Breaking an age-old mould

Micro financing is huge business in Mexico. Carlos Danel should known. He has helped turn a former non-profit organisation into one of Mexico’s fastest-growing banks. “I would say our mission is to provide opportunities and development for low-income households in Mexico through innovative large-scale models that enhance people’s lives.”

Although it’s a bank, Banco Compartamos sees financial services as a tool for low-income communities to develop their lives. In the new post-downturn world, the role of the micro finance industry is, more than ever, about financial inclusion claims Danel.

“In the developing world, perhaps there is a feeling that financial services are only for the top segment of the social-economic pyramid. But a lot of the products and services that many people from higher socio-economic groups benefit from, lower income households can benefit from too.”
 
Up and coming
So what the microfinance industry is doing could be loosely termed financial inclusion, not to mention bringing off substantial profits for investors (Banco Compartamos’ overall portfolio runs to more than $760m).

“We bring the low-income into the financial sector with products that enable them to save, or to purchase financial products that they need. In a downturn when people experience their income stream as more infrequent, or lower, access to financial services plays a bigger role than ever. Therefore its role as an up-and-coming industry looks here to stay.”

Julia González Cueto is a good example of the work Banco Compartamos is doing.

Julia began selling sweets and chocolate back in 1983. She then explored other markets by selling door-to-door.

Ms. González used her first microfinance credit to buy toys, tables and panels to provide more variety and a broader image to her business. In order to maintain her income during the year she decided to cultivate mushrooms and nopales. She now exports wild mushrooms to an Italian restaurant chain. She’s a huge success story not just herself but for her family and the wider local community that supports, in a variety of ways, her business.

Shifting role
But the role or perception of the microfinance industry is also changing says Carlos Danel. “There are two sides to it, I’d say. In the early 1990s, when we founded Banco Compartamos, we thought that the intervention of our services to our clients would drastically change their lives. We still believe that access to financial services will provide access to great value and wealth.” But Danel says Compartamos has now come to realise that what it brings to the table is simply a tool – a tool that enables clients to manage cash flow. But it’s the clients that do the real work and take it – not to mention themselves – to another place.

“I think the influence of microfinance in their lives is not always easy to measure. Some people will do better, some people will do not as well. But it’s an opportunity for them to add value to their lives, to change their lives and take responsibility for the direction of their life.”

There’s a second part to the jigsaw. Traditionally the microfinance industry aimed for very high standards in terms of what impact it would make on peoples’ lives. “We started originally talking about getting people out of poverty, of changing their lives in that way. But I think today many people in the industry think microfinance has achieved a lot of other important things, like taking a role in improving good quality healthcare and access to healthcare for instance.”

Silver bullet?
Microfinance also helps in improving basic community infrastructure such as housing and education – all of which are key tools in the developing world. “So as an industry, it helps us in the future to have a clearer idea of what type of impact we have on them in the long term. But clearly the promise of a silver bullet to end poverty? It’s really not about that. It’s about social and financial inclusion for them to change their own lives.”

Long-term, there are looming questions about sustainability and how Banco Compartamos helps the wider community. “We need to ensure that in order to be sustainable, we sell products that people can really benefit from. We’re a supply-driven industry. But now we want to know what is it about our products that people like, or works best for them, and then provide them the tools and products that give them the tools and choice that help them manage their cashbox.”

Danel wants to make sure that gaining access to financial services adds value to the whole community – including staff and investors. Banco Compartamos has 10,000 full-time staff, walking the streets or making themselves available in the local market place. We want to provide an opportunity working within the bank to become better individuals, better professionals. Last year we were voted the top company to work for in Mexico. That’s real value for these stakeholders.”

Issues loom about client education too, with tight regulations about consumer protection and financial literacy protection. Banco Compartamos clients, together with the bank, need to ensure they do not become over indebted. Part of the education process, on both sides, is recognising too that microfinance is not a silver bullet.

Profit-sharing
And, of course, it’s also about creating value for investors, making sure they understand all Banco Compartamos’ goals. “Microfinancing is a profitable, sound industry. It’s also a business that has been partially built on many assumptions – that supplying financial services to the low-income or disadvantaged is not profitable. That’s clearly not the case with Banco Compartamos, which has a proven scalable business model and a model that sets great store by the credit capacity of its clients.”

In the third quarter of 2010 the Mexican microfinance player achieved profits of almost $40m, about 36 percent higher than the year before. It had also expanded its client base as the microfinance loan market also widened (it grew by 23 percent compared to the third quarter of 2009). There’s clearly demand for credit – sustainable credit that benefits individuals, their families and communities. That’s profit-sharing by any measure.

Case study
Fabiola Luzant Martínez Camus and her husband began the journey to financial independence with their plant sale business. With their first Banco Compartamos credit they purchased bags and fertilisers with which they increased production. Sales increased and they then had to find larger premises. Today Fabiola offers maintenance services, garden assessments and sale of ornamental plants. Fabiola tries to create consciousness in her community’s young people, employing them to plant seeds, reforest green areas and promote the use of organic matter. “The Compartamos credit helps us as a family in our personal development, it helps us to spend more time together and to improve our economic possibilities and help our daughter get ahead in life.”

Further information: www.compartamos.com