MICROCAPITAL STORY: PBS Program “NOW” Asks “Who’s Making Money from Microcredit?”

The Public Broadcasting Service (PBS) program, “NOW,” covered a story in September 2007 on microfinance entitled “Who’s Making Money from Microcredit?” The twenty minute segment explores the financial success of Mexican microfinance institution (MFI) Compartamos and its April 2007 initial public offering (IPO) that generated over USD 400 million for investors. Supporters of the Compartamos IPO hail the transaction as an achievement that signifies the emergence of the microfinance industry in mainstream financial markets. However, critics accuse the microfinance lender of exploiting the poor in an effort to reap profits.

Compartamos was founded in 1990 as a non-governmental organization (NGO) by Carlos Danel and Carlos Labarthe to promote micro-business in Mexico via micro-loans. In 2000, Compartamos became a regulated finance company. In 2002, Compartamos issued approximately USD 70 million in bonds on the Mexican securities exchange and in June 2006 received authorization from the Mexican government to operate as a full-service bank. The MIX Market profile for Compartamos indicated at the end of 2006, the institution had total assets of USD 296 million and a total loan portfolio of 271 million. The average loan balance per borrower was USD 400. Compartamos had over 616,000 active borrowers of which 98.4 percent were women. The institution’s return on assets was 23.18 percent and it had a return on equity of 57.35 percent.

According to a CGAP case study on Compartamos, at the time of the IPO, Compartamos shareholders consisted of the original Compartamos NGO (39.2 percent), ACCION Gateway Fund (18.1 percent), IFC (10.6 percent), directors and managers (23.7 percent), and other private Mexican investors (8.5 percent). The original price paid for these shares by investors was in the range of USD 6 million. However, by 2006, the high rate of return on equity combined with the institution’s profit retention and reinvestment placed the organization’s book value at approximately USD 126 million. The April 2007 IPO of just 30 percent of the institution’s total shares generated approximately USD 468 million valuing the bank at over USD 1 billion. According to Reuters, Compartamos’ estimated value today is over USD 2.2 billion.

Opponents of Compartamos, like Dr. Muhammad Yunus, criticize the bank for reaping profits at the expense of the poor. In the PBS program, Dr. Yunus has some harsh words for Compartamos, “You are on the money-lender side. Because your aim is the money-lending aim. Your thinking is the money-lender thinking. So, I-I do not associate with you. I want to battle with you and to fight you.” Dr. Yunus says Compartamos fails to see micro-lending as a social business and they are too focused on profit. He vows to fight the spread of the corporate model of micro-lending.

Supporters of Compartamos, like Dr. Steven Funk, founder and board member of the Dignity Fund, are excited about transactions like the Compartamos IPO. In response the IPO, on remarks found on the Microcredit Summit E-news, Dr. Funk states in, “The capital markets have taken serious interest in the equity of a bank that lends to the poor. By careful measure, this is reason to be excited and rejoice.” He argues that massive amounts of capital and resources are necessary to effectively reach the world’s poor. And further indicates, “Compartamos’ success is microcredit’s success” as it represents progress toward the fight against poverty.

To watch “Who’s Making Money from Microcredit,” please visit PBS online at http://www.pbs.org/now/shows/338/index.html. For a complete written program transcript, visit http://www.pbs.org/now/transcript/338.html.

Additional Resources:

PBS: http://www.pbs.org/now/shows/338/index.html

MIX Market: “Profile for Compartamos”

Microcredit Summit E-news, Volume 5, Issue 1: http://www.microcreditsummit.org/enews/2007-07_index.html

CGAP: “CGAP Reflections on the Compartamos Initial Public Offering: A Case Study on Microfinance Interest Rates and Profits”

MicroCapital article, April 25, 2007: “Mexican Microfinance Institution Compartamos Makes Strong Market Debut”

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