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CASE STUDIES
Profitability, Revenue and Expense
Changes in legal and funding structures did not affect
Compartamos’ consistently high profitability.
The MFI remains among the most profitable of all of
Latin America’s larger microfinance institutions, after
adjustments for subsidized debt, loan loss provisioning
and inflation (see figure 3). The spread between
financial revenues and total expenses,
moreover, has remained positive since 1997.
Historically, the remarkable profitability of Compartamos
has been due to its record-breaking revenues.
In nominal terms, revenue from the gross
loan portfolio approached and surpassed the average
of the gross loan portfolio itself for a number of
years (see figure 4). This means that, on average,
a peso was generated for every outstanding peso in
the portfolio. Such high yields have drawn criticism
because many poor women clients, by paying very
high rates of interest, generate the institution’s high
profits. Compartamos management, however, justifies
the revenues as an integral part of its selfcapitalization
strategy and the only way to reach a
greater number of poorer potential clients. Regardless
of differences over its strategy, Compartamos
attracts a briskly increasing number of new customers
to its financial services every year.
Figure 4: The price of growth in outreach, Compartamos’ portfolio yield
120%
100%
80%
60%
40%
20%
0%
1996 1997 1998 1999 2000 2001 2002
Nominal Yield (Compartamos)
Real Yield (Compartamos)
Nominal Yield (LAC)
Real Yield (LAC)
Source: MicroBanking Bulletin no. 10 data. LAC is Latin America and the Caribbean. Data for Compartamos shown for the years
1995−2002; LAC data shown only for 1999−2002.
Compartamos’ total expenses are largely a function
of the cost of administration and personnel (see
figure 3). Despite dramatic increases in commercial
funding, the financial expense ratio of Compartamos,
12.2 percent (influenced by the IFC guarantee
of its second bond issue), is only slightly higher
than the regional microfinance industry benchmark
of 8.8 percent. Loan loss reserves have consistently
been multiple times larger than the portfolio at
risk. Compartamos’ loan loss provisioning is much
more conservative than its peers, especially considering
the institution’s low portfolio at risk.
The primary village banking methodology and
smaller loans used by Compartamos push operational
expenses to levels well above the regional
average: 35.4 percent of its average portfolio, as
compared to an average 18.1 percent for other
large Latin American microfinance institutions.
However, the efficiency of Compartamos appears to
be improving, lowering the cost of every peso extended
in loans (see figure 5). Since 1999 Compartamos
has streamlined administrative processes
and has gradually increased its average loan size.
These actions have improved the institution’s “operating
expense−to−average gross loan portfolio”
ratio. The cost per borrower, however, has risen in
absolute terms in conjunction with a slow move towards
individual lending over the last few years.
The consistent increase in the cost per borrower
ratio since 1996 is less worrisome than it appears,
however, as this ratio has historically been lower
than regional and global MFI averages.
The overall effect remains positive for borrowers as
long as portfolio yields continue to decrease. Portfolio
yields have been declining since 2000 (see
figure 4) and are expected to continue to decline for
the foreseeable future as new competitors enter the
market. Indeed, it is possible that yields could approach
the much lower MFI average in Latin America
and the Caribbean. In an increasingly competitive
context, efficiency gains will thus become critical
to prevent a squeeze on Compartamos’ profit
margins.
MICROBANKING BULLETIN, MARCH 2005 11