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Re: to dave richards
by N. Srinivasan
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Dear Vineet, Dave
It is too tempting not to jump in. Equity is risky and the investor gets a reward on not only funds employed but also risk taken. the investor would have silently absorbed the loss if the equity had declined in value. Vineet's point is well taken. How did the equity valuation of 10 times or 18 times of earning come about? If it was done through mission aligned operations and customer friendly services, one understands the logic of investment of public funds by ACCIONs and IFCs. If high interest rates boosted the earning, showing phenomenal profitability as a likelihood and the high PE was derived as a result, there are issues to be considered. We are talking about microfinance - not any commercial activity. Customer protection does not exist in the sector. People are desperate to borrow. Taking advantage of such a situation, if institutions design high-profit models, then whether public funds should support such institutions? If they are already invested, do they not have a duty to influence decisions in the MFIs in favour of clients? The success of Compartamos IPO and the high equity valuation were directly related to the high interest rates charged. Poor people paid their hard earned incomes and some investors (who incidentally did not rake risky investment positions in Compartamos, but socially relevant investment positions) made profits out of it. The poor had nothing to gain. May be this where a coop union is a better institution for the customers - it is their own institution and they can share in its profits. Best regards Srinivasan ________________________________ From: Vineet <vrai@...> To: MicrofinancePractice@... Sent: Thu, 22 October, 2009 1:13:29 PM Subject: [MFP] to dave richards Dear Dave Investing in a debt instrument to get a lower return is the right thing to do but comparing your returns with Accion International investment is wrong. Your conclusion about how much did you pay is right but why did u pay higher and when you pay lower. Accion took risk when it invested US $ 1 Million and offcourse the amount of money they made is obscene to be honest however they did not make it by wrong means. They took the risk and it paid off, equity is a risk and reward tool and not a tool for safe investing ( like you do in a credit union) - If you are a low risk investor in equity, you should feel happy if u get a 20% IRR over 3-7 year horizon and you should never spend time comparing how much the early stage investor in the unlisted company made ( their cost of investing and managing the investment is also very different from your passive investing) It is important from a lay man perspective to understand that equity are risky and if u are investing in IPO you would normally pay much higher then what a investor in unlisted entity would pay. I would give u an example in India - the best MFI in India are looking at 10 times forward profit at mid year assessment as their value, while most companies on Indian stock exchange are trading at 17-18 times PE. Most investors are completely shocked at the 10 times forward PE being paid in private deals ( these are considered expensive investments) however if u are a late stage investor and you are confident that at the time of listing you would get a 18 PE, you may be excited by the fact that you would double your money in 1-2 year time or may be quadruple - but a very early stage investor ( like Accion) may have invested at 1 X book value or may be 1.5 X book value which may be less than the 1X Profits of the company Equity is complex play and hence one must participate only if you realize you may lose all your money due to the risks involved and have the capacity to live with that risk vineet <http://groups. yahoo.com/ group/Microfinan cePractice/ message/11283; _ylc=X3oDM TJyNmM1YW1xBF9TAzk3 MzU5NzE1BGdycElk AzMyNDAyNjQEZ3Jw c3BJZAMxNzA1MDAx MjQyBG1zZ 0lkAzExMjgzBHNlYwNk bXNnBHNsawN2bXNn BHN0aW1lAzEyNTYx MjUyODM-> Compartamos Results in Mexico Posted by: "cubeliever" <mailto:dcrcu@yahoo. com?Subject=%20Re% 3ACompartamos% 20Results% 20in%20Mexico> dcrcu@yahoo. com <http://profiles. yahoo.com/ cubeliever> cubeliever Tue Oct 20, 2009 8:17 pm (PDT) Greetings to All: Barbara Magnoni's post on the recent performance of Compartamos has finally compelled me to share my own analysis of the performance of Compartamos since the April, 2007 IPO. I have no reason to question her quick read for the Q3 of 2009 and it sounds like she is a very happy stockholder. I must caution, however, that I seriously doubt all stockholders are as happy with their investment. at least those who bought shares after the IPO. The key question is HOW MUCH DID YOU PAY for your shares? I hope I don't bore you with what follows. I apologize for its length: If you look at the performance of the Compartamos stock, the initial offering price was 40 pesos per share in April, 2007. It then peaked at 68.90 pesos on July 9, 2007, and then the stock started a continuous downhill slide to November 24, 2008 when it bottomed out at a paltry 17.10 pesos per share. It has then started a continuous recovery and today, the price hovers around 50 pesos per share, however, it has only risen above the initial offering price of 40 pesos since July of this year. If Barbara bought the stock back last November, she would have tripled her money in 11 months! If she was one of those who paid 50+ pesos per share, her yield would be less than zero, if you consider inflation and the time value of money. Another interesting tidbit is that in a Wall Street article during July, 2009, Banamex was recommending to its clients to SELL Compartamos stock. Perhaps Barbara is willing to tell us when she bought her shares and at what price and the mystery will be unfolded! But there is more to Compartamos than the stock price. I have looked at the financial performance of Compartamos over the past two years and have read the footnotes of the audited financial statements for 2007 and 2008. I don't normally get too excited about quarterly results, preferring to focus on the year end figures, because they seem to provide a clearer picture. I made my own adjustments independent of anyone else, and plugged them into my PEARLS monitoring system database and came up with some interesting conclusions, both good and bad. From year end 2006-2008, there have been several good things: Total Assets grew 153% Total Clients grew 87% Operating Expense ratio has dropped from 29.79% to 26.84% Loan Portfolio Interest Rates have dropped from 87.2% to 76.7% However, there have also been some very troubling signs. Loan Delinquencies have risen from 1.13% to 1.71% (peaking at 2.69% in 2007) Loan Charge-offs have tripled from .57% to 1.55% Loan to Asset Ratio has plummeted from 87.6 to 67.6% And as a result of these changes. ROA (after dividends) has dropped from 17.09% to 12.72% ROE (return on institutional capital - what increases the book value of your shares) has fallen from 82.75% to 45.86% Furthermore, I was most dismayed to see that Compartamos apparently has "thrown in the towel" on savings. They had NO savings deposits as of 12/31/08. a curious result given that one of the main reasons for their conversion to a Bank was supposedly to capture savings. As late as last month, it was announced that Banamex disbursed the second tranche of long term debt ($75 million USD at 200 bps over the interbank rate) to Compartamos (Check it out: <http://finance. yahoo.com/ news/CitiBanamex -Places-bw- 3339028293. html?x=0& .v= 1> http://finance. yahoo.com/ news/CitiBanamex -Places-bw- 3339028293. html?x=0& .v=1 ). If the LIBOR rate is used, that could mean a financing cost of 8-10% in hard currency. WOCCU is working with 55 credit unions in Mexico in rural areas that as of 12/31/08 had mobilized $2 billion USD dollars of savings at an average cost of 5.04% in local currency. Perhaps someone from Compartamos can enlighten us on their decision to abandon savings? Finally, the issue of cash dividends and investor yields continues to amaze me. In May, 2008, a record dividend was announced of 218,196,807 pesos or 51 cents a share. This is about $20.9 million USD at 10.43 exchange rate. In May, 2009 another record dividend of 278,449,103 pesos or 67 cents per share was announced. This is about the same amount in dollars as last year (20.88 million at a 13.3 exchange rate - peso devalued 27% over one year). If you do a "forensic dividend analysis", looking at what each stockholder paid for their shares, you come away with some shocking disparities. For example: 1. Accion International originally invested $1.0 Million USD of donor money into Compartamos and then sold 50% of their shares for approximately $135 million in April, 2007. Based on their own documentation, they were left with a 9.03% ownership in the shares. Simple math shows that Accion has received $1.8 million per year in dividends ($3.6 million total return) on their remaining investment of $500,000, or, 277% per year!! Not a bad return amidst the doom and gloom of the U.S. Stock Market!! I could go on with the other original stockholders, but you get the point. 2. The initial outside investors who bought Compartamos shares for 40 pesos per share, or $3.64 USD per share had a very different result. The dividend rate per share for them, converted to dollars, was a unimpressive $.048 cents USD per share. If you paid $3.64 per share and then received a cash dividend of 4.8 cents, your dividend would be an astounding 1.3% per year for two years or a total return of 2.6%. If you had invested your money in a Mexican credit union, you would have received 4.88% in 2007 and 5.04% in 2008, or a total return of 9.92%! So this long soliloquy leads me to what I said at the beginning. Individual yields vary depending on HOW MUCH YOU PAY for the stock. I can say much more about this case, but my time is up, and I am afraid I have already abused my allotment. The obvious question I will leave unanswered for now is whether such high priced equity capital really adds value to the bottom of the pyramid, particularly when there are many non-profit MFI's that capture savings deposits and don't sell their equity to make the rich richer and the poor poorer. A Credit Union Investor, Dave Richardson World Council of Credit Unions ____________ _________ _________ ________ From: Development Finance [mailto: <mailto:devfinance% 40ag.ohio- state.edu> devfinance@ag. ohio-state. edu] On Behalf Of Barbara Magnoni Sent: Tuesday, October 20, 2009 7:42 AM To: Development Finance Subject: Devfinance: Compartamos results in Mexico Just a quick note from a quick read of Compartamos' Q3 2009 results that were released this morning as I think they have some interesting insights for the industry. In Q3 2009, interest income was up 37% YOY and total portfolio growth was up 40.2% vs. 36% client growth. Profitability was up 31% despite a decline in net interest margins of 7%. Compartamos has shown its muscle, and how it has not lost access to capital despite the crisis. This has allowed them to come out with solid growth and, to their credit, NPLs have stabilized at around 2.26% from Q3 2008 despite being above historical levels. Its cost of funding seems to have increased somewhat, however, and the interesting story is an improvement in efficiency. From a quick glance at the numbers, they appear not to have passed this increased cost of funding to their clients. The decline in net interest margins suggests that Compartamos has maintained its profitability by working on their "secret sauce" as SKS leader Vik Akula calls the credit distribution model to reduce the costs of delivering small loans to the poor. Loan sizes have drifted up slightly, but only slightly and some of this may be more a reflection of the peso's devaluation than anything else. Compartamos only expanded two branches in the third quarter vs. 11 in Q1 2009. This is consistent with Compartamos' strategy to open 20 branches this year vs. 60 branches per year in prior 6 years. As we mentioned in our paper " Will the Bottom of the Pyramid Hot Bottom" earlier this year, a push efficiency is a positive outcome of the crisis. We also suggested that MFIs would look to savings to fund themselves, as the availability and cost of credit became less favorable. Compartamos has also announced a new effort to attract savings, which we hope will help reduce its cost of funds but also deepen financial inclusion in Mexico. All good outcomes of the crisis for Compartamos. The company's share price has reflected its strong performance. The chart below shows that since its low, Compartamos (blue line) has outperformed Mexico's Bolsa Index (red line), which is comprised of Mexico's Blue Chips. So much for Blue Chips. This is a story of microfinance outperforming, but not without work, and most likely some pain. I am a shareholder of Compartamos, which I should disclose in writing this. But I am looking at the institution not because I should but because I can. As a publicly traded company, it is obliged to disclose its performance on a quarterly basis, giving us insight on trends in Mexico and potentially in the industry. Imagine if every MFI disclosed such information with this level of frequency.. Barbara Magnoni Back to top <mailto:dcrcu@yahoo. com?Subject=Re% 3ACompartamos% 20Results% 20in%20Mexico> Reply to sender | <mailto:MicrofinancePractic e@yahoogroups. com?Subject=%20Re% 3ACompartamos% 20R esults%20in% 20Mexico> Reply to group | <http://groups. yahoo.com/ group/Microfinan cePractice/ post;_ylc= X3oDMTJyZ21wYm 9jBF9TAzk3MzU5NzE1B GdycElkAzMyNDAyN jQEZ3Jwc3BJZAMxN zA1MDAxMjQyBG1zZ 0lkAzExMj gzBHNlYwNkbXNnBHNsa wNycGx5BHN0aW1lA zEyNTYxMjUyODM- ?act=reply& messageNum= 1128 3> Reply via web post <http://groups. yahoo.com/ group/Microfinan cePractice/ message/11283; _ylc=X3oDM TM3dmlzYW0xBF9TAzk3 MzU5NzE1BGdycElk AzMyNDAyNjQEZ3Jw c3BJZAMxNzA1MDAx MjQyBG1zZ 0lkAzExMjgzBHNlYwNk bXNnBHNsawN2dHBj BHN0aW1lAzEyNTYx MjUyODMEdHBjSWQD MTEyODM-> Messages in this topic (1) Recent Activity . 13 <http://groups. yahoo.com/ group/Microfinan cePractice/ members;_ ylc=X3oDMTJmbWR hc28xBF9TAzk3MzU5Nz E1BGdycElkAzMyND AyNjQEZ3Jwc3BJZA MxNzA1MDAxMjQyBH NlYwN2dGw Ec2xrA3ZtYnJzBHN0aW 1lAzEyNTYxMjUyOD M-> New Members <http://groups. yahoo.com/ group/Microfinan cePractice; _ylc=X3oDMTJlZ3F jMTIxBF9 TAzk3MzU5NzE1BGdycE lkAzMyNDAyNjQEZ3 Jwc3BJZAMxNzA1MD AxMjQyBHNlYwN2dG wEc2xrA3Z naHAEc3RpbWUDMTI1Nj EyNTI4Mw- -> Visit Your Group Ads on Yahoo! <http://us.ard. yahoo.com/ SIG=14hcf991a/ M=493064. 12016308. 12445700. 8674578/D= groups/S=1705001242 :NC/Y=YAHOO/ EXP=1256132483/ L=/B=GlC8DUPDhFk -/J=1256125283 731082/K=Dwdfg9rdaw lArkDGVmLeRw/ A=3848643/ R=0/SIG=131q47he k/*http:/ searchmar keting.yahoo. com/arp/srchv2. php?o=US2005& cmp=Yahoo& ctv=Groups4& s=Y&s2=&s3= &b =50> Learn more now. 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RE: to dave richards
by Anuj Jain-3
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Yes, it is indeed very tempting to jump in.
Microfinance is a mule, neither a donkey, nor a horse.. and hence defining it as a donkey or a horse creates the problem.. it creates perennial dilemma.. As much as I an ardent supporter of social ethos of microfinance; realists and capitalists tell us that unless the commercial money comes into play, we will never be able to realise our goals of reaching so many unreached poor with microfinance.. So, how do we discount the argument put forth by Vineet on Equity, risk and return?.. Can we argue for a social value judgment, and specify what range of profits(or surplus) or RoE is ethical in microfinance?.. Is it realistic/ desirable to bring the argument of 'ethics' into play, without making market investors run away from the sector? And, may be, it won't be a bad idea for certain investors to stay away from the sector, even if that means slower growth rate of the sector? I think, Srinivasan ji is raising a slightly different issue as well (correct me if I am wrong). The issue does get one layer more complicated when the initial equity comes from exchequer/ public money or donation. In Vineet's language, the initial investor often take little financial risk and use 'public' money/ donation, and can then have the opportunity to take advantage of 'market' returns. In such a case, the arguments are bound to get more polarised than when we talk about purely markets driven equity investors and their expectations of returns. Fortunately or unfortunately -lots of larger microfinance initiatives were/ are still (equity) financed with public exchequers' money. In addition, in some cases, early private investors may enter the scene before real market valuation takes place, investing at the face-value of the shares, and in doing so, take advantage of the asset value built through exchequer's money. I wonder if it is possible to map the behavior of different market equity investors, their patterns of entry and exit, and their respective motivations? Going back to Dave's mail - it will be difficult to avoid/ deny the role of private equity in the future of microfinance. Savings should be an important source of capital for microfinance, no doubt, as long as we find the way to protect those savings (and protection does jack up the cost). What mix of capital sources will work best for a particular organisation - it will be hard to prescribe; but I am all for ethical micro-financing and client protection, even if that were to slow down the growth of the sector somewhat. Best regards, Anuj -----Original Message----- From: MicrofinancePractice@... [mailto:MicrofinancePractice@...] On Behalf Of N. Srinivasan Sent: 22 October 2009 15:15 To: MicrofinancePractice@... Subject: Re: [MFP] to dave richards Dear Vineet, Dave It is too tempting not to jump in. Equity is risky and the investor gets a reward on not only funds employed but also risk taken. the investor would have silently absorbed the loss if the equity had declined in value. Vineet's point is well taken. How did the equity valuation of 10 times or 18 times of earning come about? If it was done through mission aligned operations and customer friendly services, one understands the logic of investment of public funds by ACCIONs and IFCs. If high interest rates boosted the earning, showing phenomenal profitability as a likelihood and the high PE was derived as a result, there are issues to be considered. We are talking about microfinance - not any commercial activity. Customer protection does not exist in the sector. People are desperate to borrow. Taking advantage of such a situation, if institutions design high-profit models, then whether public funds should support such institutions? If they are already invested, do they not have a duty to influence decisions in the MFIs in favour of clients? The success of Compartamos IPO and the high equity valuation were directly related to the high interest rates charged. Poor people paid their hard earned incomes and some investors (who incidentally did not rake risky investment positions in Compartamos, but socially relevant investment positions) made profits out of it. The poor had nothing to gain. May be this where a coop union is a better institution for the customers - it is their own institution and they can share in its profits. Best regards Srinivasan ________________________________ From: Vineet <vrai@...> To: MicrofinancePractice@... Sent: Thu, 22 October, 2009 1:13:29 PM Subject: [MFP] to dave richards Dear Dave Investing in a debt instrument to get a lower return is the right thing to do but comparing your returns with Accion International investment is wrong. Your conclusion about how much did you pay is right but why did u pay higher and when you pay lower. Accion took risk when it invested US $ 1 Million and offcourse the amount of money they made is obscene to be honest however they did not make it by wrong means. They took the risk and it paid off, equity is a risk and reward tool and not a tool for safe investing ( like you do in a credit union) - If you are a low risk investor in equity, you should feel happy if u get a 20% IRR over 3-7 year horizon and you should never spend time comparing how much the early stage investor in the unlisted company made ( their cost of investing and managing the investment is also very different from your passive investing) It is important from a lay man perspective to understand that equity are risky and if u are investing in IPO you would normally pay much higher then what a investor in unlisted entity would pay. I would give u an example in India - the best MFI in India are looking at 10 times forward profit at mid year assessment as their value, while most companies on Indian stock exchange are trading at 17-18 times PE. Most investors are completely shocked at the 10 times forward PE being paid in private deals ( these are considered expensive investments) however if u are a late stage investor and you are confident that at the time of listing you would get a 18 PE, you may be excited by the fact that you would double your money in 1-2 year time or may be quadruple - but a very early stage investor ( like Accion) may have invested at 1 X book value or may be 1.5 X book value which may be less than the 1X Profits of the company Equity is complex play and hence one must participate only if you realize you may lose all your money due to the risks involved and have the capacity to live with that risk vineet <http://groups. yahoo.com/ group/Microfinan cePractice/ message/11283; _ylc=X3oDM TJyNmM1YW1xBF9TAzk3 MzU5NzE1BGdycElk AzMyNDAyNjQEZ3Jw c3BJZAMxNzA1MDAx MjQyBG1zZ 0lkAzExMjgzBHNlYwNk bXNnBHNsawN2bXNn BHN0aW1lAzEyNTYx MjUyODM-> Compartamos Results in Mexico Posted by: "cubeliever" <mailto:dcrcu@yahoo. com?Subject=%20Re% 3ACompartamos% 20Results% 20in%20Mexico> dcrcu@yahoo. com <http://profiles. yahoo.com/ cubeliever> cubeliever Tue Oct 20, 2009 8:17 pm (PDT) Greetings to All: Barbara Magnoni's post on the recent performance of Compartamos has finally compelled me to share my own analysis of the performance of Compartamos since the April, 2007 IPO. I have no reason to question her quick read for the Q3 of 2009 and it sounds like she is a very happy stockholder. I must caution, however, that I seriously doubt all stockholders are as happy with their investment. at least those who bought shares after the IPO. The key question is HOW MUCH DID YOU PAY for your shares? I hope I don't bore you with what follows. I apologize for its length: If you look at the performance of the Compartamos stock, the initial offering price was 40 pesos per share in April, 2007. It then peaked at 68.90 pesos on July 9, 2007, and then the stock started a continuous downhill slide to November 24, 2008 when it bottomed out at a paltry 17.10 pesos per share. It has then started a continuous recovery and today, the price hovers around 50 pesos per share, however, it has only risen above the initial offering price of 40 pesos since July of this year. If Barbara bought the stock back last November, she would have tripled her money in 11 months! If she was one of those who paid 50+ pesos per share, her yield would be less than zero, if you consider inflation and the time value of money. Another interesting tidbit is that in a Wall Street article during July, 2009, Banamex was recommending to its clients to SELL Compartamos stock. Perhaps Barbara is willing to tell us when she bought her shares and at what price and the mystery will be unfolded! But there is more to Compartamos than the stock price. I have looked at the financial performance of Compartamos over the past two years and have read the footnotes of the audited financial statements for 2007 and 2008. I don't normally get too excited about quarterly results, preferring to focus on the year end figures, because they seem to provide a clearer picture. I made my own adjustments independent of anyone else, and plugged them into my PEARLS monitoring system database and came up with some interesting conclusions, both good and bad. From year end 2006-2008, there have been several good things: Total Assets grew 153% Total Clients grew 87% Operating Expense ratio has dropped from 29.79% to 26.84% Loan Portfolio Interest Rates have dropped from 87.2% to 76.7% However, there have also been some very troubling signs. Loan Delinquencies have risen from 1.13% to 1.71% (peaking at 2.69% in 2007) Loan Charge-offs have tripled from .57% to 1.55% Loan to Asset Ratio has plummeted from 87.6 to 67.6% And as a result of these changes. ROA (after dividends) has dropped from 17.09% to 12.72% ROE (return on institutional capital - what increases the book value of your shares) has fallen from 82.75% to 45.86% Furthermore, I was most dismayed to see that Compartamos apparently has "thrown in the towel" on savings. They had NO savings deposits as of 12/31/08. a curious result given that one of the main reasons for their conversion to a Bank was supposedly to capture savings. As late as last month, it was announced that Banamex disbursed the second tranche of long term debt ($75 million USD at 200 bps over the interbank rate) to Compartamos (Check it out: <http://finance. yahoo.com/ news/CitiBanamex -Places-bw- 3339028293. html?x=0& .v= 1> http://finance. yahoo.com/ news/CitiBanamex -Places-bw- 3339028293. html?x=0& .v=1 ). If the LIBOR rate is used, that could mean a financing cost of 8-10% in hard currency. WOCCU is working with 55 credit unions in Mexico in rural areas that as of 12/31/08 had mobilized $2 billion USD dollars of savings at an average cost of 5.04% in local currency. Perhaps someone from Compartamos can enlighten us on their decision to abandon savings? Finally, the issue of cash dividends and investor yields continues to amaze me. In May, 2008, a record dividend was announced of 218,196,807 pesos or 51 cents a share. This is about $20.9 million USD at 10.43 exchange rate. In May, 2009 another record dividend of 278,449,103 pesos or 67 cents per share was announced. This is about the same amount in dollars as last year (20.88 million at a 13.3 exchange rate - peso devalued 27% over one year). If you do a "forensic dividend analysis", looking at what each stockholder paid for their shares, you come away with some shocking disparities. For example: 1. Accion International originally invested $1.0 Million USD of donor money into Compartamos and then sold 50% of their shares for approximately $135 million in April, 2007. Based on their own documentation, they were left with a 9.03% ownership in the shares. Simple math shows that Accion has received $1.8 million per year in dividends ($3.6 million total return) on their remaining investment of $500,000, or, 277% per year!! Not a bad return amidst the doom and gloom of the U.S. Stock Market!! I could go on with the other original stockholders, but you get the point. 2. The initial outside investors who bought Compartamos shares for 40 pesos per share, or $3.64 USD per share had a very different result. The dividend rate per share for them, converted to dollars, was a unimpressive $.048 cents USD per share. If you paid $3.64 per share and then received a cash dividend of 4.8 cents, your dividend would be an astounding 1.3% per year for two years or a total return of 2.6%. If you had invested your money in a Mexican credit union, you would have received 4.88% in 2007 and 5.04% in 2008, or a total return of 9.92%! So this long soliloquy leads me to what I said at the beginning. Individual yields vary depending on HOW MUCH YOU PAY for the stock. I can say much more about this case, but my time is up, and I am afraid I have already abused my allotment. The obvious question I will leave unanswered for now is whether such high priced equity capital really adds value to the bottom of the pyramid, particularly when there are many non-profit MFI's that capture savings deposits and don't sell their equity to make the rich richer and the poor poorer. A Credit Union Investor, Dave Richardson World Council of Credit Unions ____________ _________ _________ ________ From: Development Finance [mailto: <mailto:devfinance% 40ag.ohio- state.edu> devfinance@ag. ohio-state. edu] On Behalf Of Barbara Magnoni Sent: Tuesday, October 20, 2009 7:42 AM To: Development Finance Subject: Devfinance: Compartamos results in Mexico Just a quick note from a quick read of Compartamos' Q3 2009 results that were released this morning as I think they have some interesting insights for the industry. In Q3 2009, interest income was up 37% YOY and total portfolio growth was up 40.2% vs. 36% client growth. Profitability was up 31% despite a decline in net interest margins of 7%. Compartamos has shown its muscle, and how it has not lost access to capital despite the crisis. This has allowed them to come out with solid growth and, to their credit, NPLs have stabilized at around 2.26% from Q3 2008 despite being above historical levels. Its cost of funding seems to have increased somewhat, however, and the interesting story is an improvement in efficiency. From a quick glance at the numbers, they appear not to have passed this increased cost of funding to their clients. The decline in net interest margins suggests that Compartamos has maintained its profitability by working on their "secret sauce" as SKS leader Vik Akula calls the credit distribution model to reduce the costs of delivering small loans to the poor. Loan sizes have drifted up slightly, but only slightly and some of this may be more a reflection of the peso's devaluation than anything else. Compartamos only expanded two branches in the third quarter vs. 11 in Q1 2009. This is consistent with Compartamos' strategy to open 20 branches this year vs. 60 branches per year in prior 6 years. As we mentioned in our paper " Will the Bottom of the Pyramid Hot Bottom" earlier this year, a push efficiency is a positive outcome of the crisis. We also suggested that MFIs would look to savings to fund themselves, as the availability and cost of credit became less favorable. Compartamos has also announced a new effort to attract savings, which we hope will help reduce its cost of funds but also deepen financial inclusion in Mexico. All good outcomes of the crisis for Compartamos. The company's share price has reflected its strong performance. The chart below shows that since its low, Compartamos (blue line) has outperformed Mexico's Bolsa Index (red line), which is comprised of Mexico's Blue Chips. So much for Blue Chips. This is a story of microfinance outperforming, but not without work, and most likely some pain. I am a shareholder of Compartamos, which I should disclose in writing this. But I am looking at the institution not because I should but because I can. As a publicly traded company, it is obliged to disclose its performance on a quarterly basis, giving us insight on trends in Mexico and potentially in the industry. Imagine if every MFI disclosed such information with this level of frequency.. 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Re: to dave richards
by Garrett Wyse-2
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Just some thoughts (sorry if a bit long),
I imagined many years ago a 'global credit union', where my savings in the local credit union could be used to lend out to people in a credit union on the far side of the world (my savings being others investment, if they have not got enough savings to effect real change, if they could not access other funds etc.) and getting a financial and non-financial return at the same time. And so many years of involvement in Mf began, and I still cant see why that simple idea would not work, but..... Is the simple concept of normal profit (being part of costs) a good measure of a fair financial 'profit? What about 5%?, what percentage of average savers ('commercial sector) with surplus cash would accept that return? Could we perhaps consider the 'commercial sector' as composed of normal people, instead of rapacious, anonymous, amoral entities protected by law?, why do we feel we have to consider the commercial sector as being greedy beyond reason? And you can argue that a normal profit return is not ethics just good business, this return is reasonably manageable for all, profitable for all, allows for expansion of services and institutions, discourages short-term thinking, allows for long term planning etc. This all seems like common sense for investor and investee alike, Also I wonder would public entities and NGO's be happy to grant seed institutions in the knowledge that normal profit seeking investors would fill the gap when the institution is up and running and the original investors take their normal profit and go off and do the same again? If yes can be answered to some of the question poised above then why is it not happening? Is it about time to start stating what normal profit is, that its part of costs, that it allows for sustainability, growth and decent returns simultaneously? And then using some form of normative economics to state this as proof of how institutions can be set up, run and grow, without the necessity for someone to exploited, Could transparency in targeted returns and voluntary caps on them (normal profit) could go a long way toward encouraging the sort of investors and other interested parties that Mf needs to do its job properly? ' Garrett 2009/10/22 anuj <ajain@...> > > > Yes, it is indeed very tempting to jump in. > > Microfinance is a mule, neither a donkey, nor a horse.. and hence defining > it as a donkey or a horse creates the problem.. it creates perennial > dilemma.. > > As much as I an ardent supporter of social ethos of microfinance; realists > and capitalists tell us that unless the commercial money comes into play, > we > will never be able to realise our goals of reaching so many unreached poor > with microfinance.. > > So, how do we discount the argument put forth by Vineet on Equity, risk and > return?.. Can we argue for a social value judgment, and specify what range > of profits(or surplus) or RoE is ethical in microfinance?.. Is it > realistic/ desirable to bring the argument of 'ethics' into play, without > making market investors run away from the sector? And, may be, it won't be > a bad idea for certain investors to stay away from the sector, even if that > means slower growth rate of the sector? > > I think, Srinivasan ji is raising a slightly different issue as well > (correct me if I am wrong). The issue does get one layer more complicated > when the initial equity comes from exchequer/ public money or donation. In > Vineet's language, the initial investor often take little financial risk > and > use 'public' money/ donation, and can then have the opportunity to take > advantage of 'market' returns. In such a case, the arguments are bound to > get more polarised than when we talk about purely markets driven equity > investors and their expectations of returns. Fortunately or unfortunately > -lots of larger microfinance initiatives were/ are still (equity) financed > with public exchequers' money. > > In addition, in some cases, early private investors may enter the scene > before real market valuation takes place, investing at the face-value of > the > shares, and in doing so, take advantage of the asset value built through > exchequer's money. I wonder if it is possible to map the behavior of > different market equity investors, their patterns of entry and exit, and > their respective motivations? > > Going back to Dave's mail - it will be difficult to avoid/ deny the role of > private equity in the future of microfinance. Savings should be an > important > source of capital for microfinance, no doubt, as long as we find the way to > protect those savings (and protection does jack up the cost). What mix of > capital sources will work best for a particular organisation - it will be > hard to prescribe; but I am all for ethical micro-financing and client > protection, even if that were to slow down the growth of the sector > somewhat. > > Best regards, > > Anuj > > > -----Original Message----- > From: MicrofinancePractice@...<MicrofinancePractice%40yahoogroups.com> > [mailto:MicrofinancePractice@...<MicrofinancePractice%40yahoogroups.com>] > On Behalf Of N. Srinivasan > Sent: 22 October 2009 15:15 > To: MicrofinancePractice@...<MicrofinancePractice%40yahoogroups.com> > Subject: Re: [MFP] to dave richards > > Dear Vineet, Dave > It is too tempting not to jump in. > Equity is risky and the investor gets a reward on not only funds employed > but also risk taken. the investor would have silently absorbed the loss if > the equity had declined in value. Vineet's point is well taken. > How did the equity valuation of 10 times or 18 times of earning come about? > If it was done through mission aligned operations and customer friendly > services, one understands the logic of investment of public funds by > ACCIONs > and IFCs. If high interest rates boosted the earning, showing phenomenal > profitability as a likelihood and the high PE was derived as a result, > there > are issues to be considered. > We are talking about microfinance - not any commercial activity. Customer > protection does not exist in the sector. People are desperate to borrow. > Taking advantage of such a situation, if institutions design high-profit > models, then whether public funds should support such institutions? If they > are already invested, do they not have a duty to influence decisions in the > MFIs in favour of clients? > The success of Compartamos IPO and the high equity valuation were directly > related to the high interest rates charged. Poor people paid their hard > earned incomes and some investors (who incidentally did not rake risky > investment positions in Compartamos, but socially relevant investment > positions) made profits out of it. The poor had nothing to gain. May be > this where a coop union is a better institution for the customers - it is > their own institution and they can share in its profits. > Best regards > Srinivasan > ________________________________ > > From: Vineet <vrai@... <vrai%40intellecap.net>> > To: MicrofinancePractice@...<MicrofinancePractice%40yahoogroups.com> > Sent: Thu, 22 October, 2009 1:13:29 PM > Subject: [MFP] to dave richards > > Dear Dave > > Investing in a debt instrument to get a lower return is the right thing to > do but comparing your returns with Accion International investment is > wrong. > Your conclusion about how much did you pay is right but why did u pay > higher > and when you pay lower. Accion took risk when it invested US $ 1 Million > and > offcourse the amount of money they made is obscene to be honest however > they > did not make it by wrong means. They took the risk and it paid off, equity > is a risk and reward tool and not a tool for safe investing ( like you do > in > a credit union) - If you are a low risk investor in equity, you should feel > happy if u get a 20% IRR over 3-7 year horizon and you should never spend > time comparing how much the early stage investor in the unlisted company > made ( their cost of investing and managing the investment is also very > different from your passive investing) > > It is important from a lay man perspective to understand that equity are > risky and if u are investing in IPO you would normally pay much higher then > what a investor in unlisted entity would pay. I would give u an example in > India - the best MFI in India are looking at 10 times forward profit at mid > year assessment as their value, while most companies on Indian stock > exchange are trading at 17-18 times PE. Most investors are completely > shocked at the 10 times forward PE being paid in private deals ( these are > considered expensive investments) however if u are a late stage investor > and > you are confident that at the time of listing you would get a 18 PE, you > may > be excited by the fact that you would double your money in 1-2 year time or > may be quadruple - but a very early stage investor ( like Accion) may have > invested at 1 X book value or may be 1.5 X book value which may be less > than > the 1X Profits of the company > > Equity is complex play and hence one must participate only if you realize > you may lose all your money due to the risks involved and have the capacity > to live with that risk > > vineet > > <http://groups. yahoo.com/ group/Microfinan cePractice/ message/11283; > _ylc=X3oDM > TJyNmM1YW1xBF9TAzk3 MzU5NzE1BGdycElk AzMyNDAyNjQEZ3Jw c3BJZAMxNzA1MDAx > MjQyBG1zZ > 0lkAzExMjgzBHNlYwNk bXNnBHNsawN2bXNn BHN0aW1lAzEyNTYx MjUyODM-> Compartamos > Results in Mexico > > Posted by: "cubeliever" > <mailto:dcrcu@yahoo. com?Subject=%20Re% 3ACompartamos% 20Results% > 20in%20Mexico> > dcrcu@yahoo. com <http://profiles. yahoo.com/ cubeliever> cubeliever > > Tue Oct 20, 2009 8:17 pm (PDT) > > Greetings to All: > > Barbara Magnoni's post on the recent performance of Compartamos has finally > compelled me to share my own analysis of the performance of Compartamos > since the April, 2007 IPO. I have no reason to question her quick read for > the Q3 of 2009 and it sounds like she is a very happy stockholder. I must > caution, however, that I seriously doubt all stockholders are as happy with > their investment. at least those who bought shares after the IPO. The key > question is HOW MUCH DID YOU PAY for your shares? > > I hope I don't bore you with what follows. I apologize for its length: > > If you look at the performance of the Compartamos stock, the initial > offering price was 40 pesos per share in April, 2007. It then peaked at > 68.90 pesos on July 9, 2007, and then the stock started a continuous > downhill slide to November 24, 2008 when it bottomed out at a paltry 17.10 > pesos per share. It has then started a continuous recovery and today, the > price hovers around 50 pesos per share, however, it has only risen above > the > initial offering price of 40 pesos since July of this year. If Barbara > bought the stock back last November, she would have tripled her money in 11 > months! If she was one of those who paid 50+ pesos per share, her yield > would be less than zero, if you consider inflation and the time value of > money. Another interesting tidbit is that in a Wall Street article during > July, 2009, Banamex was recommending to its clients to SELL Compartamos > stock. Perhaps Barbara is willing to tell us when she bought her shares and > at what price and the mystery will be unfolded! > > But there is more to Compartamos than the stock price. I have looked at the > financial performance of Compartamos over the past two years and have read > the footnotes of the audited financial statements for 2007 and 2008. I > don't > normally get too excited about quarterly results, preferring to focus on > the > year end figures, because they seem to provide a clearer picture. I made my > own adjustments independent of anyone else, and plugged them into my PEARLS > monitoring system database and came up with some interesting conclusions, > both good and bad. > > From year end 2006-2008, there have been several good things: > > Total Assets grew 153% > Total Clients grew 87% > Operating Expense ratio has dropped from 29.79% to 26.84% > Loan Portfolio Interest Rates have dropped from 87.2% to 76.7% > > However, there have also been some very troubling signs. > > Loan Delinquencies have risen from 1.13% to 1.71% (peaking at 2.69% in > 2007) > Loan Charge-offs have tripled from .57% to 1.55% > Loan to Asset Ratio has plummeted from 87.6 to 67.6% > > And as a result of these changes. > > ROA (after dividends) has dropped from 17.09% to 12.72% > ROE (return on institutional capital - what increases the book value of > your > shares) has fallen from 82.75% to 45.86% > > Furthermore, I was most dismayed to see that Compartamos apparently has > "thrown in the towel" on savings. They had NO savings deposits as of > 12/31/08. a curious result given that one of the main reasons for their > conversion to a Bank was supposedly to capture savings. As late as last > month, it was announced that Banamex disbursed the second tranche of long > term debt ($75 million USD at 200 bps over the interbank rate) to > Compartamos (Check it out: > <http://finance. yahoo.com/ news/CitiBanamex -Places-bw- 3339028293. > html?x=0& .v= > 1> > http://finance. yahoo.com/ news/CitiBanamex -Places-bw- 3339028293. > html?x=0& .v=1 > ). If the LIBOR rate is used, that could mean a financing cost of 8-10% in > hard currency. WOCCU is working with 55 credit unions in Mexico in rural > areas that as of 12/31/08 had mobilized $2 billion USD dollars of savings > at > an average cost of 5.04% in local currency. Perhaps someone from > Compartamos > can enlighten us on their decision to abandon savings? > > Finally, the issue of cash dividends and investor yields continues to amaze > me. > > In May, 2008, a record dividend was announced of 218,196,807 pesos or 51 > cents a share. This is about $20.9 million USD at 10.43 exchange rate. In > May, 2009 another record dividend of 278,449,103 pesos or 67 cents per > share > was announced. This is about the same amount in dollars as last year (20.88 > million at a 13.3 exchange rate - peso devalued 27% over one year). If you > do a "forensic dividend analysis", looking at what each stockholder paid > for > their shares, you come away with some shocking disparities. For example: > > 1. Accion International originally invested $1.0 Million USD of donor money > into Compartamos and then sold 50% of their shares for approximately $135 > million in April, 2007. Based on their own documentation, they were left > with a 9.03% ownership in the shares. Simple math shows that Accion has > received $1.8 million per year in dividends ($3.6 million total return) on > their remaining investment of $500,000, or, 277% per year!! Not a bad > return > amidst the doom and gloom of the U.S. Stock Market!! I could go on with the > other original stockholders, but you get the point. > > 2. The initial outside investors who bought Compartamos shares for 40 pesos > per share, or $3.64 USD per share had a very different result. The dividend > rate per share for them, converted to dollars, was a unimpressive $.048 > cents USD per share. If you paid $3.64 per share and then received a cash > dividend of 4.8 cents, your dividend would be an astounding 1.3% per year > for two years or a total return of 2.6%. If you had invested your money in > a > Mexican credit union, you would have received 4.88% in 2007 and 5.04% in > 2008, or a total return of 9.92%! > > So this long soliloquy leads me to what I said at the beginning. Individual > yields vary depending on HOW MUCH YOU PAY for the stock. > > I can say much more about this case, but my time is up, and I am afraid I > have already abused my allotment. The obvious question I will leave > unanswered for now is whether such high priced equity capital really adds > value to the bottom of the pyramid, particularly when there are many > non-profit MFI's that capture savings deposits and don't sell their equity > to make the rich richer and the poor poorer. > > A Credit Union Investor, > > Dave Richardson > World Council of Credit Unions > > ____________ _________ _________ ________ > From: Development Finance [mailto: <mailto:devfinance% <devfinance%25>40ag.ohio- > state.edu> > devfinance@ag. ohio-state. edu] On Behalf Of Barbara Magnoni > Sent: Tuesday, October 20, 2009 7:42 AM > To: Development Finance > Subject: Devfinance: Compartamos results in Mexico > > Just a quick note from a quick read of Compartamos' Q3 2009 results that > were released this morning as I think they have some interesting insights > for the industry. > > In Q3 2009, interest income was up 37% YOY and total portfolio growth was > up > 40.2% vs. 36% client growth. Profitability was up 31% despite a decline in > net interest margins of 7%. Compartamos has shown its muscle, and how it > has > not lost access to capital despite the crisis. This has allowed them to > come > out with solid growth and, to their credit, NPLs have stabilized at around > 2.26% from Q3 2008 despite being above historical levels. Its cost of > funding seems to have increased somewhat, however, and the interesting > story > is an improvement in efficiency. From a quick glance at the numbers, they > appear not to have passed this increased cost of funding to their clients. > The decline in net interest margins suggests that Compartamos has > maintained > its profitability by working on their "secret sauce" as SKS leader Vik > Akula > calls the credit distribution model to reduce the costs of delivering small > loans to the poor. Loan sizes have drifted up slightly, but only slightly > and some of this may be more a reflection of the peso's devaluation than > anything else. Compartamos only expanded two branches in the third quarter > vs. 11 in Q1 2009. This is consistent with Compartamos' strategy to open 20 > branches this year vs. 60 branches per year in prior 6 years. As we > mentioned in our paper " Will the Bottom of the Pyramid Hot Bottom" earlier > this year, a push efficiency is a positive outcome of the crisis. We also > suggested that MFIs would look to savings to fund themselves, as the > availability and cost of credit became less favorable. Compartamos has also > announced a new effort to attract savings, which we hope will help reduce > its cost of funds but also deepen financial inclusion in Mexico. All good > outcomes of the crisis for Compartamos. > > The company's share price has reflected its strong performance. The chart > below shows that since its low, Compartamos (blue line) has outperformed > Mexico's Bolsa Index (red line), which is comprised of Mexico's Blue Chips. > So much for Blue Chips. This is a story of microfinance outperforming, but > not without work, and most likely some pain. > > I am a shareholder of Compartamos, which I should disclose in writing this. > But I am looking at the institution not because I should but because I can. > As a publicly traded company, it is obliged to disclose its performance on > a > quarterly basis, giving us insight on trends in Mexico and potentially in > the industry. Imagine if every MFI disclosed such information with this > level of frequency.. > > Barbara Magnoni > > Back to top > > <mailto:dcrcu@yahoo. com?Subject=Re% 3ACompartamos% 20Results% > 20in%20Mexico> > Reply to sender | > <mailto:MicrofinancePractic e@yahoogroups. com?Subject=%20Re% > 3ACompartamos% > 20R > esults%20in% 20Mexico> Reply to group | > <http://groups. yahoo.com/ group/Microfinan cePractice/ post;_ylc= > X3oDMTJyZ21wYm > 9jBF9TAzk3MzU5NzE1B GdycElkAzMyNDAyN jQEZ3Jwc3BJZAMxN zA1MDAxMjQyBG1zZ > 0lkAzExMj > gzBHNlYwNkbXNnBHNsa wNycGx5BHN0aW1lA zEyNTYxMjUyODM- ?act=reply& > messageNum= > 1128 > 3> Reply via web post > > <http://groups. yahoo.com/ group/Microfinan cePractice/ message/11283; > _ylc=X3oDM > TM3dmlzYW0xBF9TAzk3 MzU5NzE1BGdycElk AzMyNDAyNjQEZ3Jw c3BJZAMxNzA1MDAx > MjQyBG1zZ > 0lkAzExMjgzBHNlYwNk bXNnBHNsawN2dHBj BHN0aW1lAzEyNTYx MjUyODMEdHBjSWQD > MTEyODM-> > Messages in this topic (1) > > Recent Activity > > . 13 > > <http://groups. yahoo.com/ group/Microfinan cePractice/ members;_ > ylc=X3oDMTJmbWR > hc28xBF9TAzk3MzU5Nz E1BGdycElkAzMyND AyNjQEZ3Jwc3BJZA MxNzA1MDAxMjQyBH > NlYwN2dGw > Ec2xrA3ZtYnJzBHN0aW 1lAzEyNTYxMjUyOD M-> New Members > > <http://groups. yahoo.com/ group/Microfinan cePractice; _ylc=X3oDMTJlZ3F > jMTIxBF9 > TAzk3MzU5NzE1BGdycE lkAzMyNDAyNjQEZ3 Jwc3BJZAMxNzA1MD AxMjQyBHNlYwN2dG > wEc2xrA3Z > naHAEc3RpbWUDMTI1Nj EyNTI4Mw- -> Visit Your Group > > Ads on Yahoo! > > <http://us.ard. yahoo.com/ SIG=14hcf991a/ M=493064. 12016308. 12445700. > 8674578/D= > groups/S=1705001242 :NC/Y=YAHOO/ EXP=1256132483/ L=/B=GlC8DUPDhFk > -/J=1256125283 > 731082/K=Dwdfg9rdaw lArkDGVmLeRw/ A=3848643/ R=0/SIG=131q47he k/*http:/ > searchmar > keting.yahoo. com/arp/srchv2. php?o=US2005& cmp=Yahoo& ctv=Groups4& > s=Y&s2=&s3= &b > =50> Learn more now. > > Reach customers > > searching for you. > > Share Photos > > <http://us.ard. yahoo.com/ SIG=14hlun5nt/ M=493064. 12016255. 12445662. > 8674578/D= > groups/S=1705001242 :NC/Y=YAHOO/ EXP=1256132483/ L=/B=G1C8DUPDhFk > -/J=1256125283 > 731082/K=Dwdfg9rdaw lArkDGVmLeRw/ A=4025373/ R=0/SIG=12dtn7qj m/*http:/ > us.rd.yah > oo.com/evt=44092/ *http:/smallbusi ness.yahoo. com/webhosting> Put your > favorite > > photos and > > more online. > > Yahoo! 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Re: to dave richards
by cubeliever
::
Rate this Message:
Dear Vineet, Srinivasan, Anuj, Garrett, and Peter:
Thanks for all of your contributions. I wish I had more time to spend on this listserve because there are so many thoughtful comments. The purpose of my posting was not to rant and rave about Compartamos, but rather, to look at what has happened in hindsight, which rarely is worse than 20-20. Vineet, you are correct about the role of equity capital, but I would disagree about the degree of risk that the orginal stockholders bore in this transaction... The DONORS were the ones who underwrote the risk, but unfortunately, they did not reap the windfall profits. As to the proper valuation techniques, I have never really understood why anyone would pay 12 times the book value of any microfinance company... The only way that pricing will work is if revenue streams continue to expand exponentially, and I don't see that happening. If anything, prices are dropping. I would agree with Peter that there should be a different way to evaluate the performance of MFI's like Compartamos, but I understand that Dean Karlan is doing just that, so I am sure when his report hits the street, we will have many passionate discussions about the subject matter, both good and bad. I fully agree with Srinivasan's comment that the success of the Compartamos business model is because of the high interest rates that are charged. It is ultimately a flawed model because it is based on a monopoly market and gross operational inefficiencies where exhorbitant costs can be passed on to end borrowers because they are desperate and need a loan and have no alternatives. Interest rates are set at a high level because there are no competitors to force them to drop their prices. As I mentioned, the Credit Unions have been very successful attracting Compartamos clients where they are in the same community, but we don't target this niche. Compartamos is built on a one product model: working capital loans which represent 88% of their portfolio. That hardly seems like innovation to me! I believe the answer to Anuj's call for ethical microfinance is being carried out by Chuck Waterfield's MF Transparency. It is a great idea whose time has come! Consumer Protection is much needed in this industry, and I must confess I find it most curious and imponderable that Accion has taken up this cause, in view of the Compartamos pricing model. The new chairman of the Board of Compartamos is Alvaro Rodriguez, who is a former chairman of Accion, so it will be interesting to see if he will choose profit over protection during his term. Finally, Garrett's dream for a Gobal Credit Union is a concept we have discussed at WOCCU, but have concluded that it is really not feasible for a variety of reasons. One interesting and forceful lesson that Credit Unions in America have learned in the current financial crisis is this: The farther away we move from our local borrowers, seeking alternative investments, the higher the risk. Finally, credit unions and cooperatives that mobilize savings always seem to have an abundance of liquidity to invest... there is no need for high priced equity capital or for IPO's that only make the original stockholders very wealthy, while most everyone else ends up with the short end of the stick. Dave Richardson WOCCU --- In MicrofinancePractice@..., "Vineet" <vrai@...> wrote: > > > > Dear Dave > > > > Investing in a debt instrument to get a lower return is the right thing to > do but comparing your returns with Accion International investment is wrong. > Your conclusion about how much did you pay is right but why did u pay higher > and when you pay lower. Accion took risk when it invested US $ 1 Million and > offcourse the amount of money they made is obscene to be honest however they > did not make it by wrong means. They took the risk and it paid off, equity > is a risk and reward tool and not a tool for safe investing ( like you do in > a credit union) - If you are a low risk investor in equity, you should feel > happy if u get a 20% IRR over 3-7 year horizon and you should never spend > time comparing how much the early stage investor in the unlisted company > made ( their cost of investing and managing the investment is also very > different from your passive investing) > > > > It is important from a lay man perspective to understand that equity are > risky and if u are investing in IPO you would normally pay much higher then > what a investor in unlisted entity would pay. I would give u an example in > India - the best MFI in India are looking at 10 times forward profit at mid > year assessment as their value, while most companies on Indian stock > exchange are trading at 17-18 times PE. Most investors are completely > shocked at the 10 times forward PE being paid in private deals ( these are > considered expensive investments) however if u are a late stage investor and > you are confident that at the time of listing you would get a 18 PE, you may > be excited by the fact that you would double your money in 1-2 year time or > may be quadruple - but a very early stage investor ( like Accion) may have > invested at 1 X book value or may be 1.5 X book value which may be less than > the 1X Profits of the company > > > > Equity is complex play and hence one must participate only if you realize > you may lose all your money due to the risks involved and have the capacity > to live with that risk > > > > vineet > > > > > > > > > > > > <http://groups.yahoo.com/group/MicrofinancePractice/message/11283;_ylc=X3oDM > TJyNmM1YW1xBF9TAzk3MzU5NzE1BGdycElkAzMyNDAyNjQEZ3Jwc3BJZAMxNzA1MDAxMjQyBG1zZ > 0lkAzExMjgzBHNlYwNkbXNnBHNsawN2bXNnBHN0aW1lAzEyNTYxMjUyODM-> Compartamos > Results in Mexico > > > Posted by: "cubeliever" > <mailto:dcrcu@...?Subject=%20Re%3ACompartamos%20Results%20in%20Mexico> > dcrcu@... <http://profiles.yahoo.com/cubeliever> cubeliever > > > Tue Oct 20, 2009 8:17 pm (PDT) > > > > > > Greetings to All: > > Barbara Magnoni's post on the recent performance of Compartamos has finally > compelled me to share my own analysis of the performance of Compartamos > since the April, 2007 IPO. I have no reason to question her quick read for > the Q3 of 2009 and it sounds like she is a very happy stockholder. I must > caution, however, that I seriously doubt all stockholders are as happy with > their investment. at least those who bought shares after the IPO. The key > question is HOW MUCH DID YOU PAY for your shares? > > I hope I don't bore you with what follows. I apologize for its length: > > If you look at the performance of the Compartamos stock, the initial > offering price was 40 pesos per share in April, 2007. It then peaked at > 68.90 pesos on July 9, 2007, and then the stock started a continuous > downhill slide to November 24, 2008 when it bottomed out at a paltry 17.10 > pesos per share. It has then started a continuous recovery and today, the > price hovers around 50 pesos per share, however, it has only risen above the > initial offering price of 40 pesos since July of this year. If Barbara > bought the stock back last November, she would have tripled her money in 11 > months! If she was one of those who paid 50+ pesos per share, her yield > would be less than zero, if you consider inflation and the time value of > money. Another interesting tidbit is that in a Wall Street article during > July, 2009, Banamex was recommending to its clients to SELL Compartamos > stock. Perhaps Barbara is willing to tell us when she bought her shares and > at what price and the mystery will be unfolded! > > But there is more to Compartamos than the stock price. I have looked at the > financial performance of Compartamos over the past two years and have read > the footnotes of the audited financial statements for 2007 and 2008. I don't > normally get too excited about quarterly results, preferring to focus on the > year end figures, because they seem to provide a clearer picture. I made my > own adjustments independent of anyone else, and plugged them into my PEARLS > monitoring system database and came up with some interesting conclusions, > both good and bad. > > From year end 2006-2008, there have been several good things: > > Total Assets grew 153% > Total Clients grew 87% > Operating Expense ratio has dropped from 29.79% to 26.84% > Loan Portfolio Interest Rates have dropped from 87.2% to 76.7% > > However, there have also been some very troubling signs. > > Loan Delinquencies have risen from 1.13% to 1.71% (peaking at 2.69% in 2007) > Loan Charge-offs have tripled from .57% to 1.55% > Loan to Asset Ratio has plummeted from 87.6 to 67.6% > > And as a result of these changes. > > ROA (after dividends) has dropped from 17.09% to 12.72% > ROE (return on institutional capital - what increases the book value of your > shares) has fallen from 82.75% to 45.86% > > Furthermore, I was most dismayed to see that Compartamos apparently has > "thrown in the towel" on savings. They had NO savings deposits as of > 12/31/08. a curious result given that one of the main reasons for their > conversion to a Bank was supposedly to capture savings. As late as last > month, it was announced that Banamex disbursed the second tranche of long > term debt ($75 million USD at 200 bps over the interbank rate) to > Compartamos (Check it out: > <http://finance.yahoo.com/news/CitiBanamex-Places-bw-3339028293.html?x=0&.v= > 1> > http://finance.yahoo.com/news/CitiBanamex-Places-bw-3339028293.html?x=0&.v=1 > ). If the LIBOR rate is used, that could mean a financing cost of 8-10% in > hard currency. WOCCU is working with 55 credit unions in Mexico in rural > areas that as of 12/31/08 had mobilized $2 billion USD dollars of savings at > an average cost of 5.04% in local currency. Perhaps someone from Compartamos > can enlighten us on their decision to abandon savings? > > Finally, the issue of cash dividends and investor yields continues to amaze > me. > > In May, 2008, a record dividend was announced of 218,196,807 pesos or 51 > cents a share. This is about $20.9 million USD at 10.43 exchange rate. In > May, 2009 another record dividend of 278,449,103 pesos or 67 cents per share > was announced. This is about the same amount in dollars as last year (20.88 > million at a 13.3 exchange rate - peso devalued 27% over one year). If you > do a "forensic dividend analysis", looking at what each stockholder paid for > their shares, you come away with some shocking disparities. For example: > > 1. Accion International originally invested $1.0 Million USD of donor money > into Compartamos and then sold 50% of their shares for approximately $135 > million in April, 2007. Based on their own documentation, they were left > with a 9.03% ownership in the shares. Simple math shows that Accion has > received $1.8 million per year in dividends ($3.6 million total return) on > their remaining investment of $500,000, or, 277% per year!! Not a bad return > amidst the doom and gloom of the U.S. Stock Market!! I could go on with the > other original stockholders, but you get the point. > > 2. The initial outside investors who bought Compartamos shares for 40 pesos > per share, or $3.64 USD per share had a very different result. The dividend > rate per share for them, converted to dollars, was a unimpressive $.048 > cents USD per share. If you paid $3.64 per share and then received a cash > dividend of 4.8 cents, your dividend would be an astounding 1.3% per year > for two years or a total return of 2.6%. If you had invested your money in a > Mexican credit union, you would have received 4.88% in 2007 and 5.04% in > 2008, or a total return of 9.92%! > > So this long soliloquy leads me to what I said at the beginning. Individual > yields vary depending on HOW MUCH YOU PAY for the stock. > > I can say much more about this case, but my time is up, and I am afraid I > have already abused my allotment. The obvious question I will leave > unanswered for now is whether such high priced equity capital really adds > value to the bottom of the pyramid, particularly when there are many > non-profit MFI's that capture savings deposits and don't sell their equity > to make the rich richer and the poor poorer. > > A Credit Union Investor, > > Dave Richardson > World Council of Credit Unions > > ______________________________________ > From: Development Finance [mailto: <mailto:devfinance%40ag.ohio-state.edu> > devfinance@...] On Behalf Of Barbara Magnoni > Sent: Tuesday, October 20, 2009 7:42 AM > To: Development Finance > Subject: Devfinance: Compartamos results in Mexico > > Just a quick note from a quick read of Compartamos' Q3 2009 results that > were released this morning as I think they have some interesting insights > for the industry. > > In Q3 2009, interest income was up 37% YOY and total portfolio growth was up > 40.2% vs. 36% client growth. Profitability was up 31% despite a decline in > net interest margins of 7%. Compartamos has shown its muscle, and how it has > not lost access to capital despite the crisis. This has allowed them to come > out with solid growth and, to their credit, NPLs have stabilized at around > 2.26% from Q3 2008 despite being above historical levels. Its cost of > funding seems to have increased somewhat, however, and the interesting story > is an improvement in efficiency. From a quick glance at the numbers, they > appear not to have passed this increased cost of funding to their clients. > The decline in net interest margins suggests that Compartamos has maintained > its profitability by working on their "secret sauce" as SKS leader Vik Akula > calls the credit distribution model to reduce the costs of delivering small > loans to the poor. Loan sizes have drifted up slightly, but only slightly > and some of this may be more a reflection of the peso's devaluation than > anything else. Compartamos only expanded two branches in the third quarter > vs. 11 in Q1 2009. This is consistent with Compartamos' strategy to open 20 > branches this year vs. 60 branches per year in prior 6 years. As we > mentioned in our paper " Will the Bottom of the Pyramid Hot Bottom" earlier > this year, a push efficiency is a positive outcome of the crisis. We also > suggested that MFIs would look to savings to fund themselves, as the > availability and cost of credit became less favorable. Compartamos has also > announced a new effort to attract savings, which we hope will help reduce > its cost of funds but also deepen financial inclusion in Mexico. All good > outcomes of the crisis for Compartamos. > > The company's share price has reflected its strong performance. The chart > below shows that since its low, Compartamos (blue line) has outperformed > Mexico's Bolsa Index (red line), which is comprised of Mexico's Blue Chips. > So much for Blue Chips. This is a story of microfinance outperforming, but > not without work, and most likely some pain. > > I am a shareholder of Compartamos, which I should disclose in writing this. > But I am looking at the institution not because I should but because I can. > As a publicly traded company, it is obliged to disclose its performance on a > quarterly basis, giving us insight on trends in Mexico and potentially in > the industry. 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The Case for Profits XXXVI (A Reminder)
by ClementWan
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David Richardson's analysis seems to represent an extreme ideological view (not to mention the ensuing 'discussion' that seems to barely move the meter). I'm reminded of the legal refrain of 'throw everything up on the wall and see what sticks'. Personally, I think it's unfortunate and disservice both to the credit unions he presumably and openly represents but to their clients they serve.
To understand his analysis, one must approach Compartamos's financial results and share performance with the view that everything they do is wrong and self serving and therefore no matter how self contradictory the arguments, 'let's build a case for each'. If they're profitable they're taking advantage of their clients. If they look like they're not profitable or don't pay enough dividends, they're short changing their shareholders. Presumably Richardson is trying to isolate and vilify management and Accion. Somewhere in this 'analysis' Richardson remarkably ignores portfolio growth, client retention and the fact that Compartamos' shares have outperformed their market blaming management for the short term fluctuations of its share price for which they have little control as any novice investor would know. David Richardson buries the lede: "As I mentioned, the Credit Unions have been very successful attracting Compartamos clients where they are in the same community, but we don't target this niche." So if I'm to understand correctly, the organizations Richardson advocates for can't be bothered to offer services for which the demand is so great that clients are willing to pay interest rates that Richardson suggests they can't afford? Must. Resist. Sarcasm. "Compartamos is built on a one product model: working capital loans which represent 88% of their portfolio. That hardly seems like innovation to me!" Are we really to understand that Compartamos's ability to know its market well, isolating the risk of that acknowledged niche, servicing it well enough to the point tens of thousands demand and repeatedly use the service, and doing so at a cost lower than its peers isn't "innovative"? If not, I have no idea what Richardson's motives are here, but if that isn't innovative, in the very least it's doing far more for the poor as Richardson himself acknowledges. Fixation on the financial success of Compartamos without equal if not greater criticism of its comparables who are either less efficient, do not meet the needs of their clients, the working poor, or both speaks less to the character of Compartamos and its investors than that of their critics. Indeed, how can the success of Compartamos be seen as anything but just as much the failure of its critics and competitors? Anuj, I will take my hand at representing the view of a capitalist - a term I do not see as a perjorative anymore than most of us would acknowledge that the poor as clients are profit seeking. Indeed profit seeking where buyers and sellers are willing participants are the height of ethics versus the third party values on that transaction you appear to seek to impose. What possible relevance is the profitability of either the buyer or the seller to the ethics of the transaction when both have entered into the agreement willingly? To a service, I might add, that would not otherwise be available. How can the entire markets not be seen as better off given the introduction of a service that previously did not exist? In this context - ie where goods exchange hands willingly and freely, does it not seem silly to characterize profits/any profits as "extreme"? I note that further that those who criticize Compartamos often refuse to acknowledge the relationship between its profitability and its growth rate in its ability to service greater number of clients. To Srinivasan - if high interest rates are a direct result to the profitability achieved, this does not explain its level of growth relative to its competitors. How do you reconcile this view of the working poor that microfinance services? Do you see them as unable to navigate the complexities of finance but more than able to to have the flexibility to spend the resulting funds as they see fit? Those who suggest they seek to impose ethics through arbitrary restrictions are really just saying they seek to impose their own personal values on others. I have difficulty in seeing how this is not insulting to the poor who most of you supposedly seek to empower. What's the logic here? We want them to be empowered to make their own economic decisions within the bounds of what some arbitrary third party deems appropriate? Instead of the recurring and seething condescension that impugn the integrity of both Accion, Compartamos and their respective supporters, I wonder how it will be before critics of Compartamos see their own inadequacies and stop projecting it on firms that should be both commended and celebrated. Best regards, Clement Wan (A CUAgnostic) |
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Re: The Case for Profits XXXVI (A Reminder)
by Peter Burgess-2
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Dear Colleagues
I have followed Clement Wan's arguments for a good number of years ... and while some of the ideas are compatible with my own thinking, his end conclusions usually leave me gravely concerned. In the analysis of society that I advocate, profit has an important place ... but so also does value. If my profit is derived from my effort and my innovation without doing environmental damage, I would argue that the more profit the better. On the other hand, if the profit is derived from the effort of others ... or from the consumption of the intrinsic value of the environment ... then profit is a detriment to society. These ideas are, it seems to me, fundamental to a clear understanding of the recent financial bubble and the economic implosion ... as well as to a clear understanding of the good and the bad of the Compartamos IPO. I am of the view that the world's stock of financial capital needs to be mobilized to do good things ... to help create sustainable prosperity for society ... and there is no reason at all why a market mechanism should not be used to allocate resources in an optimum way ... but it should be a market mechanism that has both profit (that is: reward for capital) and value adding ... not just profit. Value adding ... the idea of surplus production ... the idea of not wrecking the environment ... is more important in the long run than the money flow profit. Profit ... as we have seen in the recent economic debacle seems to be a function of how numbers are moved round an economic model ... and this sort of profit will sustain nothing. On the other hand value adding ... where resources are used to create things that improve quality of life and the future of society may be the foundation for a fantastic future. In my view, value adding that improves quality of life should be the key measure for the financial markets and policy makers. This key paradigm shift is critical to socio-economic performance ... and not really very difficult to implement. Sincerely Peter Burgess ___________ Peter Burgess Tr-Ac-Net Inc ... The Transparency and Accountability Network Community Analytics (CA) Integrated Malaria Management (IMM) Microfinance Focus Magazine in New York website: www.tr-ac-net.org tel: 917 432 1191 or 212 772 6918 or 212 744 6469 email: peterbnyc@... skype: peterburgessnyc Books: Search Peter Burgess at www.lulu.com [Non-text portions of this message have been removed] |
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Re: The Case for Profits XXXVI (A Reminder)
by ClementWan
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Peter,
To be clear, are you saying that the profit achieved by Compartamos, and indeed any microfinance institution is profit "derived from the effort of others" and is therefore "bad"? If this is the case, and the biggest differentiating factor between that of Compartamos and its competitors is its profitability are you saying that it is Compartamos's profitability that makes it "bad"? Would it have been more "moral" for Compartamos to have lent at lower interest rates but in doing so ensuring fewer people had access to its services? Now in the case of "value adding" - is it then your position that you would regulate or have microfinance institutions make a moral decision as to what firms borrowers can create or grow based on some "quality of life measure"? Or perhaps funds should be examined and regulated further? Should the profitability of clients also be therefore regulated or examined such that at some point, some level of profitability must therefore be deemed excessive on the backs of others? Who I wonder should define what adds to quality of life? If this is easy to implement, perhaps you could begin by defining how these definitions get decided. One of the beauties of markets is that buyers make that choice themselves - and in this, transparency is key (though I have my doubts that it need be regulated to be achieved). If anything, this recent collapse in the market shows how the intervention of policy makers can go awry (e.g. Fannie Mae, Freddie Mac, Federal Reserve's unsustainably low interest rates, redefined CRA and regulated oligopoly of ratings agencies). Thanks, Clement Wan |
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Re: The Case for Profits XXXVI (A Reminder)
by N. Srinivasan
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Dear Clement,
I refer to the following that you had posted "How do you reconcile this view of the working poor that microfinance services? Do you see them as unable to navigate the complexities of finance but more than able to to have the flexibility to spend the resulting funds as they see fit? Those who suggest they seek to impose ethics through arbitrary restrictions are really just saying they seek to impose their own personal values on others. I have difficulty in seeing how this is not insulting to the poor who most of you supposedly seek to empower. What's the logic here? We want them to be empowered to make their own economic decisions within the bounds of what some arbitrary third party deems appropriate? "The basis of customer protection laws in all economies is that markets do not behave rationally and market conduct of certain types of players should be controlled. I do not know whether public policy that seeks to prevent predatory behaviour is bad. If customers are all empowered then there is no basis for any customer protection law. It is neither arbitrary nor a personal value being imposed on others. The request to the sector is not profiteer from a market condition where people are desperate for funds. From the context of the poor it is not at all insulting to try to get loans at a lower effective rate, especially if the operations are supported by public funds. I would like see someone willing to pay 120% interest on credit card dues and feel empowered. Or may be pay 90% on a loan taken for treatment of a sick child and feel happy even when the family skips a meal next six months as a result. Such statements, I believe, lack sensitivity and understanding of the plight of the poor. We should not miss the fact that most economic decisions taken by the poor are not out of a host of choices available. Almost without exception these are decisions that are forced on them by their lack of access and lack of information. Let us not offer perfect market theories where no such markets exist. Regardless of what you might hold as the ultimate truth there are lots of us who have this nagging personal value (and we are not ashamed of wearing it on our sleeve) that customers, especially the poor ones, deserve a better deal. Those who serve the poor, should make a profit - not a fortune. Institutions that serve the poor should be sustainable so that they can continue to operate - but not build private empires while their customers continue to languish.I know that what I have written will not make any difference to your values. So is the case with me. With this being the position, I suggest that we do not continue this debate any further. Best regardsSrinivasan --- On Sat, 24/10/09, ClementWan <clementwan@...> wrote: From: ClementWan <clementwan@...> Subject: [MFP] The Case for Profits XXXVI (A Reminder) To: MicrofinancePractice@... Date: Saturday, 24 October, 2009, 8:32 AM David Richardson's analysis seems to represent an extreme ideological view (not to mention the ensuing 'discussion' that seems to barely move the meter). I'm reminded of the legal refrain of 'throw everything up on the wall and see what sticks'. Personally, I think it's unfortunate and disservice both to the credit unions he presumably and openly represents but to their clients they serve. To understand his analysis, one must approach Compartamos' s financial results and share performance with the view that everything they do is wrong and self serving and therefore no matter how self contradictory the arguments, 'let's build a case for each'. If they're profitable they're taking advantage of their clients. If they look like they're not profitable or don't pay enough dividends, they're short changing their shareholders. Presumably Richardson is trying to isolate and vilify management and Accion. Somewhere in this 'analysis' Richardson remarkably ignores portfolio growth, client retention and the fact that Compartamos' shares have outperformed their market blaming management for the short term fluctuations of its share price for which they have little control as any novice investor would know. David Richardson buries the lede: "As I mentioned, the Credit Unions have been very successful attracting Compartamos clients where they are in the same community, but we don't target this niche." So if I'm to understand correctly, the organizations Richardson advocates for can't be bothered to offer services for which the demand is so great that clients are willing to pay interest rates that Richardson suggests they can't afford? Must. Resist. Sarcasm. "Compartamos is built on a one product model: working capital loans which represent 88% of their portfolio. That hardly seems like innovation to me!" Are we really to understand that Compartamos' s ability to know its market well, isolating the risk of that acknowledged niche, servicing it well enough to the point tens of thousands demand and repeatedly use the service, and doing so at a cost lower than its peers isn't "innovative" ? If not, I have no idea what Richardson's motives are here, but if that isn't innovative, in the very least it's doing far more for the poor as Richardson himself acknowledges. Fixation on the financial success of Compartamos without equal if not greater criticism of its comparables who are either less efficient, do not meet the needs of their clients, the working poor, or both speaks less to the character of Compartamos and its investors than that of their critics. Indeed, how can the success of Compartamos be seen as anything but just as much the failure of its critics and competitors? Anuj, I will take my hand at representing the view of a capitalist - a term I do not see as a perjorative anymore than most of us would acknowledge that the poor as clients are profit seeking. Indeed profit seeking where buyers and sellers are willing participants are the height of ethics versus the third party values on that transaction you appear to seek to impose. What possible relevance is the profitability of either the buyer or the seller to the ethics of the transaction when both have entered into the agreement willingly? To a service, I might add, that would not otherwise be available. How can the entire markets not be seen as better off given the introduction of a service that previously did not exist? In this context - ie where goods exchange hands willingly and freely, does it not seem silly to characterize profits/any profits as "extreme"? I note that further that those who criticize Compartamos often refuse to acknowledge the relationship between its profitability and its growth rate in its ability to service greater number of clients. To Srinivasan - if high interest rates are a direct result to the profitability achieved, this does not explain its level of growth relative to its competitors. How do you reconcile this view of the working poor that microfinance services? Do you see them as unable to navigate the complexities of finance but more than able to to have the flexibility to spend the resulting funds as they see fit? Those who suggest they seek to impose ethics through arbitrary restrictions are really just saying they seek to impose their own personal values on others. I have difficulty in seeing how this is not insulting to the poor who most of you supposedly seek to empower. What's the logic here? We want them to be empowered to make their own economic decisions within the bounds of what some arbitrary third party deems appropriate? Instead of the recurring and seething condescension that impugn the integrity of both Accion, Compartamos and their respective supporters, I wonder how it will be before critics of Compartamos see their own inadequacies and stop projecting it on firms that should be both commended and celebrated. Best regards, Clement Wan (A CUAgnostic) From cricket scores to your friends. Try the Yahoo! India Homepage! http://in.yahoo.com/trynew [Non-text portions of this message have been removed] |
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Re: Re: The Case for Profits XXXVI (A Reminder)
by Peter Burgess-2
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Dear Clement, Colleagues
From what I understand of the operations of Compartamos, they have been a very successful microfinance operation with rapid growth over a number of years. They were profitable and rather similar to successful microfinance operations in many parts of the world. They borrowed money ... raised equity ... to establish themselves and fund their growth. At some point they "went public" using an IPO in Mexico. The pricing of the equity offered for sale gave equity owners in Comparamos an impressive profit ... and the subsequent rise in the price of Compartamos stock gave equity holders further profits. The money made ... profit ... arising from the stock sales has nothing to do directly with the microfinance operations of Compartamos. These are all stock market related profits ... not much at all to do with the real world. The good thing about being a public company is that Compartamos has access to capital in a way that non-public companies do not. The bad news is that they have to deliver profit growth in order to satisfy the stockmarket expectations and maintain the stock price ... nothing much to do with delivering the maximum of value to their clients. Compartamos has to do a balancing act ... serving their clients in the most appropriate way and earning an adequate profit for their stockholders. This is not impossible ... but it is not easy ... and without adequate socio-economic metrics it is likely that profit will determine behavior much more than value. In the metrics I advocate profit that is derived from others losing value is bad. I am comfortable with high interest rates that are needed to sustain operations in difficult situations ... but very high interest rates to support a profit that is needed to support a high stock market valuation are, in my view, highly undesirable. I am on the record in the past observing that the biggest cost in the modern US economy is the very high profit expected by all the parties in the financial and financing structure of the economy ... profit that derives only from the effort of others ... and in my view bound to crash at some point. Compartamos is, to some extent having to cost "profit" into its operation to sustain its stock price ... not a good situation to be in. Make no mistake ... I want the microfinance sector to be able to grow and to have access to capital ... but the value of this must be well balanced so that microfinance clients benefit and do not merely serve as sources of product that can be securitized by financial intermediaries. Sincerely Peter ___________ Peter Burgess Tr-Ac-Net Inc ... The Transparency and Accountability Network Community Analytics (CA) Integrated Malaria Management (IMM) Microfinance Focus Magazine in New York website: www.tr-ac-net.org tel: 917 432 1191 or 212 772 6918 or 212 744 6469 email: peterbnyc@... skype: peterburgessnyc Books: Search Peter Burgess at www.lulu.com On Sat, Oct 24, 2009 at 2:03 PM, ClementWan <clementwan@...> wrote: > > > Peter, > > To be clear, are you saying that the profit achieved by Compartamos, and > indeed any microfinance institution is profit "derived from the effort of > others" and is therefore "bad"? > > If this is the case, and the biggest differentiating factor between that of > Compartamos and its competitors is its profitability are you saying that it > is Compartamos's profitability that makes it "bad"? Would it have been more > "moral" for Compartamos to have lent at lower interest rates but in doing so > ensuring fewer people had access to its services? > > Now in the case of "value adding" - is it then your position that you would > regulate or have microfinance institutions make a moral decision as to what > firms borrowers can create or grow based on some "quality of life measure"? > Or perhaps funds should be examined and regulated further? Should the > profitability of clients also be therefore regulated or examined such that > at some point, some level of profitability must therefore be deemed > excessive on the backs of others? > > Who I wonder should define what adds to quality of life? If this is easy to > implement, perhaps you could begin by defining how these definitions get > decided. One of the beauties of markets is that buyers make that choice > themselves - and in this, transparency is key (though I have my doubts that > it need be regulated to be achieved). If anything, this recent collapse in > the market shows how the intervention of policy makers can go awry (e.g. > Fannie Mae, Freddie Mac, Federal Reserve's unsustainably low interest rates, > redefined CRA and regulated oligopoly of ratings agencies). > > Thanks, > Clement Wan > [Non-text portions of this message have been removed] |
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Re: The Case for Profits XXXVI (A Reminder)
by ClementWan
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Srivanasan -
I assume you would rather I not impose my values on the choices you make, why would you seek to limit the choices of others? Am I to understand that in the absence of lower interest rates are you not also implying that you'd rather the poor have no choice at all? Or worse, that it'd be more convenient that borrowers would be stuck with fewer choices, higher interest rates and less access - but at least we wouldn't be burdened by an organization like Compartamos that "lacks sensitivity and understanding of the poor"? Like others, you don't address the central point that Compartamos wasn't the only firm charging higher interest rates. So why the isolated condemnation of Compartamos? Why are the other firms in Compartamos's markets not profitable or why at least many clients when presented with a choice still choose higher interest rates with Compartamos? If you're going to suggest that what makes you different is because of your values, shouldn't they at least be consistently applied? I, too, agree that it would be ideal if the clients of microfinance institutions could get cheaper access to credit. As a long time member of this group however, you should recognize that in the absence of other options, the evidence suggests having an option is better than none - http://online.wsj.com/article/SB119388104410378595.html Do you not see a direct relationship between the growth of loan capital - ie the greater access to loans to clients and the profitability of Compartamos? Let me put it another way: do you not see that if Compartamos had lowered interest rates from the outset fewer clients would have been served? You state: "Those who serve the poor, should make a profit - not a fortune." I still fail to see the relevance of profitability let alone the degree of profitability. Compartamos doesn't operate in a vaccuum and for this reason its interest rates have fallen dramatically over the past several years. Again, let's recognize that profitability and revenues/high prices are not the same thing. As you would likely acknowledge, working capital loans, in which Compartamos specializes, generally go to support businesses that serve the poor themselves. In good conscience should you not also be advocating that we also seek to bring transparency/regulate the level of profitability they generate? By your own supposed standard, should we resent or object to clients who themselves make a "fortune" (as many of us know there are)? Interest rates have also fallen consistent with what has happened everywhere else, that sometimes you need to walk before you start to run so to speak. There are many here that pass judgement on Compartamos as if their success was just a forgone conclusion given the interest rates they charged despite the fact that at least many in the same market don't have the same levels of profitability and may not be profitable at all. At least Chuck Waterfield is attempting to do something constructive in calling for greater transparency that will accelerate competition. What the poor need is less naval gazing benefiting no one (except perhaps a few consultants and NGOs and most certainly not the poor), and instead, more effective competitors. Best regards, Clement --- In MicrofinancePractice@..., "N. Srinivasan" <shrin54@...> wrote: > > Dear Clement, > I refer to the following that you had posted "How do you reconcile this view of the working poor that microfinance services? Do you see them as unable to navigate the complexities of finance but more than able to to have the flexibility to spend the resulting funds as they see fit? > Those who suggest they seek to impose ethics through arbitrary restrictions are really just saying they seek to impose their own personal values on others. I have difficulty in seeing how this is not insulting to the poor who most of you supposedly seek to empower. What's the logic here? We want them to be empowered to make their own economic decisions within the bounds of what some arbitrary third party deems appropriate? "The basis of customer protection laws in all economies is that markets do not behave rationally and market conduct of certain types of players should be controlled. I do not know whether public policy that seeks to prevent predatory behaviour is bad. If customers are all empowered then there is no basis for any customer protection law. It is neither arbitrary nor a personal value being imposed on others. The request to the sector is not profiteer from a market condition where people are desperate for funds. From the context > of the poor it is not at all insulting to try to get loans at a lower effective rate, especially if the operations are supported by public funds. > > I would like see someone willing to pay 120% interest on credit card dues and feel empowered. Or may be pay 90% on a loan taken for treatment of a sick child and feel happy even when the family skips a meal next six months as a result. Such statements, I believe, lack sensitivity and understanding of the plight of the poor. We should not miss the fact that most economic decisions taken by the poor are not out of a host of choices available. Almost without exception these are decisions that are forced on them by their lack of access and lack of information. Let us not offer perfect market theories where no such markets exist. > Regardless of what you might hold as the ultimate truth there are lots of us who have this nagging personal value (and we are not ashamed of wearing it on our sleeve) that customers, especially the poor ones, deserve a better deal. Those who serve the poor, should make a profit - not a fortune. Institutions that serve the poor should be sustainable so that they can continue to operate - but not build private empires while their customers continue to languish.I know that what I have written will not make any difference to your values. So is the case with me. With this being the position, I suggest that we do not continue this debate any further. > Best regardsSrinivasan > |
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Re: The Case for Profits XXXVI (A Reminder)
by ClementWan
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Peter -
As you know, I see the pursuit of sustainable profitability itself as perhaps the most relevant socioeconomic measure. I'd agree completely that if unsustainably high prices are a necessary precondition stock market valuations that would be an issue to clients of Compartamos, its shareholders and Compartamos itself. Let me then ask you this however: is the objection the profitability of Compartamos or high interest rates in general? If Compartamos were not profitable but still provided the same services at the same prices albeit with exhorbitantly paid management and bloated staffing levels, would you see this as more acceptable? As I'm sure you're well aware, the choices that are made are often quite a ways from ideal so it can become a question of value preferences. If it's a question of degrees, what becomes acceptable and who decides? Further, it doesn't take much to see that no matter what one thinks of Compartamos's business model, if interest rates had been lower, they would not have had the ability to reach as many borrowers - so do you see this as an acceptable trade off? Or do you disagree with my underlying assumption here that clients can borrow at higher interest rates and still become better off on average? I think you ask the right question however as to why other firms are not growing as quickly and even in the same markets clients still use Compartamos. Compartamos seems as much to be the result of its strategy to reach the working poor as it is about the failure of others in the markets it serves. Best regards, Clement --- In MicrofinancePractice@..., Peter Burgess <peterbNYC@...> wrote: > > Dear Clement, Colleagues > > From what I understand of the operations of Compartamos, they have been a > very successful microfinance operation with rapid growth over a number of > years. They were profitable and rather similar to successful microfinance > operations in many parts of the world. They borrowed money ... raised equity > ... to establish themselves and fund their growth. > > At some point they "went public" using an IPO in Mexico. The pricing of the > equity offered for sale gave equity owners in Comparamos an impressive > profit ... and the subsequent rise in the price of Compartamos stock gave > equity holders further profits. The money made ... profit ... arising from > the stock sales has nothing to do directly with the microfinance operations > of Compartamos. These are all stock market related profits ... not much at > all to do with the real world. > > The good thing about being a public company is that Compartamos has access > to capital in a way that non-public companies do not. The bad news is that > they have to deliver profit growth in order to satisfy the stockmarket > expectations and maintain the stock price ... nothing much to do with > delivering the maximum of value to their clients. Compartamos has to do a > balancing act ... serving their clients in the most appropriate way and > earning an adequate profit for their stockholders. This is not impossible > ... but it is not easy ... and without adequate socio-economic metrics it is > likely that profit will determine behavior much more than value. > > In the metrics I advocate profit that is derived from others losing value is > bad. I am comfortable with high interest rates that are needed to sustain > operations in difficult situations ... but very high interest rates to > support a profit that is needed to support a high stock market valuation > are, in my view, highly undesirable. > > I am on the record in the past observing that the biggest cost in the modern > US economy is the very high profit expected by all the parties in the > financial and financing structure of the economy ... profit that derives > only from the effort of others ... and in my view bound to crash at some > point. Compartamos is, to some extent having to cost "profit" into its > operation to sustain its stock price ... not a good situation to be in. > > Make no mistake ... I want the microfinance sector to be able to grow and to > have access to capital ... but the value of this must be well balanced so > that microfinance clients benefit and do not merely serve as sources of > product that can be securitized by financial intermediaries. > > Sincerely > > Peter > ___________ > Peter Burgess > Tr-Ac-Net Inc ... The Transparency and Accountability Network > Community Analytics (CA) > Integrated Malaria Management (IMM) > Microfinance Focus Magazine in New York > website: www.tr-ac-net.org > tel: 917 432 1191 or 212 772 6918 or 212 744 6469 > email: peterbnyc@... > skype: peterburgessnyc > Books: Search Peter Burgess at www.lulu.com |
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RE: The Case for Profits XXXVI (A Reminder)
by Chuck Waterfield
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Hi Clement,
Maybe you didn't read Srinivasan's email all the way to the end? :) He finished with: "With this being the position, I suggest that we do not continue this debate any further. Best regardsSrinivasan" I can empathize with him. We've had a lot of "same old, same old" on this, and maybe when we are on Round XXXVI (as you put it), and few (if any?) of us have shifted our views on this issue over the past two years, people should have the right to remove themselves from the debate/discussion and get on with other work and responsibilities. The point of my email is to propose that if Srinivasan chooses not to reply to your email, we know why, and I think he has the right to not reply. Speaking of reading-to-the-end, I did start this email response just having read the first paragraph of your reply. I then decided I should actually read to the end of yours, and lo-and-behold, there is a reference to my work with pricing transparency. How funny that I should be writing my first email response to you on MFP in years, when you have just referenced me by name. I do need to say that your reference had nothing to do with my deciding to post, but I do appreciate your mention of our transparency work, just the same. Regards, Chuck Waterfield CEO & Founder, MicroFinance Transparency chuck@... Mobile: +1-(717)-475-6733 Promoting transparent pricing in microfinance -----Original Message----- From: MicrofinancePractice@... [mailto:MicrofinancePractice@...] On Behalf Of ClementWan Sent: Sunday, October 25, 2009 4:53 AM To: MicrofinancePractice@... Subject: Re: [MFP] The Case for Profits XXXVI (A Reminder) Srivanasan - I assume you would rather I not impose my values on the choices you make, why would you seek to limit the choices of others? Am I to understand that in the absence of lower interest rates are you not also implying that you'd rather the poor have no choice at all? Or worse, that it'd be more convenient that borrowers would be stuck with fewer choices, higher interest rates and less access - but at least we wouldn't be burdened by an organization like Compartamos that "lacks sensitivity and understanding of the poor"? Like others, you don't address the central point that Compartamos wasn't the only firm charging higher interest rates. So why the isolated condemnation of Compartamos? Why are the other firms in Compartamos's markets not profitable or why at least many clients when presented with a choice still choose higher interest rates with Compartamos? If you're going to suggest that what makes you different is because of your values, shouldn't they at least be consistently applied? I, too, agree that it would be ideal if the clients of microfinance institutions could get cheaper access to credit. As a long time member of this group however, you should recognize that in the absence of other options, the evidence suggests having an option is better than none - http://online.wsj.com/article/SB119388104410378595.html Do you not see a direct relationship between the growth of loan capital - ie the greater access to loans to clients and the profitability of Compartamos? Let me put it another way: do you not see that if Compartamos had lowered interest rates from the outset fewer clients would have been served? You state: "Those who serve the poor, should make a profit - not a fortune." I still fail to see the relevance of profitability let alone the degree of profitability. Compartamos doesn't operate in a vaccuum and for this reason its interest rates have fallen dramatically over the past several years. Again, let's recognize that profitability and revenues/high prices are not the same thing. As you would likely acknowledge, working capital loans, in which Compartamos specializes, generally go to support businesses that serve the poor themselves. In good conscience should you not also be advocating that we also seek to bring transparency/regulate the level of profitability they generate? By your own supposed standard, should we resent or object to clients who themselves make a "fortune" (as many of us know there are)? Interest rates have also fallen consistent with what has happened everywhere else, that sometimes you need to walk before you start to run so to speak. There are many here that pass judgement on Compartamos as if their success was just a forgone conclusion given the interest rates they charged despite the fact that at least many in the same market don't have the same levels of profitability and may not be profitable at all. At least Chuck Waterfield is attempting to do something constructive in calling for greater transparency that will accelerate competition. What the poor need is less naval gazing benefiting no one (except perhaps a few consultants and NGOs and most certainly not the poor), and instead, more effective competitors. Best regards, Clement --- In MicrofinancePractice@..., "N. Srinivasan" <shrin54@...> wrote: > > Dear Clement, > I refer to the following that you had posted "How do you reconcile this view of the working poor that microfinance services? Do you see them as unable to navigate the complexities of finance but more than able to to have the flexibility to spend the resulting funds as they see fit? > Those who suggest they seek to impose ethics through arbitrary restrictions are really just saying they seek to impose their own personal values on others. I have difficulty in seeing how this is not insulting to the poor who most of you supposedly seek to empower. What's the logic here? We want them to be empowered to make their own economic decisions within the bounds of what some arbitrary third party deems appropriate? "The basis of customer protection laws in all economies is that markets do not behave rationally and market conduct of certain types of players should be controlled. I do not know whether public policy that seeks to prevent predatory behaviour is bad. If customers are all empowered then there is no basis for any customer protection law. It is neither arbitrary nor a personal value being imposed on others. The request to the sector is not profiteer from a market condition where people are desperate for funds. From the context > of the poor it is not at all insulting to try to get loans at a lower effective rate, especially if the operations are supported by public funds. > > I would like see someone willing to pay 120% interest on credit card dues and feel empowered. Or may be pay 90% on a loan taken for treatment of a sick child and feel happy even when the family skips a meal next six months as a result. Such statements, I believe, lack sensitivity and understanding of the plight of the poor. We should not miss the fact that most economic decisions taken by the poor are not out of a host of choices available. Almost without exception these are decisions that are forced on them by their lack of access and lack of information. Let us not offer perfect market theories where no such markets exist. > Regardless of what you might hold as the ultimate truth there are lots of us who have this nagging personal value (and we are not ashamed of wearing it on our sleeve) that customers, especially the poor ones, deserve a better deal. Those who serve the poor, should make a profit - not a fortune. Institutions that serve the poor should be sustainable so that they can continue to operate - but not build private empires while their customers continue to languish.I know that what I have written will not make any difference to your values. So is the case with me. With this being the position, I suggest that we do not continue this debate any further. > Best regardsSrinivasan > ------------------------------------ WARNING! If you hit REPLY, your message will go to the entire listserve, not just the original author!Yahoo! Groups Links [Non-text portions of this message have been removed] |
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Re: The Case for Profits XXXVI (A Reminder)
by ClementWan
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Chuck -
It is not my intention to compel Srivanasan to respond nor do I think I have such an ability. I believe I also made it clear that I too have no interest in debating what my personal values are (ie the case for which he specifically stated he did not want to address), but personally, I have no issue allowing underlying assumptions and facts to continually be challenged. To change one's world view / values is an uncomfortable process and one that I can speak to first hand. Perhaps this is a personal flaw but I certainly don't begrudge anyone for not responding as a result. Discussions on some of these controversial issues often devolve into an echo chamber to those who don't share the same views, and it has been far too easy to demonize markets and economics and most recently Compartamos and its investors/supporters because of their profitability. The irony is that the reality is that those like Compartamos have been far more successful at delivering financial services than many of their competitors. Indeed, this is why I personally suspect Compartamos makes so many uncomfortable. I've pretty much followed on and off this group from its inception, and if I don't misinterpret your views from that time, you generally had no objections to high interest rates (as we both shared the view that they would moderate over time with increased competition and transparency). It is only when it was revealed how astoundingly profitable Compartamos was and the financial success you began making your discomfort known. There are two fundamental issues that I've had in many of these discussions: (1) the selective approach in which Compartamos has been demonized, and (2) not separating the issues of profitability and high interest rates, while sometimes related are hardly inextricably linked as the microfinance industry itself shows. Many have allowed their emotions to overrule the empirical evidence. Why have the open questions of why Compartamos even exists if the alternatives are so much better (and apparently so easy to execute) only now being given voice by Peter Burgess and Jeffrey Ashe? It is quite easy in hindsight to say Compartamos should mobilize savings without recognizing the significant operational changes that need to take place for these things to happen. Indeed the best and fastest growing companies in my limited investing experience have been those who have been highly focused, understand what they do really well and do a lot of that. Further, I myself have been chastened as I used to strongly advocate for finacial instruments like using loan backed securities - a market that we now know basically froze in the absence of trust in the last few years. At the same time, Compartamos's liquidity has allowed it not only not to be impeded but allowed for it to grow during this same period. Instead, we have those like David Richardson who take the approach that there is nothing that Compartamos can do right. Others join in the echo chamber bandying about words and phrases like "obscene profits", "immoral" or unethical while ignoring a number of uncomfortable realities: (a) the fact that Compartamos even exists relative to others who have even struggled to perform in the same markets, and (b) that capital is a limited commodity where Compartamos's profitability has allowed it to serve far more than it otherwise have been able to I do not seek acceptance or absolution here. I'd also like to believe I'm honest enough with myself to divorce your views and ideas from who you are. In this, as I've noted in the past I've had a great deal of respect for what you've done though I have very much disagreed with some of your more recent advocacy/biases but I have no objections and indeed support your successful advocacy for greater transparency as I have done from the beginning of my participation here. I simply wish that there would be more who make the attempt to separate emotion from the facts. The poor to whom we all seek to serve, and a common value that we all share, deserve better. Best regards, Clement Wan --- In MicrofinancePractice@..., "Chuck Waterfield" <waterfield@...> wrote: > > Hi Clement, > > Maybe you didn't read Srinivasan's email all the way to the end? :) > > He finished with: > > "With this being the position, I suggest that we do not continue this debate > any further. > Best regardsSrinivasan" > > I can empathize with him. We've had a lot of "same old, same old" on this, > and maybe when we are on Round XXXVI (as you put it), and few (if any?) of > us have shifted our views on this issue over the past two years, people > should have the right to remove themselves from the debate/discussion and > get on with other work and responsibilities. > > The point of my email is to propose that if Srinivasan chooses not to reply > to your email, we know why, and I think he has the right to not reply. > > Speaking of reading-to-the-end, I did start this email response just having > read the first paragraph of your reply. I then decided I should actually > read to the end of yours, and lo-and-behold, there is a reference to my work > with pricing transparency. How funny that I should be writing my first > email response to you on MFP in years, when you have just referenced me by > name. I do need to say that your reference had nothing to do with my > deciding to post, but I do appreciate your mention of our transparency work, > just the same. > > Regards, > > Chuck Waterfield > CEO & Founder, MicroFinance Transparency > chuck@... Mobile: +1-(717)-475-6733 > Promoting transparent pricing in microfinance > > |
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RE: The Case for Profits XXXVI (A Reminder)
by Chuck Waterfield
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Clement,
I would choose to just follow my policy of not responding to your emails, but you inaccurately state my own beliefs and actions below, so I do need to set the record straight. I'll not comment on anything else in your email. You state: "... if I don't misinterpret your views from that time, you generally had no objections to high interest rates (as we both shared the view that they would moderate over time with increased competition and transparency). It is only when it was revealed how astoundingly profitable Compartamos was and the financial success you began making your discomfort known." That is not a true representation of my views. Ask any one of the 3,000 participants of my "business planning" courses over the past 12 years, and I believe 95% of them would share that I constantly talk about interest rates, transparency, and keeping rates moderate, setting them for sustainability levels and not for "what the market will bear" levels. (I certainly find objectionable the occasional b-school view that we could and should "charge what we can until competition and transparency force us to change your ways.") I wrote a paper on microfinance interest rates 21 years ago. I have followed the topic very, very carefully for all of those years. And I have had severe discomfort with high interest rates for every day of those 21 years. I did not have some sort of "transformation" of views two years ago, which is what I infer from your words. My position is often hard for others to interpret because I don't ever say there is an answer to "what is the market interest rate" (or "what is a fair interest rate") for microfinance. It is all about "the curve". And you can find plenty on that curve at our website, www.mftransparency.org The curve explains so much. Let me explain with a simple example: I personally think that, in a hypothetical market, a 50% interest rate on one product might be "fair" (say it is a $300 loan), but that a much lower 30% interest rate on a $1000 loan would be fair for that size loan. They are both "micro-loans" but they do not, and should not, have the same price. Now, my argument is that when most MFIs are charging 30% on the $1000 loans, and a few are charging a much higher 50% on their $1,000 loans and saying "no big deal.... we're just charging the same rate as some other MFIs" (i.e., the ones making $300 loans) to justify their high prices (which either result in high profits or hide high inefficiencies), that is what I find indefensible. I find it particularly indefensible when that 50% interest rate is hidden behind a cloud of confusing pricing factors (i.e., non-transparency). This is what the price curve shows - each product has a market price, and a micro-loan is not "one product" but many different products (differing not just by loan amount alone, but by many other factors as well). This is why pricing transparency is such a fundamental issue. If clients do not know what they are paying, if MFIs competing with each other do not even really know what the "market price" is and therefore cannot set their prices accordingly, this impedes the ability of the market to work effectively and efficiently. It also creates an environment in which some MFIs can make very high profits by taking advantage of the flawed market. We have government regulation in some countries to enforce transparent pricing, but probably some 90% of the microfinance industry operates without transparent pricing. In summary, yes I am more vocal about pricing over the past two years. Why? The reputation of the industry is at stake. The integrity of the original vision and values of the industry is at stake. The economic well-being of the poor is at stake. My concern has always been there, but it is clearly time to move from concern to action. I am not debating you on the other issues you raise, Clement. I choose not to do that. I am simply responding to the few sentences you wrote that I feel inaccurately portray the history and motivation of my views and actions. Regards, Chuck Waterfield CEO & Founder, MicroFinance Transparency chuck@... Mobile: +1-(717)-475-6733 Promoting transparent pricing in microfinance -----Original Message----- From: MicrofinancePractice@... [mailto:MicrofinancePractice@...] On Behalf Of ClementWan Sent: Sunday, October 25, 2009 9:26 PM To: MicrofinancePractice@... Subject: Re: [MFP] The Case for Profits XXXVI (A Reminder) Chuck - It is not my intention to compel Srivanasan to respond nor do I think I have such an ability. I believe I also made it clear that I too have no interest in debating what my personal values are (ie the case for which he specifically stated he did not want to address), but personally, I have no issue allowing underlying assumptions and facts to continually be challenged. To change one's world view / values is an uncomfortable process and one that I can speak to first hand. Perhaps this is a personal flaw but I certainly don't begrudge anyone for not responding as a result. Discussions on some of these controversial issues often devolve into an echo chamber to those who don't share the same views, and it has been far too easy to demonize markets and economics and most recently Compartamos and its investors/supporters because of their profitability. The irony is that the reality is that those like Compartamos have been far more successful at delivering financial services than many of their competitors. Indeed, this is why I personally suspect Compartamos makes so many uncomfortable. I've pretty much followed on and off this group from its inception, and if I don't misinterpret your views from that time, you generally had no objections to high interest rates (as we both shared the view that they would moderate over time with increased competition and transparency). It is only when it was revealed how astoundingly profitable Compartamos was and the financial success you began making your discomfort known. There are two fundamental issues that I've had in many of these discussions: (1) the selective approach in which Compartamos has been demonized, and (2) not separating the issues of profitability and high interest rates, while sometimes related are hardly inextricably linked as the microfinance industry itself shows. Many have allowed their emotions to overrule the empirical evidence. Why have the open questions of why Compartamos even exists if the alternatives are so much better (and apparently so easy to execute) only now being given voice by Peter Burgess and Jeffrey Ashe? It is quite easy in hindsight to say Compartamos should mobilize savings without recognizing the significant operational changes that need to take place for these things to happen. Indeed the best and fastest growing companies in my limited investing experience have been those who have been highly focused, understand what they do really well and do a lot of that. Further, I myself have been chastened as I used to strongly advocate for finacial instruments like using loan backed securities - a market that we now know basically froze in the absence of trust in the last few years. At the same time, Compartamos's liquidity has allowed it not only not to be impeded but allowed for it to grow during this same period. Instead, we have those like David Richardson who take the approach that there is nothing that Compartamos can do right. Others join in the echo chamber bandying about words and phrases like "obscene profits", "immoral" or unethical while ignoring a number of uncomfortable realities: (a) the fact that Compartamos even exists relative to others who have even struggled to perform in the same markets, and (b) that capital is a limited commodity where Compartamos's profitability has allowed it to serve far more than it otherwise have been able to I do not seek acceptance or absolution here. I'd also like to believe I'm honest enough with myself to divorce your views and ideas from who you are. In this, as I've noted in the past I've had a great deal of respect for what you've done though I have very much disagreed with some of your more recent advocacy/biases but I have no objections and indeed support your successful advocacy for greater transparency as I have done from the beginning of my participation here. I simply wish that there would be more who make the attempt to separate emotion from the facts. The poor to whom we all seek to serve, and a common value that we all share, deserve better. Best regards, Clement Wan --- In MicrofinancePractice@..., "Chuck Waterfield" <waterfield@...> wrote: > > Hi Clement, > > Maybe you didn't read Srinivasan's email all the way to the end? :) > > He finished with: > > "With this being the position, I suggest that we do not continue this debate > any further. > Best regardsSrinivasan" > > I can empathize with him. We've had a lot of "same old, same old" on this, > and maybe when we are on Round XXXVI (as you put it), and few (if any?) of > us have shifted our views on this issue over the past two years, people > should have the right to remove themselves from the debate/discussion and > get on with other work and responsibilities. > > The point of my email is to propose that if Srinivasan chooses not to reply > to your email, we know why, and I think he has the right to not reply. > > Speaking of reading-to-the-end, I did start this email response just having > read the first paragraph of your reply. I then decided I should actually > read to the end of yours, and lo-and-behold, there is a reference to my work > with pricing transparency. How funny that I should be writing my first > email response to you on MFP in years, when you have just referenced me by > name. I do need to say that your reference had nothing to do with my > deciding to post, but I do appreciate your mention of our transparency work, > just the same. > > Regards, > > Chuck Waterfield > CEO & Founder, MicroFinance Transparency > chuck@... Mobile: +1-(717)-475-6733 > Promoting transparent pricing in microfinance > > ------------------------------------ WARNING! If you hit REPLY, your message will go to the entire listserve, not just the original author!Yahoo! Groups Links [Non-text portions of this message have been removed] |
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Re: The Case for Profits XXXVI (A Reminder)
by Murray Gardiner-3
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Dear Clement,
I have been watching this list for years and only occasionally contributed. Usually I skip ideologically myopic libertarian diatribes but your last posting begs a rebuttal. The simple truth is that the free market is not the silver bullet you want to believe it is. Consumers need protection from predatory lending and they need an advocate willing to expose excessive profits made on the back of the good will afforded the microfinance brand. Without a consumer advocate like MFTransparency and the courage of people like Chuck and others the poor are at the mercy of wealthy opportunists who hide behind ideology to rationalise excessive profits. Competition will not correct the imbalance before millions are exploited and billions are made. And that would just be wrong. Murray Gardiner On 09-10-25 9:25 PM, "ClementWan" <clementwan@...> wrote: > > > > > Chuck - > > It is not my intention to compel Srivanasan to respond nor do I think I have > such an ability. I believe I also made it clear that I too have no interest > in debating what my personal values are (ie the case for which he specifically > stated he did not want to address), but personally, I have no issue allowing > underlying assumptions and facts to continually be challenged. To change > one's world view / values is an uncomfortable process and one that I can speak > to first hand. Perhaps this is a personal flaw but I certainly don't begrudge > anyone for not responding as a result. > > Discussions on some of these controversial issues often devolve into an echo > chamber to those who don't share the same views, and it has been far too easy > to demonize markets and economics and most recently Compartamos and its > investors/supporters because of their profitability. The irony is that the > reality is that those like Compartamos have been far more successful at > delivering financial services than many of their competitors. > > Indeed, this is why I personally suspect Compartamos makes so many > uncomfortable. I've pretty much followed on and off this group from its > inception, and if I don't misinterpret your views from that time, you > generally had no objections to high interest rates (as we both shared the view > that they would moderate over time with increased competition and > transparency). It is only when it was revealed how astoundingly profitable > Compartamos was and the financial success you began making your discomfort > known. > > There are two fundamental issues that I've had in many of these discussions: > > (1) the selective approach in which Compartamos has been demonized, and > (2) not separating the issues of profitability and high interest rates, while > sometimes related are hardly inextricably linked as the microfinance industry > itself shows. > > Many have allowed their emotions to overrule the empirical evidence. Why have > the open questions of why Compartamos even exists if the alternatives are so > much better (and apparently so easy to execute) only now being given voice by > Peter Burgess and Jeffrey Ashe? > > It is quite easy in hindsight to say Compartamos should mobilize savings > without recognizing the significant operational changes that need to take > place for these things to happen. Indeed the best and fastest growing > companies in my limited investing experience have been those who have been > highly focused, understand what they do really well and do a lot of that. > Further, I myself have been chastened as I used to strongly advocate for > finacial instruments like using loan backed securities - a market that we now > know basically froze in the absence of trust in the last few years. At the > same time, Compartamos's liquidity has allowed it not only not to be impeded > but allowed for it to grow during this same period. > > Instead, we have those like David Richardson who take the approach that there > is nothing that Compartamos can do right. Others join in the echo chamber > bandying about words and phrases like "obscene profits", "immoral" or > unethical while ignoring a number of uncomfortable realities: > (a) the fact that Compartamos even exists relative to others who have even > struggled to perform in the same markets, and > (b) that capital is a limited commodity where Compartamos's profitability has > allowed it to serve far more than it otherwise have been able to > > I do not seek acceptance or absolution here. I'd also like to believe I'm > honest enough with myself to divorce your views and ideas from who you are. > In this, as I've noted in the past I've had a great deal of respect for what > you've done though I have very much disagreed with some of your more recent > advocacy/biases but I have no objections and indeed support your successful > advocacy for greater transparency as I have done from the beginning of my > participation here. > > I simply wish that there would be more who make the attempt to separate > emotion from the facts. The poor to whom we all seek to serve, and a common > value that we all share, deserve better. > > Best regards, > Clement Wan > > --- In MicrofinancePractice@... > <mailto:MicrofinancePractice%40yahoogroups.com> , "Chuck Waterfield" > <waterfield@...> wrote: >> > >> > Hi Clement, >> > >> > Maybe you didn't read Srinivasan's email all the way to the end? :) >> > >> > He finished with: >> > >> > "With this being the position, I suggest that we do not continue this >> debate >> > any further. >> > Best regardsSrinivasan" >> > >> > I can empathize with him. We've had a lot of "same old, same old" on this, >> > and maybe when we are on Round XXXVI (as you put it), and few (if any?) of >> > us have shifted our views on this issue over the past two years, people >> > should have the right to remove themselves from the debate/discussion and >> > get on with other work and responsibilities. >> > >> > The point of my email is to propose that if Srinivasan chooses not to reply >> > to your email, we know why, and I think he has the right to not reply. >> > >> > Speaking of reading-to-the-end, I did start this email response just having >> > read the first paragraph of your reply. I then decided I should actually >> > read to the end of yours, and lo-and-behold, there is a reference to my >> work >> > with pricing transparency. How funny that I should be writing my first >> > email response to you on MFP in years, when you have just referenced me by >> > name. I do need to say that your reference had nothing to do with my >> > deciding to post, but I do appreciate your mention of our transparency >> work, >> > just the same. >> > >> > Regards, >> > >> > Chuck Waterfield >> > CEO & Founder, MicroFinance Transparency >> > chuck@... Mobile: +1-(717)-475-6733 >> > Promoting transparent pricing in microfinance >> > >> > > > > > >> > > Murray Gardiner > > 47 David Street, Dundas Ontario, Canada L9H 4R8 > mobile: +1 289 921 6576 ~ fixed line: +1 289 238 9920 ~ fax:: +1 298 238 8812 [Non-text portions of this message have been removed] |
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Re: The Case for Profits XXXVI (A Reminder)
by distributedcapital
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I find this dialogue to be rich with intelligence, and extremely valuable to the entire field of Development; and while some of you denizens the forum have been debating this since Compartamos went public, you're not the only members who read and learn here, or who are influenced by what goes on here; so ending it simply bc you've said your piece before is also myopic and to a degree selfish. Leadership is needed all the time, even if you've led the way down a path you yourself have already tread.
Chuck, Srinivasan, you guys are top intellects and the things you write take courage and need to be said-- I enjoy reading your thoughts bc a good part of what you say and think resonates w me and many others. Clement however is equally sharp and courageous, and has many powerful and valid things to say as well and I agree with most of what he writes too. It is a bit of a cop out to just stop engaging Clement or to generalize his commentary as myopic or ideological when the reality of the world plays out closer to his logic than the other ideologies offered here. Chasing him away or hoping to squelch his voice would be a disservice to our shared goal: This forum is the seat of leadership for fighting the fight against Global Poverty, so please don't forget we all come here and participate here bc at heart we believe in the same goal. Allowing the discussion to go emotional and personal blinds everyone to the bigger picture that the 3000 of us here in this forum are more closely aligned together against the bigger gears of Globalization than we are against each other; and we should focus on rare dialogues like this that have such vehement and powerful minds on two sides of an issue, as opportunity to generate solutions that take from both sides, so we push workable programming into the political realm and start making structural change sooner. So for Chuck and Srinivasan to walk away in the heat of discussion is taking the easy way out. The poor need you guys to keep working on reconciling your views with the sound economic logic Clement presents, and to recognize that while you find support and comfort in the protection of other similarly minded people in this forum, the Poor out there in the world get no such protection and can't walk away from what have become the distasteful and in many cases unpalatable side-effects of the dominant way of the world outside this forum that Clement has a very strong grasp of, and which logic happens to be the entrenched rule set that controls most financial capital in the world. So... If we can all step back a moment and recognize how valuable this discussion is to advancing toward our goal, maybe Chuck and Srinivasan can come back and not feel that Clement is taking personal aim at you but is offering a real world's devil's advocacy that might be beneficial, that might offer insight into how to do things better. One major drawback of angry dialogue is that it closes doors instead of opening them. People stop saying, 'what if we tried this', or 'what if we took this idea from here and married it to this one, or injected it into that model'. If we were in elementary school and I was the teacher, I would force Chuck and Srinivasan to partner up w Clement, and tell the three of them to work it out. Elements of both perspectives are right. Don't fall prey to thinking everything has been tried and that the world order is fixed such that we should draw up battle lines and stop evolving the discussion-- if you're saying the same things over and over again, then you've stopped listening and stopped focusing on the goal, and instead have dug-in bc it's more important to you to stand on your soapboxes and be right in your speeches than to permanently reduce global poverty. Innovation happens when your paradigm, your ideas, are challenged fiercely. The future belongs to those who have the persistence to build it, and the presence of mind to realize that it's only buildable if we work together. Zac President & CEO Distributed Capital Group New York Sent via BlackBerry from T-Mobile -----Original Message----- From: "N. Srinivasan" <shrin54@...> Date: Sat, 24 Oct 2009 23:41:54 To: <MicrofinancePractice@...> Subject: Re: [MFP] The Case for Profits XXXVI (A Reminder) Dear Clement, I refer to the following that you had posted "How do you reconcile this view of the working poor that microfinance services? Do you see them as unable to navigate the complexities of finance but more than able to to have the flexibility to spend the resulting funds as they see fit? Those who suggest they seek to impose ethics through arbitrary restrictions are really just saying they seek to impose their own personal values on others. I have difficulty in seeing how this is not insulting to the poor who most of you supposedly seek to empower. What's the logic here? We want them to be empowered to make their own economic decisions within the bounds of what some arbitrary third party deems appropriate? "The basis of customer protection laws in all economies is that markets do not behave rationally and market conduct of certain types of players should be controlled. I do not know whether public policy that seeks to prevent predatory behaviour is bad. If customers are all empowered then there is no basis for any customer protection law. It is neither arbitrary nor a personal value being imposed on others. The request to the sector is not profiteer from a market condition where people are desperate for funds. From the context of the poor it is not at all insulting to try to get loans at a lower effective rate, especially if the operations are supported by public funds. I would like see someone willing to pay 120% interest on credit card dues and feel empowered. Or may be pay 90% on a loan taken for treatment of a sick child and feel happy even when the family skips a meal next six months as a result. Such statements, I believe, lack sensitivity and understanding of the plight of the poor. We should not miss the fact that most economic decisions taken by the poor are not out of a host of choices available. Almost without exception these are decisions that are forced on them by their lack of access and lack of information. Let us not offer perfect market theories where no such markets exist. Regardless of what you might hold as the ultimate truth there are lots of us who have this nagging personal value (and we are not ashamed of wearing it on our sleeve) that customers, especially the poor ones, deserve a better deal. Those who serve the poor, should make a profit - not a fortune. Institutions that serve the poor should be sustainable so that they can continue to operate - but not build private empires while their customers continue to languish.I know that what I have written will not make any difference to your values. So is the case with me. With this being the position, I suggest that we do not continue this debate any further. Best regardsSrinivasan --- On Sat, 24/10/09, ClementWan <clementwan@...> wrote: From: ClementWan <clementwan@...> Subject: [MFP] The Case for Profits XXXVI (A Reminder) To: MicrofinancePractice@... Date: Saturday, 24 October, 2009, 8:32 AM David Richardson's analysis seems to represent an extreme ideological view (not to mention the ensuing 'discussion' that seems to barely move the meter). I'm reminded of the legal refrain of 'throw everything up on the wall and see what sticks'. Personally, I think it's unfortunate and disservice both to the credit unions he presumably and openly represents but to their clients they serve. To understand his analysis, one must approach Compartamos' s financial results and share performance with the view that everything they do is wrong and self serving and therefore no matter how self contradictory the arguments, 'let's build a case for each'. If they're profitable they're taking advantage of their clients. If they look like they're not profitable or don't pay enough dividends, they're short changing their shareholders. Presumably Richardson is trying to isolate and vilify management and Accion. Somewhere in this 'analysis' Richardson remarkably ignores portfolio growth, client retention and the fact that Compartamos' shares have outperformed their market blaming management for the short term fluctuations of its share price for which they have little control as any novice investor would know. David Richardson buries the lede: "As I mentioned, the Credit Unions have been very successful attracting Compartamos clients where they are in the same community, but we don't target this niche." So if I'm to understand correctly, the organizations Richardson advocates for can't be bothered to offer services for which the demand is so great that clients are willing to pay interest rates that Richardson suggests they can't afford? Must. Resist. Sarcasm. "Compartamos is built on a one product model: working capital loans which represent 88% of their portfolio. That hardly seems like innovation to me!" Are we really to understand that Compartamos' s ability to know its market well, isolating the risk of that acknowledged niche, servicing it well enough to the point tens of thousands demand and repeatedly use the service, and doing so at a cost lower than its peers isn't "innovative" ? If not, I have no idea what Richardson's motives are here, but if that isn't innovative, in the very least it's doing far more for the poor as Richardson himself acknowledges. Fixation on the financial success of Compartamos without equal if not greater criticism of its comparables who are either less efficient, do not meet the needs of their clients, the working poor, or both speaks less to the character of Compartamos and its investors than that of their critics. Indeed, how can the success of Compartamos be seen as anything but just as much the failure of its critics and competitors? Anuj, I will take my hand at representing the view of a capitalist - a term I do not see as a perjorative anymore than most of us would acknowledge that the poor as clients are profit seeking. Indeed profit seeking where buyers and sellers are willing participants are the height of ethics versus the third party values on that transaction you appear to seek to impose. What possible relevance is the profitability of either the buyer or the seller to the ethics of the transaction when both have entered into the agreement willingly? To a service, I might add, that would not otherwise be available. How can the entire markets not be seen as better off given the introduction of a service that previously did not exist? In this context - ie where goods exchange hands willingly and freely, does it not seem silly to characterize profits/any profits as "extreme"? I note that further that those who criticize Compartamos often refuse to acknowledge the relationship between its profitability and its growth rate in its ability to service greater number of clients. To Srinivasan - if high interest rates are a direct result to the profitability achieved, this does not explain its level of growth relative to its competitors. How do you reconcile this view of the working poor that microfinance services? Do you see them as unable to navigate the complexities of finance but more than able to to have the flexibility to spend the resulting funds as they see fit? Those who suggest they seek to impose ethics through arbitrary restrictions are really just saying they seek to impose their own personal values on others. I have difficulty in seeing how this is not insulting to the poor who most of you supposedly seek to empower. What's the logic here? We want them to be empowered to make their own economic decisions within the bounds of what some arbitrary third party deems appropriate? Instead of the recurring and seething condescension that impugn the integrity of both Accion, Compartamos and their respective supporters, I wonder how it will be before critics of Compartamos see their own inadequacies and stop projecting it on firms that should be both commended and celebrated. Best regards, Clement Wan (A CUAgnostic) From cricket scores to your friends. Try the Yahoo! India Homepage! http://in.yahoo.com/trynew [Non-text portions of this message have been removed] ------------------------------------ WARNING! If you hit REPLY, your message will go to the entire listserve, not just the original author!Yahoo! Groups Links ------------------------------------ WARNING! If you hit REPLY, your message will go to the entire listserve, not just the original author!Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/MicrofinancePractice/ <*> Your email settings: Individual Email | Traditional <*> To change settings online go to: http://groups.yahoo.com/group/MicrofinancePractice/join (Yahoo! ID required) <*> To change settings via email: mailto:MicrofinancePractice-digest@... mailto:MicrofinancePractice-fullfeatured@... <*> To unsubscribe from this group, send an email to: MicrofinancePractice-unsubscribe@... <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/ |
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Re: The Case for Profits XXXVI (A Reminder)
by ClementWan
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Thanks Zac, Murray and Chuck,
First Chuck - what issues you choose to address have always been your choice. While you seek to make these issues personal I personally do not and hence my repeated attempts at having them addressed and while I think it reflects more poorly on you for that reason but that is both your right and choice. Thank you for correcting me in the misunderstanding of your views. Please forgive my confusion in attempting to understand them as I am probably not alone - or perhaps the issue is that they are too much of a moving target. You state: "My position is often hard for others to interpret because I don't ever say there is an answer to 'what is the market interest rate' (or 'what is a fair interest rate') for microfinance. It is all about 'the curve'." I can understand that there exists a curve, though this does not explain how you can arbitrarily decide what interest rate at a given loan amount is "indefensible". I suppose that's been my discomfort that a third party should be in the position to make that rather subjective decision. As you may or may not be aware, when it comes to pricing, recent research in behavioural economics suggests markets do not require complete transparency or even rationality of all players in order to ultimately settle at the same price a transparently competitive market might have. Please also forgive my confusion in understanding your views given how publicly you have been in specifically villifying Compartamos (and Accion) despite having competitive interest rates. To date, you've not addressed the issue of whether you would accept the consequences of imposed lower interest rates given how "indefensible" you suggest they are - ie if fewer people have access, is this more acceptable than more people having access at higher interest rates? [Don't worry, as per your policy, I am not expecting an answer to what should otherwise be an important question ;)] ----------------------- Murray, please provide some facts to support your views. Alternatively, please help me to understand the following: (1) Assuming you're portraying Compartamos as being part of a cabal of "wealthy opportunists", without lower interest rate loans, is it them your position that their clients would be better served if they didn't have access to Compartamos at all? (2) Why have others not replaced Compartamos in this time since their inception if lower interest rates at various points on what Chuck calls the "curve" have been as viable as you seem to suggest? (3) Interested in commenting on this? http://online.wsj.com/article/SB119388104410378595.html: "We worked with a successful finance company in South Africa to randomly choose some just-below-the-normal-approval-bar applicants to receive a four-month installment loan. The lender charged its normal rate: 200% APR. The remaining, just-below-the-normal-approval-bar applicants (the "control group") were rejected in line with the lender's normal credit policy." "We then tracked both groups over the next six to 27 months, measuring their well-being based on a range of economic, social, health and mental health measures. Applicants who were randomly approved for a loan had higher incomes, less hunger, better credit scores and more positive outlooks than their control group counterparts -- even after paying the high interest rate. Though they had higher than normal default rates, the borderline loans were also profitable for the lender." ----------------------- Zac - Thanks for your kind words. I would have no problem actively considering the merits of any argument but as is the case with Srivanasan's comments, there are those like Chuck and Srivanasan who view this as a debate of values where empiricism and facts have no place. I think the best we could seek to do would be to agree on the facts and let others come to their own conclusions. I'm very glad however to hear there are those like Peter Burgess and Jeffrey Ashe who at least have the decency in asking how other institutions have performed in the same markets as Compartamos relative to Compartamos as this seems like a reasonable starting point. I can both understand and respect why others would cling to a given world view. It is however my sincere hope and belief that things will continue to get better. As Chuck himself said, the time for words is past, and it's action that the poor need. This has been happening already. Despite what Chuck suggests is "90% of the microfinance industry operat[ing] without transparent pricing", prices continue to fall at every point on the curve with competition and without absolute transparency as can be quite easily seen in the financial reporting from Compartamos. This is a good thing. As I have also said in the past, these will be pivotal years for microfinance where risk seeking capital will overwhelm social capital. The caveat must be also that those who see no need to compete based on price and/or serve their clients fanatically can and will ultimately fail and this too is a good thing if one seeks first and foremost better economic opportunities for the poor. Best regards, Clement --- In MicrofinancePractice@..., distributedcapital@... wrote: > > I find this dialogue to be rich with intelligence, and extremely valuable to the entire field of Development; and while some of you denizens the forum have been debating this since Compartamos went public, you're not the only members who read and learn here, or who are influenced by what goes on here; so ending it simply bc you've said your piece before is also myopic and to a degree selfish. Leadership is needed all the time, even if you've led the way down a path you yourself have already tread. > > Chuck, Srinivasan, you guys are top intellects and the things you write take courage and need to be said-- I enjoy reading your thoughts bc a good part of what you say and think resonates w me and many others. Clement however is equally sharp and courageous, and has many powerful and valid things to say as well and I agree with most of what he writes too. > > It is a bit of a cop out to just stop engaging Clement or to generalize his commentary as myopic or ideological when the reality of the world plays out closer to his logic than the other ideologies offered here. Chasing him away or hoping to squelch his voice would be a disservice to our shared goal: > > This forum is the seat of leadership for fighting the fight against Global Poverty, so please don't forget we all come here and participate here bc at heart we believe in the same goal. Allowing the discussion to go emotional and personal blinds everyone to the bigger picture that the 3000 of us here in this forum are more closely aligned together against the bigger gears of Globalization than we are against each other; and we should focus on rare dialogues like this that have such vehement and powerful minds on two sides of an issue, as opportunity to generate solutions that take from both sides, so we push workable programming into the political realm and start making structural change sooner. > > So for Chuck and Srinivasan to walk away in the heat of discussion is taking the easy way out. The poor need you guys to keep working on reconciling your views with the sound economic logic Clement presents, and to recognize that while you find support and comfort in the protection of other similarly minded people in this forum, the Poor out there in the world get no such protection and can't walk away from what have become the distasteful and in many cases unpalatable side-effects of the dominant way of the world outside this forum that Clement has a very strong grasp of, and which logic happens to be the entrenched rule set that controls most financial capital in the world. > > So... If we can all step back a moment and recognize how valuable this discussion is to advancing toward our goal, maybe Chuck and Srinivasan can come back and not feel that Clement is taking personal aim at you but is offering a real world's devil's advocacy that might be beneficial, that might offer insight into how to do things better. > > One major drawback of angry dialogue is that it closes doors instead of opening them. People stop saying, 'what if we tried this', or 'what if we took this idea from here and married it to this one, or injected it into that model'. If we were in elementary school and I was the teacher, I would force Chuck and Srinivasan to partner up w Clement, and tell the three of them to work it out. Elements of both perspectives are right. > > Don't fall prey to thinking everything has been tried and that the world order is fixed such that we should draw up battle lines and stop evolving the discussion-- if you're saying the same things over and over again, then you've stopped listening and stopped focusing on the goal, and instead have dug-in bc it's more important to you to stand on your soapboxes and be right in your speeches than to permanently reduce global poverty. Innovation happens when your paradigm, your ideas, are challenged fiercely. > > The future belongs to those who have the persistence to build it, and the presence of mind to realize that it's only buildable if we work together. > > Zac > President & CEO > Distributed Capital Group > New York > Sent via BlackBerry from T-Mobile > |
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Re: The Case for Profits XXXVI (A Reminder)
by Murray Gardiner-3
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Dear Zac,
It was me who used the term ideologically myopic. Why? People should declare their politics. Clement introduced the concept of "world view" which is code for politics. Judging from his postings I hazard to suggest he presents (to me) a right wing libertarian free market 'worldview' of microfinance. I find that people who espouse this position consistently over the years, with lengthy repetitive postings, cannot be dissuaded with fact or contradiction. I approach the analysis of microfinance from a democratic socialist worldview. I believe in democratic principles and I am a strong advocate of cooperative development and cooperative principles being part of any local economic development solution. I think workers and consumers should have a right to participate in the decision making process along with capital. The mantra of microfinance philosophy for the past 20 years has shifted to the right, away from the social NGO model toward a free market extreme. The institutional donors and investors are the major league players in defining intervention strategy. The culture of these institutions has aligned strongly with the private sector with little or no consideration for the empowerment of the consumer in the business of microfinance. The libertarian view is that the capitalist system of resource allocation (in financial services in particular) can and will work for the poor, even thought it is so painfully obvious it does not work for the poor and middle class of its greatest experiment, the USA. Then in forums like this we hear advocates of the extreme free market view people like Clement go unopposed, or abandoned in frustration. Then the challenger is berated. Finally, back to the trigger for the initial discussion; I do believe that usury is the willing and informed exploitation of the poor by an informed and financially powerful money trader. It is not 'clever' or 'sophisticated' to exploit the poor, even if libertarian capitalist ideology provides a cloak for the moral hazard. This moral hazard is presented by the power and information disparity in the transaction between the parties. Arguing a moral high ground for exploitation is not benign or simply puerile, it is in this instance immoral. Sincerely, Murray Gardiner On 09-10-25 11:46 PM, "distributedcapital@..." <distributedcapital@...> wrote: > I find this dialogue to be rich with intelligence, and extremely valuable to > the entire field of Development; and while some of you denizens the forum have > been debating this since Compartamos went public, you're not the only members > who read and learn here, or who are influenced by what goes on here; so ending > it simply bc you've said your piece before is also myopic and to a degree > selfish. Leadership is needed all the time, even if you've led the way down a > path you yourself have already tread. Chuck, Srinivasan, you guys are top > intellects and the things you write take courage and need to be said-- I enjoy > reading your thoughts bc a good part of what you say and think resonates w me > and many others. Clement however is equally sharp and courageous, and has > many powerful and valid things to say as well and I agree with most of what he > writes too. It is a bit of a cop out to just stop engaging Clement or to > generalize his commentary as myopic or ideological when the reality of the > world plays out closer to his logic than the other ideologies offered here. > Chasing him away or hoping to squelch his voice would be a disservice to our > shared goal: This forum is the seat of leadership for fighting the fight > against Global Poverty, so please don't forget we all come here and > participate here bc at heart we believe in the same goal. Allowing the > discussion to go emotional and personal blinds everyone to the bigger picture > that the 3000 of us here in this forum are more closely aligned together > against the bigger gears of Globalization than we are against each other; and > we should focus on rare dialogues like this that have such vehement and > powerful minds on two sides of an issue, as opportunity to generate solutions > that take from both sides, so we push workable programming into the political > realm and start making structural change sooner. So for Chuck and Srinivasan > to walk away in the heat of discussion is taking the easy way out. The poor > need you guys to keep working on reconciling your views with the sound > economic logic Clement presents, and to recognize that while you find support > and comfort in the protection of other similarly minded people in this forum, > the Poor out there in the world get no such protection and can't walk away > from what have become the distasteful and in many cases unpalatable > side-effects of the dominant way of the world outside this forum that Clement > has a very strong grasp of, and which logic happens to be the entrenched rule > set that controls most financial capital in the world. So... If we can all > step back a moment and recognize how valuable this discussion is to advancing > toward our goal, maybe Chuck and Srinivasan can come back and not feel that > Clement is taking personal aim at you but is offering a real world's devil's > advocacy that might be beneficial, that might offer insight into how to do > things better. One major drawback of angry dialogue is that it closes doors > instead of opening them. People stop saying, 'what if we tried this', or > 'what if we took this idea from here and married it to this one, or injected > it into that model'. If we were in elementary school and I was the teacher, I > would force Chuck and Srinivasan to partner up w Clement, and tell the three > of them to work it out. Elements of both perspectives are right. Don't fall > prey to thinking everything has been tried and that the world order is fixed > such that we should draw up battle lines and stop evolving the discussion-- if > you're saying the same things over and over again, then you've stopped > listening and stopped focusing on the goal, and instead have dug-in bc it's > more important to you to stand on your soapboxes and be right in your speeches > than to permanently reduce global poverty. Innovation happens when your > paradigm, your ideas, are challenged fiercely. The future belongs to those > who have the persistence to build it, and the presence of mind to realize that > it's only buildable if we work together. Zac President & CEO Distributed > Capital Group New York > Sent via BlackBerry from T-Mobile > > -----Original Message----- > From: "N. Srinivasan" <shrin54@...> > Date: Sat, 24 Oct 2009 23:41:54 > To: <MicrofinancePractice@...> > Subject: Re: [MFP] The Case for Profits XXXVI (A Reminder) > > Dear Clement, > I refer to the following that you had posted "How do you reconcile this view > of the working poor that microfinance services? Do you see them as unable to > navigate the complexities of finance but more than able to to have the > flexibility to spend the resulting funds as they see fit? > Those who suggest they seek to impose ethics through arbitrary restrictions > are really just saying they seek to impose their own personal values on > others. I have difficulty in seeing how this is not insulting to the poor who > most of you supposedly seek to empower. What's the logic here? We want them to > be empowered to make their own economic decisions within the bounds of what > some arbitrary third party deems appropriate? "The basis of customer > protection laws in all economies is that markets do not behave rationally and > market conduct of certain types of players should be controlled. I do not > know whether public policy that seeks to prevent predatory behaviour is bad. > If customers are all empowered then there is no basis for any customer > protection law. It is neither arbitrary nor a personal value being imposed on > others. The request to the sector is not profiteer from a market condition > where people are desperate for funds. From the context > of the poor it is not at all insulting to try to get loans at a lower > effective rate, especially if the operations are supported by public funds. > > I would like see someone willing to pay 120% interest on credit card dues and > feel empowered. Or may be pay 90% on a loan taken for treatment of a sick > child and feel happy even when the family skips a meal next six months as a > result. Such statements, I believe, lack sensitivity and understanding of the > plight of the poor. We should not miss the fact that most economic decisions > taken by the poor are not out of a host of choices available. Almost without > exception these are decisions that are forced on them by their lack of access > and lack of information. Let us not offer perfect market theories where no > such markets exist. > Regardless of what you might hold as the ultimate truth there are lots of us > who have this nagging personal value (and we are not ashamed of wearing it on > our sleeve) that customers, especially the poor ones, deserve a better deal. > Those who serve the poor, should make a profit - not a fortune. Institutions > that serve the poor should be sustainable so that they can continue to operate > - but not build private empires while their customers continue to languish.I > know that what I have written will not make any difference to your values. So > is the case with me. With this being the position, I suggest that we do not > continue this debate any further. > Best regardsSrinivasan > > --- On Sat, 24/10/09, ClementWan <clementwan@...> wrote: > > From: ClementWan <clementwan@...> > Subject: [MFP] The Case for Profits XXXVI (A Reminder) > To: MicrofinancePractice@... > Date: Saturday, 24 October, 2009, 8:32 AM > > > > > > > > > > > > > > > > > > > > David Richardson's analysis seems to represent an extreme > ideological view (not to mention the ensuing 'discussion' that seems to barely > move the meter). I'm reminded of the legal refrain of 'throw everything up on > the wall and see what sticks'. Personally, I think it's unfortunate and > disservice both to the credit unions he presumably and openly represents but > to their clients they serve. > > > > To understand his analysis, one must approach Compartamos' s financial results > and share performance with the view that everything they do is wrong and self > serving and therefore no matter how self contradictory the arguments, 'let's > build a case for each'. If they're profitable they're taking advantage of > their clients. If they look like they're not profitable or don't pay enough > dividends, they're short changing their shareholders. Presumably Richardson > is trying to isolate and vilify management and Accion. Somewhere in this > 'analysis' Richardson remarkably ignores portfolio growth, client retention > and the fact that Compartamos' shares have outperformed their market blaming > management for the short term fluctuations of its share price for which they > have little control as any novice investor would know. > > > > David Richardson buries the lede: "As I mentioned, the Credit Unions have been > very successful attracting Compartamos clients where they are in the same > community, but we don't target this niche." > > > > So if I'm to understand correctly, the organizations Richardson advocates for > can't be bothered to offer services for which the demand is so great that > clients are willing to pay interest rates that Richardson suggests they can't > afford? Must. Resist. Sarcasm. > > > > "Compartamos is built on a one product model: working capital loans which > represent 88% of their portfolio. That hardly seems like innovation to me!" > > > > Are we really to understand that Compartamos' s ability to know its market > well, isolating the risk of that acknowledged niche, servicing it well enough > to the point tens of thousands demand and repeatedly use the service, and > doing so at a cost lower than its peers isn't "innovative" ? If not, I have > no idea what Richardson's motives are here, but if that isn't innovative, in > the very least it's doing far more for the poor as Richardson himself > acknowledges. > > > > Fixation on the financial success of Compartamos without equal if not greater > criticism of its comparables who are either less efficient, do not meet the > needs of their clients, the working poor, or both speaks less to the character > of Compartamos and its investors than that of their critics. Indeed, how can > the success of Compartamos be seen as anything but just as much the failure of > its critics and competitors? > > > > Anuj, I will take my hand at representing the view of a capitalist - a term I > do not see as a perjorative anymore than most of us would acknowledge that the > poor as clients are profit seeking. Indeed profit seeking where buyers and > sellers are willing participants are the height of ethics versus the third > party values on that transaction you appear to seek to impose. > > > > What possible relevance is the profitability of either the buyer or the seller > to the ethics of the transaction when both have entered into the agreement > willingly? To a service, I might add, that would not otherwise be available. > How can the entire markets not be seen as better off given the introduction of > a service that previously did not exist? In this context - ie where goods > exchange hands willingly and freely, does it not seem silly to characterize > profits/any profits as "extreme"? I note that further that those who > criticize Compartamos often refuse to acknowledge the relationship between its > profitability and its growth rate in its ability to service greater number of > clients. > > > > To Srinivasan - if high interest rates are a direct result to the > profitability achieved, this does not explain its level of growth relative to > its competitors. How do you reconcile this view of the working poor that > microfinance services? Do you see them as unable to navigate the complexities > of finance but more than able to to have the flexibility to spend the > resulting funds as they see fit? > > > > Those who suggest they seek to impose ethics through arbitrary restrictions > are really just saying they seek to impose their own personal values on > others. I have difficulty in seeing how this is not insulting to the poor who > most of you supposedly seek to empower. What's the logic here? We want them > to be empowered to make their own economic decisions within the bounds of what > some arbitrary third party deems appropriate? > > > > Instead of the recurring and seething condescension that impugn the integrity > of both Accion, Compartamos and their respective supporters, I wonder how it > will be before critics of Compartamos see their own inadequacies and stop > projecting it on firms that should be both commended and celebrated. > > > > Best regards, > > Clement Wan (A CUAgnostic) > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > > From cricket scores to your friends. Try the Yahoo! India Homepage! > http://in.yahoo.com/trynew > > [Non-text portions of this message have been removed] > > > > ------------------------------------ > > WARNING! If you hit REPLY, your message will go to the entire listserve, not > just the original author!Yahoo! Groups Links > > > > ------------------------------------ WARNING! If you hit REPLY, your > message will go to the entire listserve, not just the original author!Yahoo! > Groups Links > http://groups.yahoo.com/group/MicrofinancePractice/ > Individual Email | Traditional > http://groups.yahoo.com/group/MicrofinancePractice/join (Yahoo! ID > required) > mailto:MicrofinancePractice-digest@... > mailto:MicrofinancePractice-fullfeatured@... > MicrofinancePractice-unsubscribe@... Murray Gardiner 47 David Street, Dundas Ontario, Canada L9H 4R8 mobile: +1 289 921 6576 ~ fixed line: +1 289 238 9920 ~ fax:: +1 298 238 8812 |
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