Banco Compartamos Case Study

Social innovation and enterprise is one way of eradicating scantness and illiteracy in alliance. The model that an enterprise takes determines their tender impact in the long run. While some boldnesss maintain their mixer values all over time, others abandon or diminish those values and venture into to a greater extent financially net incomeable activities (Yunus 205). The paper addresses how the micro-finance business model used by Compartamos pious platitude comp bes with the village bank model of Grameen rim. Microfinance in this sense refers to the supply of petty loans, insurance, savings, and basic financial services to piteous people, who be a lot unable(p) to access such in conventional banking institutions. It looks at the shift of Compartamos banking company to a technical bank, impacts of the shift to its initial mandate, and the effectuateiveness of both models in poverty alleviation. When the rent for profit making and scaling competes with the need to assuage poverty, the social motive often diminishes. Sustainability of any social enterprise lies in maintaining its initial social values. Commercialization drives pileusism, which is often incompatible with social good. devising profound and lasting impacts on poverty alleviation requires consistency in social orientation.Comparison of Microfinance ModelsCompartamos Bank is a moneymaking(prenominal) microfinance while Grameen Bank is a village bank. The main difference between the two models is their funding methods. As a village bank, Grameen is primarily funded through local funds from confederation saving deposits, while Compartamos is funded as traditional commercial banks, engaging in initial offering as one way of fundraising. Both models aim at reducing poverty, slide bying exfoliation, and financial sustainability though by applying different approaches. In place of collateral required by traditional banks, Grameen Bank uses impulsive formed small groups of five people for mutual and morally covert guarantees (Volkmann, Kim and Kati 253).The banking system is based on accountability, participation, mutual trust and creativity, a recognize reverse from requirements of conventional banking. Village banking notchs women equal access to financial aid, as they have been recognized as precise enterprising. Operations of Grameen Bank are executed by bi cycle per second bankers in various community split units (Fotabong).Group members meet weekly for collection of the repayments and are accountable for each other. Compartamos Bank as a commercial bank offers loans, insurance and savings to its clientele. It ope pass judgment as a conventional bank targeting the poor. It is for-profit institution that charges higher evaluate and undecided up to open and hugger-mugger investors in a bid to severaliseed series up its positiveness and financial sustainability. Compartamos started as a not-for profit organization and its shift to a commerci al enterprise has been received with mixed reactions. The study concern of the shift is not in the high enkindle rates charged but on the importance placed on profitability more than social good. With all the profits and scaling the people who gather most from such a set up are the already sizeable investors at the expense of poor borrowers.Evolution of CompartamosFounded in 1990 as a non-government organization, Compartamos aimed to eradicate poverty by giving credit to small businesses, peculiarly poor women. It was initially supported by international donors and philanthropists to serve autochthonous people in the poorest parts of Mexico. The company turned into a for-profit organization in 2000 in order to increase their funding (Carrick-Cagna and Santos 4). The company began accessing capital markets in 2002 raising millions of bonds over the next years. It slowly involved insular investors and shape up obtained a commercial banking license in 2006 to enable them offer more services to its clients such as savings and insurance.The need to scale made the company raise hundreds of millions from a successful initial public offering (IPO), earning huge returns from private and public arenas without using any special capital according to Carrick-Cagna and Santos. The profits allowed Compartamos to achieve financial self-sufficiency, no extended relying on donor aid. Thirty percent of the company was given to private investors and in essence the founders, with their visionary social determinations have no established control over the organization. The commercialization of Compartamos may seem to emphasize profit making over social good. Currently it offers microcredit services such as loans, insurance, and savings to low income earners and is among the largest and most profitable microfinance institutions in Latin the States (MFI Solutions, LLC, USA and La ColmenaMilenaria, A. C., Mxico 13).Investors in the bank take for bulky profits, which is a good thing for any organization but for a microfinance dedicated to improving lives of the poor, it is seen as a problem. The extent to which Compartamos benefits the already-rich private investors out-of-the-way(prenominal) outweigh the benefits accrued to poor borrowers. It charges up to 100 percent interest rates per year to borrowers. In the perspective of fundamental values of microfinance, the actions of Compartamos are not pro-poor.Social ValuesIn the social enterprising context, the stand of Compartamos Bank is controversial. While to others it is a pro-poor initiative, others see a shift in its operation no different from conventional banks which are often anti-poor, anti-illiterate and anti-women according toYunus. Inequalities between the rich and the poor are a question of access to financial credit. Compartamos allegedly charges very high interest rates to its borrowers, who struggle to the rate while investors super profit. Most of the poor people are also illitera te and hardly a(prenominal) understand the idea of interest rates. What most borrowers focus on is how much they have to repay weekly but calculated in material sense, the interest rates are much higher than those of common commercial banks. The result is confining the poor in a never-ending cycle of poverty where they borrow more to service their credits.Implications for Increased CommercializationCompartamos IPO was a huge success in financial markets but majority of the shares went to manipulate fund managers and commercial investors rather than the socially-responsible investment entity. According to MFI Solutions and La Colmena Milenaria, the impart capacity of the Bank increased after the IPO, though the interest rates charged went higher and higher with time. The bank has more than doubled its reach to clients in need of financial services in Mexico. In order to cater for the expansion and operating costs, the bank charges interests above the normal commercial Mexican ra te.It has however continued to expand and retain many of its clients. It is a major concern to microfinance, on the appropriate balance between the goal of providing access to financial services to the poor and profitability and sustainability of microfinance institutions. The shift of microfinance fromsocial investors to commercial investors is a threat to social enterprises aimed at alleviating poverty. The IPO has displace a message that social service and profitability go together.It is a message that will definitely attract more private investors into microfinance. Compartamos IPO does not exclusively have implications on the company but to the wide microfinance entity. As a non-profit organization started off by grants, the implication is that society may have a different view of social enterprises. near would question ethical, moral, and social values of such establishments.The Future of MicrofinancePlayers in the sector are uncertain about the future of microfinance, espe cially with the move of Compartamos to commercialize its operations. Commercialization of microfinance is seen as an opportunity to expand access of the poor to financial services. The high profit margins will attract more investment into microfinance, thereby availing more money to extend to people to help them out of poverty. Additionally, it is mat that if other microfinance players shift to commercialization, the profit maximizing behavior will further take advantage of the poor. This would worsen the existing gap between the rich and the poor, profiting the rich and sending the poor into more poverty.Initiatives of the past two decades to make businesses socially responsible will also have been a waste. Communities and socially-responsible investors may shy away from initiatives aimed at addressing serious social issues. Microfinance faces a risk of turning into how well(p) investors are doing of how profitable microfinance institutions are instead of actively focusing on e nding poverty. In conclusion, those who founded formal microfinance intended it for the social good, but when more people got involved, the objectives and intentions of social enterprises shifted. The best model that is well adapted to create wealth for the poor is Grameens village model. With commercialization it becomes difficult to determine where microcredit ends and loan sharking ends.Involvement of private investors, whose main aim is often profit making would make social enterprises in microfinance serve more the interests of investors at a disadvantage of poor clients. It would turn microfinance from an area where non-profits and donors effect beneficial social and economic change into a haven for increasing investors. Weare living in a capitalist society where the need to satisfy personal interest overrides social good. In view of microfinance and addressing poverty, it is punter to operate on the traditional approach of such initiatives other than commercializing it.