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Nearly 40 years into the story of modern microfinance, many of us are well-versed in the early chapters. We’ve heard about the innovative models of protagonists like Grameen in Bangladesh and ACCION in Latin America which bring financial services to low income populations. Other characters fill our stories too, NGOs, mobile money pioneers, and, of course, the ubiquitous woman micro-entrepreneur—running her business selling tortillas, mending clothes, or opening a restaurant and reinvesting her earnings in her family. These stories and countless others brought the industry its greatest accolades: the UN’s International Year of Microcredit in 2005 and the 2006 joint Nobel Peace Prize awarded to Muhammad Yunus and Grameen Bank.
Roots as an NGO
In its own 22-year history, Compartamos Banco has co-authored millions of stories with its clients. The ability to weave such a compelling narrative about microfinance is in part due to the extraordinary challenges many clients face and the existence of such provocative antagonists: always grinding poverty and sometimes scheming loan sharks. But, it also owes much to the person-focused model that microfinance banks like Compartamos promote.
“Recognizing the value of the person is key to our success,” said Compartamos employee Daniel Manrique Barragán. “To deal with someone as a true client, you have to see them as a person and not a number,” he added.
At Compartamos that philosophy traces its history to the organization’s NGO roots. The way in which it presents its mission, vision and values today may look like something out of a Fortune 500 board room, but the content harks back to a more non-profit philosophy. For Compartamos employees, Service, Responsibility, Teamwork, Passion, and, yes, Profitability are more than just words. They are the forces that drive the bank’s focus on its core value, the Person.
Path to profitability not without controversy
Following the international microfinance triumphs of 2005 and 2006, Compartamos’ story reached a turning point of its own. In 2007, the microfinance bank went public, selling shares in the financial market and returning a healthy profit to early investors, non-profit and for-profit alike. As microfinance’s first public offering, the IPO (the promotional package for an initial public offering of shares) demonstrated the commercial viability of the microfinance model, but also provoked soul-searching among many of the sector’s participants. Some questioned the connection between private sector profits and the high interest rates paid by low-income borrowers, while others argued that the IPO’s unprecedented mobilization of private capital represented a step forward for the industry. To all, it was clear that the Compartamos IPO had changed the industry forever.
Throughout the controversy, Compartamos kept growing, lending, and connecting clients with the formal financial sector, many for the first time. The transition from an NGO to a regulated financial institution in 2000, obliged Compartamos to transform its ways of working, while ensuring that its clients could keep pace. By 2006, the organization was a full commercial bank, but still working with the same groups of clients from its NGO days. The bank views its transformation positively.
“The better regulated our markets are, the better it is for our business,” affirmed Barragán. The bank has used the opportunity to build relationships with regulators and link its clients ever more closely with a formal financial system from which they were previously excluded.
Continuing growth and innovation
The bank’s person-focused philosophy influences product development as well. According to Barragán, tailoring products to meet clients’ needs has been Compartamos’ great success. The bank has pioneered microinsurance, offering free policies to its credit clients. The strength of the business remains its traditional roots: nearly 90% of Compartamos’ loan portfolio is with women borrowers.
The mix of innovation and proven success has driven the bank to become the largest microfinance institution in Latin America, with more than 2 million clients. International expansion is underway, with operations in Guatemala and Peru. But, even at home in Mexico, Compartamos estimates that it has only penetrated 14% of its potential market, while its home market share is above 50%.
After 22 years, it appears much of Compartamos’ story has yet to be written. Barragán points to untapped markets such as increasing loans to male entrepreneurs and continuing to develop products that meet clients’ evolving needs, helping them become protagonists in their own success stories.