MICROCAPITAL STORY: Mexican Billionaire Carlos Slim Donates $5m and Guarantees $40m for a New Mexican Microfinance Institution, Grameen Carso, Run by the Grameen Trust of Bangladesh

The Grameen Trust of Bangladesh, a member of the Grameen Family that helps build new microfinance institutions (MFIs) around the world, plans to open a new MFI in Mexico. Fundacion Carlos Slim, the charitable organization of Mexican billionaire Carlos Slim, will provide an initial donation of USD 5m and guarantee another USD 40m in loans, which will create the total capital base for the new MFI. The new MFI will be modeled after the Grameen Bank. It will be a non-profit using the ‘social business‘ model, which implies that it will reinvest all profits back into the operation of the company. The new MFI, which will initially target 80,000 borrowers, will be named Grameen Carso after the Mr. Slim’s business conglomerate, Grupo Carso. The company will initially be managed by the Grameen Trust, but eventually they hope to turn the company over to Mexican operators.

The organization is expressly designed to offer lower interest rates than MFIs currently operating in Mexico. This is particularly significant because Mexico’s microfinance sector is dominated by for-profit institutions. This highlights an ongoing debate in microfinance between those that advocate commercializing microfinance and those who believe that for-profit corporations do not fulfill the social goals of microfinance. Those in favor of profit maximization believe that market forces will make MFIs behave in a more efficient manner and allow them to more easily access international financial markets, increasing their number of active borrowers more quickly than non-profit institutions. Those opposing commercialization believe that earning profit from the poor is immoral and that for-profit institutions will shift away from helping the poor in order to maximize revenues.

One Mexican MFI in particular, Banco Compartamos, has been the center of much controversy because of its high interest rates. Once a non-governmental organization (NGO), the company transitioned to a corporation and raised USD 467m in an initial public offering (IPO). Many people have criticized the company and accused it of exploiting, rather than helping, the poor of Mexico. Muhammad Yunus, himself, has been especially vocal in his criticisms of the organization.

Mr. Slim, who has an estimated net worth of approximately USD 60b, made his fortune investing in Mexican industry with a heavy focus on communications. Among other assets, he owns Grupo Carso, a major Mexican conglomerate, which includes American Movil, a prominent wireless communications company. Fundacion Carlos Slim is one of Slim’s charitable ventures. While specific financial information on the foundation was not readily available, more information can be found on Mr. Slim’s website.

Muhammad Yunus, who won the 2006 Nobel Prize along with the Grameen Bank, is also the author of “Creating a World Without Poverty: Social Business and the Future of Capitalism” and “Banker to the Poor.” He is widely considered to be the founder of microfinance.

The Grameen Trust is a member of the Grameen Family of organizations, a group dedicated to poverty alleviation. One of the Trust’s main functions is to build new MFIs. It continues to own some of these and transfers others to local operators. Through the Grameen Bank Replication Program, the organization also provides financial and technical assistance to operating MFIs. It also facilitates discussion between new and experienced MFI operators and between MFI operators and members of the Trust.

The Grameen Bank, founded by Muhammad Yunus in 1976, is used as a model for other MFIs around the world. According to MIX Market, Grameen had total assets of almost USD 941m (in local currency), a debt to equity ratio of 996 percent and a return on equity of -2.21 percent as of December 31, 2007. Valued at the same date, the bank had a gross loan portfolio of USD 532m (in local currency), which included 6,707,000 active borrowers.

By Greg Casey, Research Assistant

Additional Resources:

CarlosSlim.com: Social Activity

Associated Press: “Slim and Yunus to offer credit to Mexico’s poor”

Reuters: “Mexico’s Slim links with credit guru to help poor”

MicroCapital Story, August 1, 2008: Nobel Laureate Muhammad Yunus Speaks Out Against For-Profit Microfinance from Asia-Pacific Microcredit Summit

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

MicroCapital Story, April 7, 2008: New York Times Reports on Controversial Microfinance Giant Banco Compartamos of Mexico

MicroCapital Story, February 28, 2008: Banco Compartamos, Mexico’s Largest Microfinance Bank, Reports 33.7 Percent Increase in Net Income in 2007

MIX Market: Grameen Bank

MIX Market: Demand in Mexico

MIX Market: Banco Compartamos