CGAP Reflections on the Compartamos Initial Public Offering

This case study explores microfinance interest rates and its effect on profits in light of the success of the Banco Compartamos initial public offering (IPO). The study states that:

• In April 2007, the Mexican MFI, Compartamos, floated a successful public offering of part of its shares;
• Mainstream international fund managers bought most of the shares;
• This was a milestone toward mobilizing the resources of private capital markets for the expansion of microfinance outreach.

The paper addresses the following questions:

• Was the aid money granted to Compartamos used to enrich private investors?
• Are profits and high interest rates of Compartamos defensible in light of the social bottom line that the company identifies with?
• Does the IPO alter the governance of Compartamos, making it harder to balance social and commercial objectives?

The study examines the IPO circular and the ‘MIX Market/MicroBanking Bulletin databases and finds that:

• The grants supporting Compartamos operations went to not-for-profit non-government organizations (NGOs) and not into private pockets;
• Compartamos “overcharged” existing clients for the sake of outreach to potential future clients;
• Profits made by the NGO remained at the service of poor Mexicans;
• The tension between commercial and social objectives did not begin with the IPO, but with commercialization in 2000.

The paper concludes that the Compartamos IPO has provided an opportunity to examine the issues of interest rates and profits in microfinance.