MICROCAPITAL.ORG STORY: Banco Compartamos SA Applies for Banking License to Accept Deposits from Clients

Banco Compartamos SA, a publicly traded Mexican bank and the largest microfinance institution (MFI) in Latin America with USD 587.8 million in total assets, plans to apply for a license to expand its banking services [1, 2, 3]. The license will allow the bank to take deposits by offering savings accounts to clients. It will also allow third parties to use the deposits to issue credit to and take interest payments from some of Compartamos´ 1.2 million customers.

The announcement comes a day after Wal-Mart de Mexico SAB (Walmex), Latin America’s largest retailer which earned an equivalent of USD 1.12 billion in 2008, received approval by the Mexican National Banking and Securities Commission (CNBV) for the same license [4, 5]. Walmex, the Mexican unit of Wal-Mart Stores Inc., opened its first in-store bank branch in 2007 and expects its number of banking outlets to grow to 1,356 by the end of 2009 [6]. Compartamos operated 314 offices as of the end of 2008 [2].

Many MFIs do not take deposits due to their high costs [7]. Before its recent announcement, Compartamos consistently stated that it relied “on bond issuances and credit lines with other banks to fund its lending operations because its business model of operating through small offices and loan agents makes it very expensive or impractical to collect deposits from the bank” [8]. However, facing a growing pressure from competitors such as Walmex and the recently established Carlos Slim´s Grupo Financiero Inbursa, Compartamos has decided to shift further toward a traditional banking model by offering savings accounts. Furthermore, as the global financial crisis causes banks to back out of the Mexican microfinance sector, “at the same time making funding scarce” for MFIs, specialized lenders such as Compartamos are seeking new ways to avert risk [9].

Commenting on the ability of deposits to mitigate risk, Ms. Elizabeth Littlefield, CEO of the Consultative Group to Assist the Poor (CGAP) and a director at the World Bank, declared that the endgame “is for microfinance to principally fund itself—as most retail banks do—through local deposits. Local funding is more stable and carries no foreign currency risk. Moreover, secure deposit services are highly valued by poor people, some say far more than loans” [10].

Earlier this year, Grupo Financiero Banorte SAB, Mexico´s fifth largest bank, shut down its microfinance wing, Creditos Pronegocio, after losses increased to an equivalent of USD 8.4 million in 2008. HSBC, which owns Mexico´s fourth-largest bank, sold its 18.7 percent stake in Financiera Independencia SAB, the second largest MFI in Mexico, for USD 145 million. Amid this crisis, however, Compartamos saw 2008 net profits of USD 85.6 million and an ROE of 55 percent, compared with an average ROE for Mexico´s MFIs of 17 percent [9, 11].

Mr. Carlos Daniel, co-CEO of Compartamos, said success “really depends on an individual institution´s ability to find funding in this environment, and some like Compartamos have been able to, but most I think have had a bit of a problem doing so,” adding that competitive pressures eased as rivals ran into funding issues. Seventy-two percent of Compartamos´ 2008 line of credit, totaling USD 229.2 million, came from two sources: Nacional Financiera (Nafin), a Mexican government-supported development bank; and Fideicomisos Instituidos en Relación con la Agricultura (FIRA), a Mexican government-supported development institution [12].

Compartamos issued two bonds earlier this year worth an equivalent of USD 113.7 million. Proceeds from the bond issuances are expected to partially replace its loans from Nafin and FIRA (see this recent MicroCapital story for more on Compartamos´ bond issuances) [13]. Compartamos stated in its 2008 Annual and Sustainable Report that it expected to have a larger cash balance “until the local credit markets stabilize.” Consequently, cash and other investments increased by 243.9 percent in 2009 to USD 82.5 billion.

By: Stefanie Rubin, Research Assistant

Bibliography:

[1] Banco Compartamos: http://www.compartamos.com/wps/portal

[2] MIX Market: CompartamosBanco: http://www.mixmarket.org/mfi/compartamosbanco/data

[3] Bloomberg.com: “Compartamos to Expand Bank Services as Walmex Enters”: http://www.bloomberg.com/apps/news?pid=20601086&sid=aCuvkdjPuPlQ

[4] Wal-Mart de Mexico: http://www.walmartmexico.com.mx/walmart_e.html

[5] Wal-Mart de Mexico Press Release: http://www.walmartmexico.com.mx/press_informes_f_e.html

[6] Reuters: “Mexico´s Walmex to Open First Bank Branch in June”: http://www.reuters.com/article/consumerproducts-SP/idUSN0140664320070301

[7] CGAP: http://www.microfinanceregulationcenter.org/files/43635_file_CGAP_Brief_August2007.pdf

[8] The Wall Stree Journal: “Mexican Microfinance Bank Compartamos 2Q Net Up 31% To MXN327M”: http://www.indiamicrofinance.com/microfinance/listed-microfinance-companies/compartamos-banco-reports-2q09-results-net-profit-up-31.html

[9] The Wall Street Journal: “Mexico’s Microfinance Industry Undergoes Shake-Up On Crisis”: http://www.syminvest.com/market/news/microfinance/mexicos-microfinance-industry-undergoes-shakeup-on-crisis-/2009/3/23/1707

[10] Forbes.com: “The Changing Face of Microfinance Funding”: http://www.forbes.com/2007/12/20/elizabeth-littlefield-microfinance-biz-cz_el_1220littlefield.html

[11] MIX Market: Comparative Analysis: http://www.mixmarket.org/mfi/compartamosbanco/compare?mix_region__c=All&country__c=Mexico&current_legal_status__c=All

[12] Compartamos 2008 Annual and Sustainable Report

[13] MICROCAPITAL.ORG STORY: Banco Compartamos and Center for Agricultural and Rural Development (CARD), Inc. Raise Funds in Mexican Corporate Bond and Philippine Corporate Note Markets Worth Ps. 1,000 million (USD 75.8 Million) and USD 10.4 Million, Respectively

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