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

8. 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.

9. The Initial Public Offering (IPO) April 20 th 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

10. 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).