Scale, profits & serving the poor: Microfinance makes it big in Mexico

Ciudad de Mexico, Mexico

What happens when you take a microfinance NGO, scale it up, make a profit, and issue an IPO? What if your IPO is oversubscribed by 13 times, and your MFI is suddenly worth $1.6 billion? And then the acknowledged founder of microfinance, Muhammed Yunus – who was awarded the Nobel Peace Prize for his work founding one of the world’s strongest and largest MFIs, the Grameen Bank – says your MFI is on the wrong track and your priorities are screwed up?

Compartamos means "let's share"

This is the story of Compartamos Banco, Mexico’s groundbreaking and largest MFI, whose IPO triggered a global debate about the future of microfinance and the tremendous opportunity & complexity of taking the social mission of microfinance to a public, profit-driven level.

Two of the Mexico IRP teams visited Compartamos’ headquarters this week, as part of our research on group lending and housing product methodologies in Mexican MFIs. This involved a glass elevator up to an office suite where we were given copies of glossy annual reports and journals branded with Compartamos’ logo. Very corporate.

And that’s great, and maybe exactly what the industry could use more of, as MFI practitioners and investors around the world continue to explore methodologies, funding schemes, and the double bottom line.

But I am going to be perfectly frank about my NGO, non-profit bias, and admit that I feel a bit allergic to Compartamos’ level of scale and corporate sophistication. Let me out myself right now as a highly social-mission oriented person who’s in business school not because I’m a natural at business, but because my work experience in various non-profit organizations including an MFI has left me convinced that a good many NGOs and non-profits need more business skills and orientation.

Compartamos HQ

But nevertheless, I feel very ISHY about Compartamos. No pun intended, since their logo is (see above) and their lovely office building is (see left) decorated with fishies all the way to the 10th floor. I admire their trail-blazing scale, and their determination to walk the line between profit and mission – building a culture and scaling a methodology which aspires to be genuinely mission-effective and maximally-profitable at the same time. But… yes, I still feel ISHY about it: how corporate it is, how much money they make off of their clients, how flawlessly they are marketed and branded, how incredibly high their interest rates are (105% annually). I am sympathetic towards Yunus’ concern “that his innovation has been twisted to benefit investors, rather than the poor.”

Let me quickly add, however, that many would disagree, and I am probably one of the more critical on this point among my Mexico-IRP colleagues. I’m not sure anyone was as allergic to the corporate vibe as I was, and maybe that’s a good thing. Undoubtedly there needs to be more financial sustainability across the development industry. And the profitability potential of microfinance seems to make it one of the world’s best ideas for sustainable and effective poverty alleviation.

But don’t pay too much attention to my thoughts on it – read up on the Compartamos IPO and figure out what you think:

Caja San Nicholas Housing team at Compartamos

Microfinance’s Success Sets Off a Debate in Mexico (NYTimes.com)  |  Yunus Blasts Compartamos (Bloomberg.com)  |  Commentary from Accion (the NGO who founded Compartamos and issued the IPO)  |  Microfinance Meets the Market (World Bank Development Research Group)

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