Compartamos versus Yunus

Monday, August 25, 2008

The Mexican micro-finance entity that raised $400 million from an IPO comes under fire for becoming the moneylender the micro-finance institutions were supposed to protect the poor from.

A crimson and red screen lights up and a clutch of golden fish stream left and then right. This is the home page of the website of Compartamos Banco, the Mexican entity that became the first micro-finance institution (MFI) in Latin America to raise equity capital, as much as $400 million, through an initial public offer last year. The MFI, formerly an NGO, which turned into a for-profit entity and then into a bank, decided to turn to the market to reach out to more poor. So what is wrong?

Today, Compartamos is the biggest success story/controversy in the micro-finance world, depending on which side you are.

If you are with Nobel Laureate Mohammad Yunus, considered by many as the father of micro-finance, Compartamos has been doing nothing but transferring the poor man?s money to the rich. Considering the nearly 100 per cent interest rate that Compartamos charges, Yunus could not be off the mark. Yunus has actually excommunicated Compartamos saying it is using micro-finance to benefit investors rather than the poor.

?When you discuss micro-credit, don?t bring Compartamos into it,? he said in one of his recent outbursts. His fury has been relentless, whether at a recent meeting in South-East Asia or this week in Bangalore, where he met agencies to shop for ideas to start healthcare services in Bangladesh on behalf of the Grameen Bank.

For someone who looks at micro-finance as philanthropy, Carlos Labarthe and Carlos Danel, the two executive directors of the bank, should go to the depths of the MFI hell, if one existed. Yunus sees in the phenomenon the transformation of micro-finance into the moneylender the MFIs were supposed to protect the poor from.

Indian MFIs are watching this divide between charitably-inclined and market-linked micro-finance with curiosity; some with a hope of hopping onto the rainbow colours of the new-age micro-finance that Labarthe and Co are offering.

Continue reading “Compartamos versus Yunus

Source: Business Standard (link opens in a new window)