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| Volume 5, Issue 1: July, 2007 | ||||
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E-news Main Page In This Issue Compartamos IPO: Microfinance Doing Good, or the Undoing of Microfinance?SAVE THE DATE! The Asia/Pacific Region Microcredit Summit 2008 Archived Issues Vol 5 Iss 1 Jul '07 E-News Information |
Remarks by Steven Funk, Founder and Member of the Dignity Fund BoardTwelve years ago Compartamos was funded not only with grants, but also with risk capital, in the form of loans and equity. No promises were made that the business model would be successful. Compartamos’ business worked. It became self-sustainable and profitable. Now an IPO valuing the bank near US$ 2.0 billion has been completed. The purpose of investor and donor funds has been accomplished. At 14X book equity and a price/earnings ratio of 26X, this was the most successful offering ever of any kind by CreditSuisse. Please recognize a very important fact! Investors valued Compartamos’ business. The IPO offered a wonderful reward for the initial risk investors. But far more importantly, in my opinion, it has furthered a tremendous opportunity for microfinance institutions. Still, concern has been raised. Why? That the market “overvalued” Compartamos? That Compartamos was lucrative for its risk investors, that its return on equity was too high, or that it charges too high a rate of interest to borrowers? One thing is certain: The capital markets have taken serious interest in the equity of a bank that lends to the poor. By careful measure, this is reason to be excited and rejoice. We need over $30 billion annually if we are to effectively reach the world's poor. This money doesn’t fall from trees, and it isn’t delivered by governments or NGOs. One must allow and support the development of the capital markets to fund the impoverished. The more developed the capital markets become, the lower the cost of capital will become for MFIs, and for borrowers. This is basic market economics. This year ICICI sold an issue of 4.9 billion Rupiah within an hour of opening. Morgan Stanley, led by Ian Callaghan, has completed two $100 million microfinance transactions. Commercial funds are becoming available in unprecedented volumes – finally. To really eradicate poverty, we need an abundant supply of capital and numerous resources. We are seeing the opportunity to access organized credit to help the poor improve their lives. Compartamos’ success is microcredit’s success, and continues the strengthening march toward effective solutions to put poverty in history books. |