Edyficar and Mibanco: The Emergence of M&A in Microfinance Case Solution
After analyzing the case, it can be evaluated thatafter the 1990s, adverse effects of political turbulence in Perucaused by the certain rural insurgent movement such as Shining path and Tupac Amaru, which brought the country to a virtual standstill both socially and economically. However, it can be assessed that after the presidency of Alberto Fujimori, being a strong leader launched drastic military and political measures.That helped in defeating the insurgents shining path and restored peace within the country. Furthermore, it can be assessed that after its liberation from its turmoil, it became one of the fastest growing economy in Latin America. Which, in turnenhanced its GDP growth rate to 6.5% and US$ 202.3 billion. The total population of the country amounted to around 30 million, Peru was recognized as 51st economy in the world and 6th in the economy.
After analyzing the case, it can be determined that due to the current growth of the Peru’s economy and the recent trend of low income individual. In which, it was assessed that10% of the wealthiest population earned 34% of the national income.Whereas, the poorest 20% made only 4% of the national income. Therefore, it can be evaluated that there was an imbalance of wealth within the country in which, not enough financial opportunities was given to low income individuals. In terms of financial loans, although the low income individuals amounted for 20% of the entire population of the country. Moreover, it was assessed that due to migration of a significant portion of the population from countryside top the cities, compromised the formal economies capacity to absorb it. Which in turn, compelled the rapid growth of informal sector with in the country. The informal sectors typically consisted of microenterprise, small businesses and low income individuals, providing characterized goods and services on a small scale. It was further evaluated that, these microenterprises operated with self-employed owners and few employees.The cost of the businesses were paid from household expenses and little regard for proper accounting systems and taxes. However, it was assessed that by the year 2007 the informal sector of Peru 19% of its GDP and its shares in specific industries accounted for as high as 47%. Of the value added in restaurantsand hotels and 89% in the agriculture sector.The report of World Bank exhibited that almost 65% of the companies operating within the country were in the informal sector, and it contributed towards employing 76% of the economically active population of Peru. However, it can be assessed that the formal banking sector never regarded these informal microenterprises as a relevant segment. Which in turn, provided huge opportunities of microfinance institutions to recognize this informal segment of microenterprises and provide them with microfinance loans to bring ease into their lives. Plus gain significant returns from their investments in the form of finance loans to the extensive number of MEs available within the country. In addition to this, it can be evaluated that the government of the country established relevant policies to regulate the existing and newly established microfinance institution operating within the country.
Therefore, after assessing the condition of the microfinance market of the country. It can be analyzed that the position of Edyficar and Mibanco in this sector, can be determined by Edyficar, under the control of BCP should acquire Mibanco. As through this merger it would be able to enhance its own position in the microfinance industry and gain an edge over its competitors both existing and future market entrants. BCPs was already recognized, as a successful microfinance institution and Mibanco was a direct competitors of Edyficar. However, by acquiring Mibanco the institution would be able to enhance its economies of scale and better position itself to provide microfinance services to the tremendous number of informal MEs present in the market. while gaining significant share of this segment. Whichin turn, would enable the institution to gain and maintain its competitive edge over its competitors. To ensure its long-term survival and growth in the highly diverse and competitive microfinance industry.
Additionally, it can be evaluated that the merger between Edyficar and Mibanco would create, a sort of monopoly in the microfinance industry and enable them to gain power in the market, attributed to their tremendous size. It could potentially provide benefit to both institutions operating in the market. In which, they would be able to learn from one anotherand employ those effective strategies that had benefitted one of the institutions over the years.In turn, introduce synergies between their business functionalities and objectives................................................................
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