International Banker is joined by Mr. Patricio Diez de Bonilla, Chief Executive Officer of Compartamos Banco, to discuss the bank’s work with women entrepreneurs, Micro and Small & Enterprises and increasing financial inclusion in Mexico.
Today, International Banker is joined by Mr. Patricio Diez de Bonilla, chief executive officer of Compartamos Banco, to discuss the bank’s work with women entrepreneurs, micro and small enterprises, and increasing financial inclusion in Mexico. Patricio, fantastic to have you with us today. The bank is very focused on social inclusion, representing for over three decades, I think it is, the entry to the formal financial sector for more than 30 million people, and they’re mainly women. What do you consider to be the single most important feature of your business model during this time, especially when compared to your kind of local banking peers, which has enabled the bank to assist such a large number of people?
Thank you, Simon, for the invitation. It’s a pleasure to be here. I would say that we’ve been focused yes on financial inclusion, but most importantly, on developing people. One hundred percent of our products need to fulfill and are developed in order to improve the quality of life of our customers, right. So, 100 percent of the products that we develop are for, to serve that purpose. So, the most important products that we have are credit, working capital, loans for micro-entrepreneurs, self-employed people that require such financing in order to develop their tiny businesses, right. So, again, the care that we put, the effort that we put in developing products for our customers has been critical in order to maintain the success for the company for the last 32 years.
It’s clear that the bank’s most important product today is Crédito Mujer, or women credit, which has a group methodology and is aimed at adult women. Can you briefly explain the importance of simplicity as a concept when designing this product?
Correct. Crédito Mujer is a group-lending methodology where you need to come with at least 10 women that you know, that you trust within your communities. It’s very important, this self-selection process that the group takes. Because at the end of the day, they, we don’t have a strong information about the credit behavior of any specific customer at the beginning. So, this self-selection process helps a lot for us. It’s our credit committee, if you will. And the credit lasts for 16 weeks. In those 16 weeks, the customers need to pay every week for 16 weeks. And in case someone defaults, the entire group is responsible to make their payments. So, there’s a social-cohesion process also within the product, and it helps a lot the customers to deal with their finances.
And the bank’s Piensa En Ti portal seems to be a particularly supportive resource for your women clients. What are some of the most significant services that are offered through this portal? And how well received has it been by your customers?
Yes, Compartamos’ Piensa En Ti is a portal that helps customers, and not only for financial education but also some other topics that are relevant for our customer base. Women empowerment, social kind of issues. So, those are topics that our customers value a lot because it provides information that is useful for their day-to-day living. So, Compartamos Piensa En Ti, it’s actually that portal that provides constant information not only of our financial products and services, but most, beyond that, it helps to talk about health, social progression and so forth.
You talked about group methodology. But are there any eligibility criteria that your customers must satisfy to receive the bank’s lending products and services in terms of the positive impact their borrowing will have within the local economy? And if so, how is this criterion assessed on a case-by-case basis?
Right. The group, as I said before, the group-lending methodology requires you to self-select your own group. So, this process is very important, because the information about every customer is within the community. So, we use this kind of information in order to provide you with a loan. The first loan that we lend you, it’s a smaller amount. So, as you pay us back over time, we increase the size and the volume of business that we can do with you. And, again, 100 percent of our customers are micro-entrepreneurs. Those funds are directed to their businesses. So, it’s very important also, not only the requirements but most importantly, what they do with the money in order to grow their businesses in, during the period that they are our customers.
And thinking of these customers, what are some of the main industries in which the majority of the businesses that the bank supports operate?
I mean, it varies a lot, Simon. The reality is that they are traders of different kind of goods, no. They sell clothes, cosmetics. They sell catalog kind of items. They are also in the hospitality business in certain regions. So, they move a lot within activities. And they might change such activity within the year. Now, they might sell something in Christmas. They might sell something else in Easter, in holidays. So, they are very, very flexible in how they operate. They’re small micro-enterprises.
Well, thinking of change, we always touch upon technology. How is technology disrupting the bank’s internal IT infrastructure and digital-banking capabilities? And how’s the back office being transformed by new technologies?
I mean, it’s shocking the fast-moving industry of technology and how it’s impacting not only the financial industry but elsewhere, right. So, in our case, we’ve done a lot in terms of the technology. The first, as you said, no, the back office needs to change how we operate with our customers. It’s moving. We are digitizing our processes in order to have a more efficient kind of operation. And the next phase will be how can we interact with our customers using technology—not necessarily on a physical basis but mostly using digital-enabled products, such as the one that we have already in our Compartamos app.
Well, let’s move on to that. Because the website mentions customers can invest through digital channels. What are some of the products and assets in which they can invest? And is this particular service proving popular amongst customers? Are they embracing that opportunity?
I mean, of course, they, it’s something that is moving along. Of course, we have now like 1.5 million customers with debit accounts. They have small savings here and there. We have different kind of products but mostly short-term investments through time deposits.
And the bank also has a financial-education section on the website. What are some of the key lessons and trends that this section seeks to provide to customers? And have they indicated to you that this section is proving helpful to them?
Yes, of course. When you are focused on financial inclusion, the reality is that most of your customers do not have a financial literacy at the beginning. So, our business model depends on how good we not only develop the product but how well the customers understand the products that we put in front of them. So, the financial education—it’s not like a different kind of effort that we do at the bank; it’s actually at the core of what we do, how we train our employees in order to help the customers to understand the benefits but also the responsibilities that they really take when they acquire any specific product.
Now, talking about responsibility, the bank has operated the Social Responsibility Fund in recent years to allow it to meet the specific needs of the communities in which it operates. What are some of the key activities and initiatives in which the Fund’s proceeds are invested? And what is Fundación Compartamos in this regard?
Right. Our foundation, Simon, is very important to us. We devote 2 percent of the net earnings of the bank every year for social projects in three different areas. The first one is fine education as a whole, no. We help other foundations in order to improve the quality of education in Mexico. The second piece is early-stage childhood, no. We, certain projects, i.e., for this initiative are also very important to us. And third, this is when we have natural disasters or emergency funds for both the communities, employees and customers. We help through our foundation in order to alleviate such times. So, in these three arenas, the foundation uses their resources directly and using our foundation to fund certain other foundations that help in these three arenas.
Very good. Now, let’s talk about bricks and mortar. We’ve touched on the digital expansion in terms of your offer, but are you satisfied with the bank’s current branch network? Or are there any plans to expand your geographical coverage? And if so, into which specific regions?
Right. I mean, we have a nationwide coverage. The reality is that we opened a lot of branches in the past. And we understood that using technology, you didn’t require such a large infrastructure. So, we’ve been closing, actually, certain branches in order to, yes, have certain presence of our branch network. But most importantly, using correspondent agents and technology in order to have a broader and reach without the use of brick-and-mortar branches. So, the reality is that we think that the branches will remain there but will be a complement of a hybrid network that will use correspondent and other channels in order to be convenient for the customers.
That kind of brings us to the whole pandemic. And would you say the microfinance sector has fully recovered from the impact of the pandemic? And what is the most significant way in which the pandemic has changed the way the bank does business?
Right. I would say that the pandemic hit hard this sector. The reality is that most of our competitors are still facing difficulties—not only operational but financial difficulties. So, there’s a contraction of the sector. Given the actions that we took during the pandemic, the reality is that Banco Compartamos came back stronger. We have a very well-positioned and financially sound institution in order to fully recover and capture the opportunity that is present in Mexico. So, the reality is that not the industry but ourselves are back again from, even better than pre-pandemic levels. And we expect that, again, the need is there, and if you do things right—focus on people, understanding their needs and be very careful in how you originate launches, the reality is that the market, it’s still there and requires financial products and services.
Now, as director general of Banco Compartamos, were you satisfied with the way you approached banking leadership during 2022? For example, what was the biggest highlight of your year?
I mean, 2022 was one of the best years in Compartamos’ history. Actually, the best year in financial results. But the reality is that it’s the result of the actions that we took during the pandemic to safeguard the health of our employees, our customers. And that in an environment where the competitive landscape has weakened, the reality is that we’ve taken action to capture market share to be close to our customers, to be close to our employees, and such good results are actually results from the entire team, not only in Mexico but also in Peru.
Now, we always like to look ahead, too. What do you consider to be the bank’s most significant challenge in 2023? And how do you intend to address it?
The biggest challenge for everyone right now is to continue the digitization of not only the processes that we have for credit origination but, most importantly, how we can, using technology, digitize the relationship with our customers. So, going forward, the reality is that we expect that the shift from a physical business model into a digital one will be something not only challenging but encouraging to all of us.
And building on all that work that took place during the pandemic.
Of course. I mean, the reality is that we learn in harsh times, such as the pandemic, and all those learnings are now part of our day-to-day operation.
Well, that sounds wonderful. And I’m so glad you’re taking that learning forward into 2023. Thank you very much, indeed, for giving us such a great overview of how things are going.
Thank you very much, Simon, for the invitation. It’s a pleasure to be here.