164% Annual Compound Interest Rate
With over 2.2 million customers in Mexico, Compartamos Banco is Latin America’s largest microfinance institution. Its corporate parent, Gentera, has similar operations in Perú and Guatemala (Compartamos Financiera and Compartamos with 693 and 103 thousand customers respectively).
Compartamos traces its origins to 1990 when it was started as an NGO aimed at alleviating poverty by providing loans to women operating small businesses in the model of Muhammad Yunus’ Nobel Peace prizewinning microfinance initiative, Grameen Bank.
By 2007, however, Compartamos had become a profit-driven entity that went public in a highly controversial secondary offering IPO which made eye-popping returns of roughly 100% a year compounded over eight years for the selling shareholders and turned its founders—Carlos Labarthe and Carlos Danel—into multimillionaires.
Michael Chu, who now lectures at Harvard Business School, has boasted that the returns realized by ACCION on its investment in Compartamos were superior to those achieved by any private equity project in which he was previously involved as an executive and limited partner at Kohlberg Kravis Roberts & Co.
Compartamos has received scathing criticism from Yunus himself, who characterized the institution as one “raking in money off poor people desperate for cash“, a description also applicable to individuals and organizations involved in loan sharking.
With Compartamos charging customers sky-high interest rates for the benefit of its shareholders, one can only conclude that the institution has made a major contribution towards increasing inequality in Mexico.
Muhammad Yunus
“When you are maximizing your profit you are not looking at whether poor people are getting out of poverty, you are always looking into your bottom line, how much money we are making out of this business with the poor people.”
“Just because they are willing to pay, I don’t think that is a justification if you call it microcredit. Because microcredit has a philosophy. Microcredit has a purpose. It’s purpose is to help people get out of poverty.
When I run a microcredit program I can choose whatever interest rate I will choose and people will borrow because they are in a desperate situation. That is how moneylenders flourish everywhere, in every country.
There is no justification whatsoever to charge 100%. Only justification is we want to make money. That part they have to forget. Compartamos has to forget that we are here to make money.”
“I wouldn’t mind any investor coming coming from anywhere wanting a microcredit program provided they understand microcredit is a social business, non-dividend business. The moment they want to make it a profit-making opportunity then of course I will say you are on the moneylender’s side. Because your aim is the moneylending aim. Your thinking is the moneylending thinking. So I don’t associate with you. I want to battle with you and to fight you.”
“Some people are saying that Compartamos is the future. I always say that Compartamos is the past. This is what we want to say goodbye to. I hope this will disappear very soon. We should create a world where nobody should be a poor person, as fast as we can.”