Compartamos: Banking

The Company

Compartamos (GENTERA) is a microcredit bank and a leading provider of microfinance services, including loans, savings, insurance, methods of payment and financial literacy in Mexico. It is currently the largest institution in Latin America offering financial services to low-income clients.

The group began operations in 1990, when Asociación Programa Compartamos was founded as a nongovernmental organisation (NGO) offering financial services to the grassroots base of the socio-economic pyramid. Initially, these services were only offered to women; however, this soon expanded to the wider Mexican microfinance industry. In 2000, the NGO was remodelled as a non-bank-regulated financial institution, known in Spanish as a “sociedad financiera de objeto limitado”, or SOFOL, called Financiera Compartamos (SAB de CV), which became Compartamos Banco in 2006. A year later, in 2007, the firm completed an initial public offering, listing its shares on the Mexican Stock Exchange. In 2010, the firm initiated the process to become a holding group for several companies – known as Gentera – all operating with the same purpose and principles. The most important subsidiary of Gentera is Compartamos Banco, which provides services to more than 2.5m customers throughout Mexico and offers credit products for working capital as well as savings and life insurance products. In 2011, Compartamos began its international expansion to Central and South America, establishing Compartamos S.A. in Guatemala and acquiring Financiera CREA, now Compartamos Financiera, in Peru.

In recent years technology, as well as geographic and product expansion, has helped the company to implement an aggressive investment plan through strategic projects. These should allow Gentera to be better positioned in the midst of intensive competition and thus take advantage of its strengths: extended geographic presence; a solid funding structure; a successful business model with strict standards in the loan origination process; and a much more efficient cost structure than its competitors. These factors have allowed Gentera to consolidate its leading position in the microfinance industry. In the past, the company’s growth was achieved through its main product, Crédito Mujer, which was implemented in Mexico only, and is for women belonging to a group and in need of short-term financing for working capital. However, the firm’s strategy is now focused on the development of new products and growth through different regions and countries.

In Mexico, the company is enhancing growth in urban and individual credit, whereas in Latin America, growth is expected to be achieved through Crédito Mujer. In addition, the company has invested in the implementation of the solutions system, known as SAP, as well as handhelds to its advisors, to encourage greater efficiency in their operations. This is alongside the creation of a network of correspondents – point of sale terminals – in which the firm could benefit once customers are able to pay via such terminals, thus obtaining commissions from additional operations. Investment in technology, as well as geographic expansion and broader product supply, should promote more sustained growth in the company’s loan portfolio in the coming years, with higher levels of profitability likely.

Development Strategy

As a result of higher growth in individual loans, we anticipate a 23.1% increase in total loan portfolio, reaching $2.35bn, in 2014. Cré dito Mujer’s contribution to the firm’s total portfolio is expected to fall to 50% in 2014, as compared to 57% in 2013. We expect financial revenues to rise 27.4% year-on-year (y-o-y), while lower funding costs should result in financial expenses growing at a lesser rate of 13.2%. As such, the company’s financial margin in 2014 could achieve 28% growth and reach $1.24bn. We forecast a net income of $200m in 2014, representing a y-o-y increase of 19.7% over 2013. Based on our expectations of net income, our model assumes a return on average equity close to 23.6% by year-end 2014, well above the sector’s average of 15.8%. We have a 2014 year-end target price of MXN29 ($2.25) for GENTERA.