Microfinance in the ‘Real Mexico’

Oaxaca is a state often referred to as “The Real Mexico”. Its rich indigenous roots combined with a strong colonial presence do seem to embody the Mexican soul. Or, maybe the “real Mexico” refers to the fact that considerable wealth exists side-by-side with rural poverty. Maybe it’s just because Oaxaca is rumored to be the birthplace of mole. Whatever the reason, this “Real Mexico” was one of the two states where Compartamos co-founders decided to make their first loans to clients in 1990. Over 20 years later, Oaxaca has a thriving microfinance industry serving thousands of clients. This week, I was fortunate enough to visit this fascinating state and talk to some of its people. Here are just some of their stories:

Bertha Gopar (center) has been a Compartamos client in Oaxaca since 1993. She now shares the group with her daughters and granddaughters (pictured) and even has a great-granddaughter who will join the group soon.

A Real Microfinance Success Story

Maria Teresa Hernandez was in tears as she told us the story of how she came to be involved with Compartamos.

10 years ago, Maria had taken out a loan with another bank. Shortly afterwards, her granddaughter became sick with pneumonia and needed to be hospitalized. With few other options in sight, Maria used her loan money to pay the hospital bills and was unable to generate enough income to pay back her loan. Having defaulted, the credit authorities started to come after her.

“I thought my family would be in ruins,” she said, choking back tears. She told us she thought no one would ever trust her again.

Compartamos decided to go out on a limb and offer Maria a loan of Ps.$3,000 (about $225 USD) to buy ingredients to make and sell bread. She and her husband, Benjamin Cruz, were able to use his mother’s clay oven to produce about 100-200 loaves of bread a day. This was enough to keep the family out of financial ruin and pay back their loans.

Maria Teresa Hernandez and her husband, Benjamin Cruz, pose in front of one of their industrial ovens. They use these ovens to produce 100,000 loaves of bread a day.

Maria and Benjamin soon realized that local schools needed to purchase loaves of bread for the children’s mid-morning sandwich snack. However, their small oven was not sufficient to make the amount of bread needed to provide to schools. So, they went back to Compartamos and signed up for the individual credit plan, Grow Your Business Loan. This credit works more like those given by a traditional bank, with loans of up to Ps. $100,000 (about $7,500 USD) made to and guaranteed by individuals.

A Sweeter Side of Microfinance

Normally I don’t like reading microfinance stories about the proverbial, impoverished woman who is able to change her life with a simple microloan. These stories often give too much credit to the loan, and underplay the skills it requires to both run a small business and pull yourself up, out of poverty. In my opinion, anyone who can do either is a truly exceptional person. This week, I was fortunate enough to meet with six such Compartamos clients from Puebla, Mexico, and I wanted to share their inspiring stories with you.

In the rough neighborhood of Magnolias, Tentaciones bakery stands out with walls painted in three different shades of purple. In fact, both the bakery and the cakes inside of it seem more in line with what’s sold on 5^th Avenue in New York City than anything I’ve seen in Mexico. All of this is thanks to Elizabeth Carral and her spunky daughter Lorena Bonilla.

Elizabeth joined a Compartamos loan group about a year and a half ago with the idea of opening up a bakery. Since Lorena was not having much luck finding a job after getting a college degree in industrial engineering, she decided to help her mom with the endeavor. In order to get started, they used their first loan to buy an oven and, with each loan cycle, continue adding to their business. In a few weeks, they plan to buy a truck, which will allow them to make deliveries more easily.

Lorena Bonilla used her microloans to buy equipment like this industrial mixer for their bakery, Tentaciones

A Bank Gives Back

These days, corporate social responsibility (or CSR) seems to be a word that everyone is throwing around. Most big companies have some sort of foundation or activity that promotes a good image and, in some cases, really does give back to the community.  Since CSR can vary significantly from company to company, I tend to be skeptical about its real impact. So, I didn’t know what to expect when I was invited to attend one of Compartamos’s Day in the Community, part of its ongoing commitment to CSR. I have to say that I was pleasantly surprised to discover an initiative that truly does seem to give back and was a lot of fun to attend!

Like some other Compartamos employees in Mexico City, I agreed to give up my Saturday to help people in the nearby community of Tizayuca, Hidalgo.  We set off early in the morning, and I watched the urban sprawl of Mexico City melt away into fields of sheep and cacti. (As a native Arizonan, I have a special affinity for cacti). Tizayuca is only about 45 minutes away from Mexico City, but feels like a different world! Donkey carts shared the streets with regular cars, and everyone moved at “village speed” rather than “city speed”.

Once we got settled, we met the staff of the three nearby branches who would be participating in the day’s events and got to work painting and restoring a local park. While we were busy working, community members were able to receive free wellness exams and health check-ups. My team was tasked with painting the gazebo, which, I must say, looks a lot better now.

The Tizayuca branch was very enthusiastic about rehabilitating the park.

The kind of insurance that’s NOT in the news

All of a sudden, insurance is a word I’m hearing a lot. Not only can I not open any US website without some sort of reference to the recent Supreme Court ruling, but I also just stared working on a project with the section of Compartamos that manages its microinsurance products. Fortunately for all of you, the focus of this blog will be on that sort of insurance, which is a kind that is not the subject of many news stories.

According to the National Survey of Occupation and Employment (ENOE), 64 million Mexicans belong to a socioeconomic sector that is most likely excluded from formal insurance products. Many of these people are unable to pay the high premiums that come with traditional policies, but an unexpected death in the family or flash flood can put the family in a very difficult situation. In a society where funeral rituals are such an important part of the culture, the absence of life insurance can force family members to borrow money or sell valued possessions in order to cover the funeral expense.

That’s where Microinsurance comes in. Currently, Compartamos offers life insurance to all 1.9 million clients of the Credito Mujer. The basic policy begins as soon as the clients receives their loan and, if the unfortunate does occur, the woman’s beneficiary is given MX$ 15,000 (approx. US$1,200) within 48 hours. This is enough to cover expenses for a simple burial and have some left over to give the family time to find a new source of income. Each client also has the option of purchasing additional insurance for as little as US$ 4, and 51% of all clients opt for this addition.

Why the Market Approach to Microfinance Can Work

When I mentioned to anyone in the microfinance field that I was going to be working with Banco Compartamos this summer, everyone seemed to have some sort of opinion about it. Some people hailed Compartamos as a true innovator in financial inclusion and others gave me a sort of blank stare and mumbled something incoherent about high interest rates and corporate profits. So, after a week and half of working here, I thought I’d add my humble opinion to the fray and give everyone a glimpse of what it’s actually like to work for the organization.

For those unfamiliar with the world of microfinance, Compartamos sparked a bit of a debate with their decision to go public in 2007. This moved away from the traditional microlending model done by non-profits, and allowed Compartamos to raise capital previously unavailable to them. Since then, the organization has grown exponentially, currently serving over 2.3 million clients with 439 local offices and over 14,000 employees.

In my opinion, the secret to Compartamos’ success and the reason why they prove that this model can work is that they seem to retain a genuine commitment to their initial core values. Most large corporations display their mission statement in the lobby or post their corporate values on their website, but few seem to take them as seriously as they do at Compartamos.

MicroBusiness Award Winner Isabel Martinez Victoria poses with her loan officer at the 2012 Microbusiness Award Ceremony
Photo Credit: Compartamos Banco

During my first week, I attended a day-long training for new employees which focused almost entirely on their corporate philosophy, which highlights the company’s commitment to generating social, economic and human value for all. At the core of the entire philosophy lies the “person”, which refers to both clients and employees alike and the bank’s commitment to both customer service and the professional and personal development of employees.

A First Day Unlike Any Other

I’ve just completed my first week as an Accion Ambassador at Compartamos Banco in Mexico City, and I realize that this is not going to be an ordinary summer internship. As I tackle the challenge of bringing financial services to low-income populations in Mexico, I’ll do my best to document my experiences in this blog.

I must admit that I was a bit nervous when I was asked to arrive to work at 6:30AM on my very first day. The purpose of this early morning call time was so that I could accompany staff on a field visit to Puebla, a town about 140km southeast of Mexico City. As soon as our van started to pull out of the sprawling capital, Compartamos member Vanessa gave us a presentation on the company’s philosophy, credit programs and business model. I tried my hardest to pay attention but, in my sleepy state, I was really just wondering what the day, and the rest of the summer, would have in store for me.

I didn’t have to wait long to find out. We arrived in the municipality of Tepeaca around 9:30AM, and the branch was bustling with activity. The loan officers were scurrying around organizing all the documents needed for their busy day in the field. Before the day was over, they would have to visit about six or seven different client groups in the rural areas surrounding the city.

Loan officers at Compartamos branch in Puebla, Mexico