Bringing Microfinance to Scale Lessons from the Compartamos IPO

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Bringing Microfinance to ScaleLessons from the
Compartamos IPO

• An ACCION InternationalWeb Conference
• June 27, 2007

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Host and panelists
Lauren Burnhill SVP, Financial Markets
Services, ACCION
Alvaro Rodriguez ACCION Board Chair
Elisabeth Rhyne SVP, Policy Research,ACCION
María Otero President CEO, ACCION
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Agenda

• Compartamos
• Background
• Why an IPO?
• A closer look at the IPO process
• ACCIONs investment
• - Investing through Gateway
• Results of the IPO
• Use of proceeds
• Implications for the industry
• QA

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Evolution of Compartamos
Village banking program begins
Transformation into a SOFOL
Bond issues
Banking license

• Pilot launched in 1990
• Originated by Gente Nueva
• Nutrition and health
• programs
• Village banking
• program separated
• in 1995
• Financially self-sufficient
• by 1997

• Licensed in 2000
• Initial equity 6m
• SOFOLs lend no savings
• Investors ACCION IFC, Profund,
  Compartamos AC, individuals

• 2002-2004
• Five issues in two programs
• Rated by SP and Fitch
• Raised 70m
• Partial guarantee from IFIC

• License granted in 2006
• Savings, insurance, etc.
• Much work needed to transform operations

• ROE averaged 52 from 2000-2006
• Today 187 offices, 630,000 clients
• Tomorrow Reach 1m clients by 2008

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Compartamos at a glanceDecember 31, 2006
Type of Organization Commercial
bank
Coverage 29
States
Number of branches
187
Number of employees 3,203
Number of clients 616,528

Women clients () 98

Average loan size
U.S. 446
Effective interest rate (excl. VAT)
82
Average loan balance per borrower/GNI per
capita (2005)
5.8
Operating expense/loan portfolio
33.45
Gross loan portfolio
U.S. 271m
Portfolio at risk gt 30 days
1.1
Return on equity (ROE)
56
Return on assets (ROA) 23
Source Compartamos Brief, 2006 Compartamos
Annual Report, 2006.
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Why issue an IPO?

• Investors seeking liquidity for own missions
• - ACCION, IFC freeing capital for riskier-edge
  programs
• Local and international investors signaling keen
  interest
• Demonstrated ready market potential of sale
• Maintaining continuity of governance
• Avoiding disruptions in governance, management,
  direction
• IPO promised diversified holdings
• Integrating Compartamos more fully into
  mainstream
• Integrating microfinance into traditional
  financial sector
• Attracting private investment
• - Proving viability of microfinance as asset
  class

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The offer A closer look
Total capital floated ( total capital) 30 Iss
ue price MXN 40.00 US 3.65 The
offering 128,308,412 shares 100
Secondary Offering size MXN 5,132,336,472
(US 466,576,043) Price/book
12.8 Market cap _at_ IPO US
1.556b IPO offer date April 20, 2007 Time
to completion 17 weeks Demand 13x
oversubscribed Price/earnings multiple 26.3x
Share performance (end-May) 48 premium to
offer
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A closer lookcont.

• Two tranches 1 Mexican, 1 U.S./international
• U.S/international under Rule 144A to QIBs
• 158 institutional investors
• 5,920 total investors
• Of institutional investors 58 hedge funds/42
  traditional

Distribution of Institutional Allocation
Retail vs. Institutional Allocation
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The offer Why so successful?

• Excellent growth potential
• Profitability track record
• Superior management
• Strong governance, transparency
• Social value of operations
• Earnings potential
• w/ banking license
• Loyal clients w/ strong repayment

Mexican Microfinance Market
Mexican Financial Market
Compartamos

• Mostly untapped
• Competition in its
• early stages
• High earnings expectations

• Well-developed stock market
• Conducive regulatory environment
• Lack of other banking IPOs
• Low number of IPOs in Mexico pent-up
  demand
• Solid Mexican peso

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Why so successful? cont.

• Market-positive reaction to new
  president
• Lowest risk spreads ever

• High liquidity in global capital markets
• Global IPO market recovery
• Financial services as hot sector for
  US/EU investors
• MF gaining recognition among investors
• Mexicos appeal as investment destination

Mexican Environment
Global Factors
The IPO Process

• Excellent commit- ment and service from
  Credit Suisse
• Ability to tap both Mexican and
  international markets
• Effective presentations by Compartamos
  road-show team

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How ACCION invested in Compartamos

• Gateway Fund Mission-driven equity fund created
  as LLC in 96
• - 5.2m funding from bilateral and multilateral
  organizations
• Early entrant in MF equity investments
• - To expand equity in MF, test best practices
  in equity investing
• Characteristics
• Actively seeks to reduce participation as MFIs
  mature avg. hold of 4.85 years
• Investment made to demonstrate commitment to
  Compartamos
• - 1m investment through Gateway in 1999
• Needed to guarantee voice in governance through
  investment
• Motivation Support strength, efficiency of T.A.
  with board-level strategic advice
• Not every investment a success
• Lessons learned
• Enter early, when markets are under-served
• Good management, governance key to MFI
  success/fund performance

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ACCIONs participation in the IPO
Number of shares sold 38,613,240
Ownership share sold/retained
9.025/9.025
Gross IPO proceeds U.S.
140,956,386
Financial fees
U.S. 5,990,646
Net IPO proceeds U.S.
134,965,740
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What it means for ACCION as an NGOGoals and
initiatives

• ACCION is a mission-led
• organization
• Responsible, transparentstewardship
• More investment in microfinance
• Faster, better,more efficient work
• A new and different role as investor
• Impacting global povertymore effectively

Investing in MFIs
Capacity-building and training
Making MF work better for clients
Breaking down barriers to industry development
Strengthening ACCION
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A major milestone for microfinance
Microfinance New relationship to mainstream
markets
Microfinance Raises key social mission issues
Compartamos Enhanced position

• Fully accepted in mainstream markets
• More options for financing growth
• Will be able to reduce interest rates
• Enhanced ability to
• reach 1m clients new products

• Increased interest in microfinance as
  asset class
• Greater entry of mainstream
• investors
• Future IPOs more likely for leading MFIs

• What is fair pricing?
• What does double bottom line mean for
  MFIs?
• Maintaining mission as owners evolve
• Deeper discussion needed

Doors of mainstream markets open wider for
microfinance
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QA
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Further information

• New InSight The Banco Compartamos Initial
  Public Offering available for download at
  http//www.accion.org/insight
• Email us at webinar_at_accion.org
• Webinar to be archived and posted on
  www.accion.org

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Thank you. ACCION International 56 Roland
Street Boston, MA 02129 617-625-7080 www.accion.o
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