social capital that the clients are used to, in particular when they result from their graduation from the village banking experience. In addition, it will be necessary to solve incentive problems among the staff that result from the coexistence of both technologies. In any case, these experiences are too recent to offer definitive conclusions. More experimentation will be needed.