Corporate Values and Transformation: the Microlender Compartamos
To: Professor Rivera
From: Amy Stout
Class: PA 535
Subject: Corporate Values and Transformation: The Microlender Compartamos
Microlending is a particular fascination of mine. I suppose partly because I work at a bank, and partly because I am intrigued with the idea that somehow these types of loans could help improve the lives of the “working poor.” I have always wanted to understand why in some places they are extremely successful and then in others they are largely unsuccessful. I think the indicators are in the people, their values, and their social constructions. Compartamos became a classic proof in my mind that this is the truth.
Compartamos had some very strong values. The lenders had a strong sense of social connectivity and social advocacy. “Our group is like a tree, and if we water it and care for it and there are no problems – rather, if we resolve our problems, because they will arise – then the tree will grow” (pg.3). Their values which were distilled in their senior management from Catholic universities could have been seen in a flier distributed which centered on “the person” and included passion, service, teamwork, profitability, and responsibility.
Compartamos focused on the “village banking” method lending to group of 20 to 40 people, usually women, and experienced exponential growth and success. In 1995, Generadoras reached their “break-even” point with 17,500 clients and nearly $600,000. In 1997 Compartamos had reached 32,000 clients and an estimated $1.7 million. By the end of 2000, they had moved into urban areas as well as rural ones and grew to 64,000 clients with an estimated $10.4 million. 2002 proved to be their most successful year with 145,000 clients and an estimate $41.8 million.
Although highly successful, Compartamos faced two significant problems in early 1997. The first of which was a type of conflict of interest. They provided food and medical programs using subsidies that they received and also a microfinance serve that made a profit. The other problem was that they had a virtual monopoly in the villages where they were which made them vulnerable to economic changes. They needed to expand and diversify in order to survive. It was primarily due to these problems that they decided to expand their efforts to Mexico City.
In Mexico City however, the dynamics were very different, their clientele would be very large, an estimated 4.4 million microenterpises in 2002. Many considered this to be a very good thing but there were some serious issues to address. Althought the vendors, artisans and small service providers were frugal and made good use of micro-credit they lacked financing. In a population of greater than 100,000 people in a city, fewer than 10% had received any financing at all. The clientele was also very much an informal economy who also associated with “mob bosses” for protection and financing. Mexico had faced a great economic crisis which also drove the numbers of microenterprises up. Mexico Lending was largely still in transition and made up of cooperatives, savings and loans societies, credit unions, and financial NGOs. Compartamos decided that they needed a tried and true model for the city’s dynamic. They merged with Acciòn who had a 5-year grant to help Compartamos transform into a financial institution. In 1998 Compartamos and Acciòn studied the potential markets and set their goals very high.
They decided to use a “copy-paste” method and apply Acciòn’s standardized lending methods which consisted of two basic loan products. The first was a solidarity loan which required groups of 3 to 6 people to form and then lent to the entire group. The second was the individual loan product which went to much larger microenterprises. However, when they opened there seemed to be something wrong. There was almost no activity. There were religious activities taking place at the time, but it was still much slower than expected. They were beginning to uncover some of the problems with lending in a large city. The design the senior management put in place, didn’t seem to reflect the cultural factors they were running into. Their first mistake was not even bothering with any type of marketing. There were language barriers. Expressions used in one dialect of Spanish made no sense in another. The collateral they used to make individual loans were practically useless. Recovering the loan became more expensive than the cost. They also began to experience staffing problems, which must have been a true indicator that things were about to unravel. They were in need of assesores which required a higher level of education than what they needed with promotores (which they used in the village style of banking). There was a definite lack of interest in the jobs. The work was hard the money wasn’t good and they were sitting in make-shift offices. There was a constant staff rotation which made the morale even lower. They were also beginning to have strong disagreements with the back operations on how to handle the difficult circumstances that were arising.
Compartamos knew that they were falling apart and need to make some changes to the organizational structure. They knew that there would be no quick fix, but after considerable debate contended that they should try to make an effort to stay rather than get out of Mexico city altogether. Almost half of the board of directors wanted to get back to village banking, but the other half argued that if they did they would never achieve the adaptability to grow into something larger. It became apparent that their goals were unrealistic. They decided to bring in some one to “fix” the problems and hired Alejandra Ruiz. Ms. Ruiz was Peruvian and highly educated for this environment. They started to see results almost immediately but then began, after time, see the same problems re-visiting, only this time much worse. Loan officers were making loans they shouldn’t have, career advancement largely depended too much on friendship with Ruiz rather than clearly stated performance measurements, and worst of all, they decided to test pilot new technology in the middle of this chaos. Palm Pilots were given to all the loan officers in order to improve efficiency. However, the software still hadn’t been written for their specific need making it all the more difficult to utilize. The Palm Pilots were constantly getting lost or stolen and jealousy broke out between the back operations and the loan officers out on the front line. The bad relationships ultimately destroyed the work environment with plenty of blaming. By the end, portions of their loans at risk rose to 10, 15, and 20 percent.
I found many indicators of an organization in crisis. I think that the most useful of all indicators is that of the actual work environment and morale. The social indicators could have been seen from the very beginning when the clientele simply wasn’t coming in. They needed a larger volume of customers in order to make it work. It was very much a numbers game, where even if they were beginning to see a small but steady flow of microenterprises coming in, they should have known from the beginning that it wasn’t going to work if they didn’t have a much larger showing when they opened their doors. I thought it was also interesting to see how they completely missed part of their demographic when determining their scope. They should have been able to foresee their language problem and their cultural connectivity problem among other things. I was also surprised that they didn’t do more extensive research into how they would market their program once they were there. Surely they took a look at the other types of lending competition in the market at the time and how they could stand up against them. I thought that should have been one of the first things they should have researched especially seeing as they completely dominated the market in these small villages they were from.
In conclusion, I believe it was due to poor research that it failed. I think that there could have been a greater concentration on research before they began. They should have been able to predict a certain climate and prepared for how they would handle the problems once they arose. If they could have understood their demographic better and where to find their niche within that market place they would have been successful. After all, wasn’t the success of the program dependent upon their unique staff anyway? I thought it was their values that made them successful, not their loan products. They may have lost site of this in all of their efforts to make more money. I am a firm believer that you must invest in your people and that is the one thing that they had in the beginning. They had invested value by declaring their values. They had invested in values that were beyond the scope of simply making a loan. Somewhere along the line they lost that and I believe that this was why the program failed.
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