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Case Study 2: Mexico’s Compartamos

Case Study 2: Mexico’s Compartamos. Lecture # 14 Week 8. Structure of this class. Background History and evolution of Compartamos IPO Controversies. Background. Middle-income country Population: 109 000 000 (est.) 40% (est.) are asset-poor Only 18% pop in agriculture

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Case Study 2: Mexico’s Compartamos

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  1. Case Study 2: Mexico’s Compartamos Lecture # 14 Week 8

  2. Structure of this class • Background • History and evolution of Compartamos • IPO • Controversies

  3. Background Middle-income country Population: 109 000 000 (est.) 40% (est.) are asset-poor Only 18% pop in agriculture 58% (est.) in services 1.4 million (est.) unemployed or informally employed Several financial crises. Recent one: “Tequila Crisis” 1994

  4. Compartamos • Dates back to 1982 then an NGO “Gente Nueva” • Mission: Improve quality of life marginalized communities (health and food programs) • 1990: Transformation into “village banking” microfinance institution via microcredit for income-generating activities (donations from USAID, CGAP, and private….) • 1995: Separation from health and food programs, expansion of microcredit, mostly in southern regions • Rapid growth since while attaining self-sustainability & profitability • 2007: Nearly 630,000 clients, mostly women. Operates via nearly 200 branches everywhere in Mexico. One of the largest MFIs in Latin America

  5. Evolution of Compartamos and IPO • 1991: Creation of an NGO with capital of US $50K under the umbrella of ACCION Internacional • 2001: Transformation into SOFOL • 2005: Became #1 MFI in Mexico • 2006: Conversion into Bank (fully regulated and supervised, can collect an mobilize deposits) • April 20, 2007: First Latin American microfinance institution to raise equity capital via an IPO on the Mexican Bolsa raising $407 mln. IFC sold 11,302,644 shares at 40 pesos per share. The proceeds were $38.9 mln.

  6. The Initial Public Offering (IPO) • April 20th 2007: 30% of Compartamos’s shares sold in NYC (80%) and Mexico (20%) • Compartamos sold over 111 million shares in the IPO, initially offered at 3.65 US $ and jumped as high as 4.84 US$ during the day’s trading • This was a “secondary offering” : Existing investors received about 450 US$ or about 12 time the book value of those shares • Market value of Compartamos: 1.5 billion (est.) • Internal rate of return of selling shareholders: 100 % a year compounded over 8 years • Who are the shareholders of Compartamos? • Compartamos AC, ACCION, IFC, and other Mexican Investors

  7. Controversies • High interest rates (over 80%) did not come down after the IPO • To some observers Compartamos is not microfinance anymore (Yunus) • Is microfinance becoming a profit-maximizing industry moving away from its social objectives? • Will interest rate decrease with competition? - Next class: The BRI (Consult Web Site for references).

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