The Mexican micro-finance entity that raised $400 million from an IPO comes under fire for becoming the moneylender the micro-finance institutions were supposed to protect the poor from.
A crimson and red screen lights up and a clutch of golden fish stream left and then right. This is the home page of the website of Compartamos Banco, the Mexican entity that became the first micro-finance institution (MFI) in Latin America to raise equity capital, as much as $400 million, through an initial public offer last year. The MFI, formerly an NGO, which turned into a for-profit entity and then into a bank, decided to turn to the market to reach out to more poor. So what is wrong?
Today, Compartamos is the biggest success story/controversy in the micro-finance world, depending on which side you are.
If you are with Nobel Laureate Mohammad Yunus, considered by many as the father of micro-finance, Compartamos has been doing nothing but transferring the poor man’s money to the rich. Considering the nearly 100 per cent interest rate that Compartamos charges, Yunus could not be off the mark. Yunus has actually excommunicated Compartamos saying it is using micro-finance to benefit investors rather than the poor.
“When you discuss micro-credit, don’t bring Compartamos into it,” he said in one of his recent outbursts. His fury has been relentless, whether at a recent meeting in South-East Asia or this week in Bangalore, where he met agencies to shop for ideas to start healthcare services in Bangladesh on behalf of the Grameen Bank.
For someone who looks at micro-finance as philanthropy, Carlos Labarthe and Carlos Danel, the two executive directors of the bank, should go to the depths of the MFI hell, if one existed. Yunus sees in the phenomenon the transformation of micro-finance into the moneylender the MFIs were supposed to protect the poor from.
Indian MFIs are watching this divide between charitably-inclined and market-linked micro-finance with curiosity; some with a hope of hopping onto the rainbow colours of the new-age micro-finance that Labarthe and Co are offering.
But how does Compartamos and sympathisers look at this profiteering by an institution which was created to help the poorest of the poor with small credit? The bank points out that its borrowers have risen in number from 60,000 to around 900,000 in eight years. This is hardly an indication of exploitation.
The fact that people still borrow and have a 99 per cent repayment rate is justification enough for them to keep interest rates high and to cater to investors rather than the poor borrowers.
Compartamos and their followers would not see any monetary wisdom in starting a chain of healthcare agencies or schools like a Grameen Bank would do.
Indian MFIs, which are already taking money from private equity funds. and are waiting to announce their IPOs, say Compartamos is a unique case in that it has no competition. In India, there is so much competition that no MFI can survive by charging more than the 30 per cent the institutions charge at present.
Malcolm Harper, former chief of BASIX, a livelihood institution doubling up as an MFI, says: “Whether Compartamos was right in making some people richer in order to make many poor people less poor depends on how you look at it.”
Do the fish on the Compartamos website ring a bell? Is the micro-finance sector just another venture fishing in troubled waters? Or is it setting up a new model to phase out donors and to strike wealth at the bottom of the pyramid in order to enrich the bottom?
