CGAP Reflections on the Compartamos Initial Public Offering
On April 20, 2007, Banco Compartamos, a microfinance institution (MFI) that was launched in 1990 and originally funded by grants from various sources, including CGAP, completed a landmark initial public offering (IPO) of its stock. The IPO was 13 times oversubscribed and considered a huge success by any financial market standard. Pent-up demand caused the share price—representing 30 percent ownership in the bank—to surge 22 percent in the first day of trading. Demand was driven by the exceptional growth and profitability of Compartamos, a dearth of Mexican investments for emerging market portfolios, rarity value, strong management, and the appeal of microfinance.
The spectacular success of the IPO was a milestone not only for Compartamos, but for microfinance. Mainstream international fund managers and other truly commercial investors—not socially responsible investors—bought most of the shares. The transaction will probably give a significant boost to the credibility of microfinance in commercial capital markets and accelerate the mobilization of private capital for the business of providing financial services to poor and low-income people. Still, the Compartamos offering has raised serious issues for many in the microfinance field and beyond, especially in view of the huge profits it produced for Compartamos shareholders.
This Focus Note will address three questions:
- Are Compartamos’ exceptional profits, and the high interest rates they are built on, defensible in light of the social bottom line the company identifies as part of its purpose, and are they consistent with the development objectives of its principal shareholders?
- Was the aid money that was granted to Compartamos in its early years used inappropriately to enrich private investors?
- Does the IPO alter the governance of Compartamos in ways that will make it harder for the company to balance social and commercial objectives, especially when there are choices to be made about whether money goes into shareholders’ pockets or clients’ pockets?