Microfinance meets the market

Abstract

In April 2007, Banco Compartamos of Mexico held a public offering of its stock in which insiders sold 30 percent of their holdings. The sale was over-subscribed by 13 times, and Compartamos was soon worth $1.6 billion (for details of the story, see Rosenberg, 2007; Malkin, 2008; Accion International, 2007). A month before the offering, the Economist (2007) had written: “Compartamos may not be the biggest bank in Mexico, but it could be the most important.” Compartamos’ claim to importance stems from its clients – not from their elite status, but from the opposite. The bank describes them as low-income women, taking loans to support tiny enterprises like neighborhood shops or tortilla-making businesses. The loans the women seek are small – typically hundreds of dollars rather than many thousands – and the bank requires no collateral. It is a version of “microfinance,” the idea associated with Muhammad Yunus and Grameen Bank of Bangladesh, winners of the 2006 Nobel Peace Prize. For Yunus, microfinance can unleash the productivity of cash-starved entrepreneurs and raise their incomes above poverty lines. It is a vision of poverty reduction that centers on self-help rather than direct income redistribution.