MICROCAPITAL STORY: Compartamos Windfall One Year Later

Nearly one year since the well-publicized and successful IPO of Banco Compartamos, its stock has not maintained its initial and sizable gains. Compartamos is Mexico’s largest microfinance bank, the first “home-grown” microfinance institution to complete an IPO, and the continued subject of debate within the microfinance industry.

Full details of Compartamos IPO can be found in the following MicroCapital article. Most notably, the IPO was a secondary offering in which 30% of shares were sold. In addition, the IPO was 13 times oversubscribed, helping share prices to rise 32.2 percent on the first day of trading. The IPO raised over USD 400 million for early investors and was not used to raise funds for operations.

According to Alvaro Rodriquez, chairman of the international non-profit microlending organization ACCION International and Compartamos’ board representative, one benefit of the IPO was to “show the world that investing in the poor was a profitable venture, and that with a successful IPO we would attract funding from commercial sources to help fight against poverty.” However, the IPO’s success also spurred a large debate within the microfinance community about socially-responsible profits and the industry’s future. A review of the Microfinance Practice Group’s online debate can be found in MicroCapital stories on June 18^th and June 19^th of 2007.

Compartamos’ stock reached almost 70 pesos in July 2007, but has since reclaimed most of the gains. The stock fell below its initial offer price to a low of 38 pesos in January 2008, and is now at 45 pesos. Interestingly, the steady decline from roughly 60 pesos followed Compartamos’ 3Q 07 earnings announcements in October. Compartamos announced a net income of MXN 208.6 million or MXN 0.49 EPS up from MXN 172.3 million or MXN 0.40 EPS for 3Q 06. However, with a dearth of stock coverage and research, it’s hard to relate price fluctuations to such news.

Compartamos has performed in-line with competitors such as, Financiera Independencia another Mexican microfinance bank that held an IPO on November 1, 2007. Both stocks are down roughly 20% from the beginning of November. Broader market trends are probably partially accountable, as the S&P 500 and the Mexican Stock Exchange declined roughly 10% and 5% respectively over the same period.

While the timing of Compartamos’ decline coincides with the beginning of the U.S.’s credit crisis, it’s unlikely the two are related. Given microfinance’s resilient performance in previous economic downturns such as Indonesia’s financial crisis in the 1990s, the microfinance industry should be relatively immune to the U.S. subprime mortgage crisis and global credit liquidity crisis. Furthermore, the very poor have different risk sensitivities, typically unable to participate in sudden market booms.

The stock’s decline could suggest at a reduced exuberance towards microfinance. According to an ACCION paper, most of the IPO went to institutional and retail investors, who still need a better understanding of microfinance. The low liquidity is also not conducive to institutional investors. Of the IPO’s 158 institutional investors, 58% were hedge funds who can take riskier positions but are typically not buy-and-hold investors. However, with solid historical returns and potential for growth, demand for Compartamos will likely persist.

by Jennifer Lee

Additional Resources:

Banco Compartamos, S.A.

ACCION International

Financiera Independencia

MicroCapital Story: “PBS Program ‘NOW’ Asks ‘Who’s Making Money from Microcredit?'”, November 9, 2007.

MicroCapital Story: “Further Extracts from the Microfinance Practice Group Debate on Compartamos IPO”, June 18, 2007 and June 19, 2007.

MicroCapital Story: “Breaking the Mould: Mexican Banco Compartamos Drags microfinance into a Controversial New Era Despite the Kicking and Screaming”, May 1, 2007.

MicroCapital Story: “Mexican Microfinance Lender Financiera Independencia SAB Plans Initial Public Offering”, November 5, 2007.

Accion Insight: “The Banco Compartamos Initial Public Offering”, Number 23, by Andres Guimon and Elisabeth Rhyne, June 2007.

Reuters: “Citi Sees Microfinance Growth Even in a Downturn”, by Peter Apps, December 21, 2007.

Consultative Group to Assist the Poor: “CGAP Reflections on the Compartamos Initial Public Offereing: A Case Study on Microfinance Interest Rates and Profits”, No. 42, by Richard Rosenberg, June 2007.