Who's Making Money From Microcredit?
Project Name Project: Compartamos
Challenge: Widespread poverty and lack of jobs in Mexico.
Solution: Offering small loans to low-income Mexicans to help them start their own businesses.
In 1990, Carlos Danel and Carlos Labarthe co-founded Compartamos—which means "let's share" in Spanish—to provide poor residents of Mexico with access to economic opportunities. Beginning as a nonprofit organization supported by aid from international donors, it served mainly indigenous, rural women in some of the poorest regions in Mexico.
Compartamos offered women loans of 1,000 pesos. Once the client paid off the first loan successfully, she qualified for an additional loan. These small loans, or "microloans," have allowed poor Mexicans who might otherwise not qualify for credit to purchase raw materials and goods for a microenterprise, their own consumption or to improve housing.
While Compartamos shares some qualities and programs of other established microcredit institutions, the company has been criticized for charging what some believe to be exceedingly high interest rates. This leads some to ask: Where does microcredit end and loansharking begin? One of the most vocal critics of Compartamos is microcredit pioneer Muhammad Yunus, who won a Nobel Peace Prize in 2006 for his work with the Grameen Bank in Bangladesh.
Compartamos' strong profits allowed it to become self-sufficient and no longer rely on donor aid. The company sought out private investors and slowly evolved into a commercial bank. In the spring of 2007, it completed a hugely successful initial public offering (IPO), selling 30 percent of its ownership to private investors. Carlos Danel defends this expansion as necessary to allow Compartamos to fulfill its mission, while others claim the bank is now emphasizing profits over social returns.
Today, Compartamos provides a range of microcredit services in addition to loans. These include savings and insurance services to low-income people at affordable rates. Compartamos is currently one of the largest microcredit institutions in all of Latin America. Most of its more than 600,000 clients live in rural areas of Mexico.