This link has been bookmarked by 2 people . It was first bookmarked on 24 Apr 2008, by Tom.
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24 Apr 08
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if you'd like to get a deeper understanding of the Compartamos IPO, there is an excellent case study written by Richard Rosenberg and published by CGAP (Consultative Group to Assist the Poor ... part of the World Bank) called CGAP Reflections on the Compartamos IPO.
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- Here are a few [of the many!] facts surrounding the Compartamos IPO:
- Compartamos didn't issue any new shares as this was a secondary offering. Rather, certain shareholders sold their holdings on the Mexican stock exchange.
- At the IPO, more than 2/3's of the shares of Compartamos were held by NGO shareholders who were (and are) committed to reducing poverty.
- $275M or about 5/8ths of the IPO sale proceeds went to NGOs to reinvest in their missions and the rest (about $150M) went to private shareholders.
- The IPO made public (and realized in the case of the stock sellers) the investor returns which had accumulated while the company was private. That is, while there likely was some upward bump due to market conditions in the value of the shares through the IPO process, most of the investor returns were not related to the IPO itself.
- At the IPO, the market valuation of Compartamos was approximately $1.5B which represents a roughly 100% per year compounded return for investors over 8 years.
- The interest rates charged by Compartamos in terms of yield in 2005 was 86.3% (when you add required VAT, the rate to borrowers is about 100%.)
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Supporters (and even CGAP) say that this is going to result in a lot more private capital being directed to the poor resulting in a broader variety and higher-euality financial services being delivered to the poor.
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Critics highlight the high interest rates as gouging the poor and the amount of profits pocketed by private investors (although somewhat reduced in this situation) as being exploitive. And most everyone agrees that optically high profits in serving the poor could be used by populist politicians to argue for regulations on microfinance which could reduce the availability of financial services to the poor.
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The interest rates charged by other Compartamos are about the mid-range range for what MFIs charge in Mexico and there isn't much difference between the high and low rates.
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Of the interest earned by Compartamos, about 25% of it is profit. That is, they would make no profit if their interest rate was ~65%. [Note: when I asked the CEO of Mexican MFI competitor why they didn't charge a lower interest rate than Compartamos, he said that this would only put them at the disadvantage in their ability to fund growth of client reach. That is, they would grow more slowly serving fewer poor clients.]
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