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The strategy of compound high-profit growthCompartamos has not had a history of funding growth with grants. Growth has been funded by aggressive profits. In the graph below, all figures are in US$million. In 1997, there was roughly $1M of equity, and $1.3M of reinvested profit. Compartamos grew in 1998 and 1999 through reinvested profit. In 2000, Compartamos converted to a SOFOL, a for-profit with privately-held shares, and there were additional capital investments bringing the total to $6M in private capital. Investments were by Compartamos-the-NGO-parent, IFC, ACCION, and 21 private individuals (mostly board and staff). This brought total equity to $11M in 2000.
Then Compartamos followed a strategy of compounded high-growth. A constant 50% ROE means that the equity base of $11M in 2001 turned to $18M in 2002, then to $30M in 2003, then $50M in 2004, then $80M in 2005 and $125M in 2006. All profit generated from excess income paid by the microloan clients. Thus, $6M in investment was now worth $125M, as all the reinvested profit in a for-profit is property of the investors. The graph below shows how the small "blue" investment section grew in value solely from profit made off of microfinance loans at their APR of >100%.
Compartamos clearly could have lowered interest rates once they became profitable, thus targeting a more "reasonable" (and, in my opinion "defensible") profit margin. Instead, they kept rates high and generated these huge profits. Compartamos told the microfinance world that these profits were fueling growth (which they were)... Compartamos grew to become the largest MFI in Latin America. Then, the IPO occurred. Click here... |
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