Headquartered in Mexico City, Compartamos Banco has grown in its 32 years to become the country’s largest microfinance institution. The bank was founded as an NGO (non-governmental organisation) in 1990 to alleviate financial hardship among the underbanked in the Mexican population, primarily women entrepreneurs, by offering them credit. In 2000, the organisation was incorporated as a for-profit bank, obtaining its commercial banking licence six years later. Compartamos Banco has since extended its operations beyond Mexico’s borders to countries such as Peru and Guatemala.
A crucial division and the most relevant company of Gentera, its holding company, Compartamos Banco is actively engaged in Mexico’s credit, savings and insurance sectors, offering multiple products and services while maintaining its focus on supporting women entrepreneurs, especially in rural areas. Serving more than 2.6 million customers, the bank abides by its core values of customer service, passion, responsibility and teamwork to provide the most beneficial financial services.
During International Banker’s interview, Mr. Patricio Diez de Bonilla, Chief Executive Officer of Compartamos Banco, explained how the bank is determined to retain the human touch that sets it apart, even as it grows.
Mr. de Bonilla, welcome…
Compartamos Banco is Mexico’s largest microfinance institution. What are the latest figures demonstratingthe bank’s dominance in the local industry? Has microfinance grown?
According to non-governmental organisation ProDesarollo’s “Benchmarking 2021-2022”, we continue as the largest institution, with a 45-percent market share measured by gross portfolio and 49 percent by customer numbers. Our client numbers grew last year; many organisations struggled or disappeared because of the pandemic, but we were in communities, attending to necessities.
In December 2022, the HR Ratings agency published a study of how Mexico’s microfinance sector maintained an adequate solvency position as economic activity recovered in all sectors following COVID’s 2020 impacts on health and economic performance.
Regarding the bank’s main business strategies—boosting financial inclusion, supporting female-ledbusiness initiatives, generating social impact—what are the bank’s biggest challenges? How has it cushioned customers from the pandemic’s economic impacts and helped them to thrive as the global economic environment weakens?
Our objective is to continue serving customers and providing financial solutions in a human sense. The biggest challenges are economic instability, inflation, and interest rates. However, we have been careful in disbursing loans, ensuring clients do not become overindebted. Inflation is affecting countries worldwide, and Latin America is no exception. Our clients ask for bigger loans since they need more money to cover their business expenses. We have been careful when originating loans; we must focus on financial health.
If we keep customers at the centre of our actions, providing affordable financial services, they will continue to prosper with their businesses, strengthening the economy and their communities.
One of the biggest challenges will be digitisation. Although it is not alien to our customers, penetration and use are still lower than expected—due in part to the country’s infrastructure, which is unavailable in some communities.
Since COVID-19, we have focused on maintaining and protecting the health of our collaborators and customers and also the organisation’s operational and financial health. We support our clients in three areas: containment, recovery and reactivation. We designed an appropriate action plan to support them in whatever they are going through. In the containment stage, we suspend credit payments while recognising clients who continue to make payments. The health crisis created an adverse environment for society’s economic and productive activities, and our clients were no exception. This impacted the fulfilment of their credit obligations. We conducted surveys to learn about the state of their health and businesses. We identified the three stages our clients experienced and prepared to support them through them.
In Mexico, we deferred client payments for 10 weeks during the containment stage. We also extended the terms of all active insurance policies in response to the pandemic to protect our clients and their families against any eventuality. Most of our clients joined our payment-deferral program, Beneficios 1.0, because many, faced with uncertainty, stopped their productive activities and closed their businesses over health concerns. Others continued to work at what were classified as essential activities, implementing safety protocols. Our operations did not stop; we continued disbursements. Some clients continued to pay as normal, while others paid partially, and those unable to make payments did not see their credit histories affected.
In the recovery stage, we made it easier for group clients to obtain new credit and extended repayment terms according to their needs. Finally, we made it easier for each client in the reactivation stage.
Last year, Citibank partnered with the United States International Development Finance Corporation (DFC) and the Japan International Cooperation Agency (JICA) to provide $70 million to Compartamos Banco. Why was this money given, and are you seeing the intended benefits?
We have supported the development of Mexico’s financial sector, seeking a positive impact on the country’s economic growth, especially by supporting small businesses led by women and located in rural areas where access to financial services is limited.
This supported three Sustainable Development Goals (SDGs) of the United Nations (UN): gender equality (SDG 5), decent work and economic growth (SDG 8) and industry, innovation and infrastructure (SDG 9).
The bank has stressed the importance of Crédito Mujer (or Woman Credit), a lending product aimed atwomen entrepreneurs—a demographic representing the overwhelming majority of customers. Why is the “group methodology” approach behind this product important?
Thirty-three years ago, we served a segment underserved by traditional banks. We wanted to bring them financial inclusion, not only because they lacked resources but also because they were women. We gave loans to women who wanted to start a business or grow the one they had. Women are committed, and they invest in their families. Financial inclusion makes them more independent, and these loans boost local economies.
Crédito Mujer’s methodology involves groups of 10 to 50 women. If something comes up with one payer, their solidarity enters, covering the amount of the one who cannot pay, so she is not late with payments.
These loans have no collateral and are really simple.
The bank’s insurance product is popular. Do you have any data proving its success? Can you highlight any exciting or unique insurance, credit or savings products or services the bank has recently launched?
As our portfolio grew, we detected that women needed more financial services, such as savings and insurance. We understood the clients but did not have the know-how of insurance companies. In our initial efforts, we allocated the policies we designed to third parties. After we made a joint venture with INTERprotección, the biggest insurance broker in Latin America, Aterna was born. Our first policies were very simple, just life insurance. Today, we offer basic life insurance, Compartamos Protección, car insurance and theft insurance.
The productive activities carried out by Compartamos Banco’s clients are often the main economic support for their families and, therefore, linked to credit; we provide complementary products to protect their assets, such as life or theft insurance. Also, aware of the conditions to which our clients are vulnerable, Compartamos Banco offers insurance to protect them in case of cancer or heart attack.
We sold 40 million policies in 2022, and our entry into Peru has also been successful in this regard.
In 2021, thanks to our knowledge of clients, Seguro Magenta was launched through the internet with good acceptance as a service to protect cars and motorcycles at a low cost. The main difference is its simplicity, allowing clients to insure their vehicles no matter how old they are (in Mexico, many insurance companies do not insure older cars).
Compartamos Banco has a considerable presence in Peru. Are the bank’s main operations theresignificantly different from those in Mexico?
Peru is growing and consolidating, similar to Mexico. In the third quarter of 2022, we had more than 600,000 clients and Ps. 17,296 million, 17.1-percent growth compared to third-quarter 2021. In 2022, Compartamos Financiera twice issued short-term debt in Peru. This is a sign of investor confidence and our growth in Peru.
The acceptance of group credits in Peru, where individual credits predominate, has given thousands of Peruvian women the opportunity to join or rejoin the Peruvian financial system. Individual credits continue to be their majority share of Compartamos Financiera’s portfolio.
We seek to reach one million customers in 2023. It is important to note that when we acquired Compartamos Financiera, we had only 85,000 customers.
The bank’s parent company, Gentera, acquired almost 75 percent of ConCrédito, a Mexican non-bankfinancial institution (NBFI) that grants microcredits through third-party originators. Why was thisacquisition made? Has it enhanced the service offering?
When we began the acquisition of ConCrédito, we knew it would add great value to our business model since it is a company that has more than 13 years of experience granting loans and is a highly profitable company with a new business model based on direct sales and technological capabilities that improve the client experience through a completely digital operation. To strengthen our value offering, in 2020, Gentera acquired a majority stake in ConCrédito.
In ConCrédito, we found many similarities: the segment we serve, the experience in credit and insurance, and above all, the awareness that technology should be capitalised for people. ConCrédito has a long history in this area, so we will work to develop synergies and best practices that create value.
What role has digitalisation played in advancing the bank’s microfinance propositions? How does the bank’s digital-banking application help customers access financial services that would otherwise be impossible?
Digitisation has been important in facilitating our clients’ lives while maintaining that warm and human treatment that characterises us. During the peak months of the pandemic and due to people’s approach to technology, transactions increased through our digital channels, reaching 200,000 clients performing more than 26 million monetary and non-monetary operations, mainly balance inquiries and transfers.
Compartamos Banco’s app has various tools allowing clients to transact from their mobile phones. They can have loans disbursed directly into their accounts, transfer or make payments from the app, top up their phones, make balance inquiries, service payments, QR (quick response) operations, investments, insurance and credit contracts.
You have been the Chief Executive Officer of Compartamos Banco for over five years. What has been yourgreatest challenge? Has the COVID-19 pandemic changed your approach?
In 2017, we had to rethink our strategy and change how we delivered our products, maintaining the high quality and warmth of Compartamos. Then came the pandemic. We had some experience with the H1N1 virus. As soon as we assessed the situation, we took different decisions to care for our clients and co-workers. We maintained a strong capital position to face the difficulties.
The pandemic strengthened our individual-centered leadership. We understood that the only way to stay relevant for customers was to consider only initiatives that would benefit their lives.
Putting the person at the center of our actions was key at our breaking point and during the pandemic, and it will remain so in the future.
With inflation expected to remain elevated during the first half of 2023, many customers will not be able to pay their loans, and the bank’s nonperforming loans (NPLs) will rise. What measures will you take toaccommodate this? Compartamos’s loan interest rates have not markedly risen even when the Bank of Mexico raised its rates to contain inflation. What are “the efficiencies we have achieved” you cited that are key to maintaining these rates?
We have been making different decisions to face this inflation. The main one is maintaining close relationships with our clients and granting them adequate loan sizes for their types of activity. We expect an increase in NPLs because they have been low over the last few years; we expect them to increase in a manageable way.
As our client base and portfolio increase, we can be more profitable. Our model rests on scale. This helps us absorb the increase in the cost of money. We have transformed our back office with IT (information technology) solutions that boost staff productivity.
With the failure of several key institutions, Mexico’s shadow-lending industry came under pressure. What is the outlook for the industry in 2023? Did Compartamos Banco experience contagion risks due to the shadow lenders’ troubles?
Microfinance is finance. That means that we should be as accountable and transparent as other institutions. This philosophy has kept us apart from the struggles of other players. We have strengthened our position in the Mexican market.
Besides microfinance, are there other channels through which the bank has boosted financial inclusion in Mexico?
After the pandemic began, many people lost their jobs. They saw microfinance as an option to start a business or enhance the economy. The industry should grow, supporting the needs of this segment. Financial inclusion is still just a goal for millions in Mexico. Digital transactions will be important in this process.
Yastás is Mexico’s leading administrator of bank commission agents, providing access to financial operations in places where the banking infrastructure is null or limited. Since 2011, aiming to meet the need to carry out financial transactions conveniently and in local community places, Yastás has been a solution for our clients to transact through point-of-sale (POS) terminals installed in community businesses.
In what unconventional ways does the bank endeavour to support its small-business customers? Do youoffer educational services?
We offer different content through our web page and social media related to financial education. We have over a million followers on our Facebook profile and distribute information that helps our customers make better financial decisions daily.
The Mexican Banks Association (ABM) annually hosts Financial Education Week. Compartamos has a virtual stand providing information adapted to Mexico’s popular segments.
In November 2021, Compartamos Banco printed its first social bonds in the local market, raising MXN 2.5billion. Where have the proceeds been allocated, and what benefits have resulted?
Those issuances reaffirmed Compartamos Banco’s ability to access diverse financing sources in volatile market conditions, allowing it to continue strengthening its liabilities profile. We reaffirmed our commitment to continue offering adequate and convenient financial solutions to the largest number of clients in the shortest possible time, supporting them in fulfilling their dreams. This money goes directly to our clients, especially women, who need to begin businesses or improve the ones they have.
Please summarise the bank’s Social Responsibility Fund. What successful initiatives has it supported?
In 2009, we created the Social Responsibility Fund, an instrument that allows us to meet the specific needs of the communities where we operate. This fund comprises 2 percent of the group’s net profits from the previous year. The total amount is used across different social-responsibility activities of the group companies and in the causes and action lines of Fundación Compartamos.
The Social Responsibility Fund operates mainly through alliances, seeking to optimise resources to benefit communities. We promote the development of communities through solidarity actions. In 2021, we gave MXN 48,846,166 and benefited 235,828 people.
What is Compartamos Banco’s most significant challenge, and how will you achieve it?
To continue delivering convenient financial services to the segment while understanding how they are evolving and in what context. Technology will be the primary tool for accomplishing this and expanding the company’s scale while retaining the human sense that differentiates us.
The bank is surely on the road to even greater success. Thank you for your time.