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Microfinance: What Can We Learn From Mexico and Central America. Jaime Carreño Director - Financial Services Ratings Standard & Poor’s February 7, 2006 New York, NY. Characteristics.

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Microfinance: What Can We Learn From Mexico and Central America

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Microfinance what can we learn from mexico and central america

Microfinance: What Can We Learn From Mexico and Central America

Jaime Carreño

Director - Financial Services Ratings

Standard & Poor’s

February 7, 2006

New York, NY



  • Lending activities focus in low income individuals, especially women, most of them with an informal commercial activity (the average of women borrowers is 60.6%, in Latin America 66%).

  • In most cases, borrowers are gathered by groups. In Latin America, groups represent 36.4% (solidarity groups and village banking).

  • Small average loan amount and short term loans (the average lending in Latin America is US$400).

  • Depends more on the borrower desire to pay than on guarantees

  • In most cases Microfinance companies have capital contributions from international funds or institutions as donations.

Characteristics cont d

Characteristics (cont’d)

  • High operating costs (the average cost per borrower is US$1001).

1 average for self-sufficient Microfinance companies Source: The MicroBanking Bulletin

Basic operating requirements

Basic Operating Requirements

  • Clear credit policies

  • Effective controls to manage the loan portfolio

  • Efficient information systems

  • Enough capital to support intrinsic risks

Main aspects to analyze


Shareholding Structure

Legal Structure

Market Position


Credit Risk

Liquidity and Funding

Main Aspects to Analyze



  • Low entry barriers

  • Know how


Payment Culture

Payment Incentives


Shareholding structure

Shareholding Structure

Profesionalism increase control and supervision

Lower Risk

Diversified with participation of international institutions

Flexibility to attract additional shareholders or funds


Legal structure

Legal Structure

  • Limits by type or number of shareholders

  • Limits on funding sources

  • Limits on leverage

Limits growth



  • Loan size

  • Industry

  • Related Parties

  • Geographical concentration is relevant due to possible negative effects of low economic activity or natural disasters.

Not relevant

Market position

Market Position

  • SupplyDemandNot relevant

  • The importance stems from the possibility of an institution to reach break-even and economies of scale

Credit risk

Credit Risk

  • Sustain good payment culture

  • Agents: Manage growth, good training, good acceptance, motivated and responsible.

Group’s joint responsibility

Build good credit history with the company

Prosecute delinquencies

Credit risk cont d

Credit Risk (cont’d)

  • Close monitoring of the loan portfolio: past dues, geographic diversification, growth, products.

  • Reserve and charge-off policies.

Funding and liquidity

Funding and Liquidity

  • Funding legal restrictions

  • Money market sophistication in the country of operation

  • Market knowledge of the industry

  • Liquidity



  • Loan portfolio default history

  • Reserve and charge-off policy

  • Internal capital generation

  • Access to additional capital

  • Regulatory capital

Financiera compartamos

Financiera Compartamos

Current ratings:

Counterparty Credit RatingmxA+/Positive/mxA-1

Structured Notes ProgramMxP500 millionmxAA

Financiera compartamos1

Financiera Compartamos

Counterparty Credit Rating (mxA+/Positive/mxA-1):

  • Good financial performance based in strong margins

  • Sound asset quality indicators in terms of credit loss experience and diversificiation

  • Strong operating controls

  • Agressive growth rates which could increase operating and credit risks

  • High risk inherent to microfinance operations where individual defaults could multiply because of slowdowns in the economy

Financiera compartamos2

Financiera Compartamos

Structured Notes Ratings (mxAA):

  • Risk in its debt servicing capacity rests over its counterparty credit rating of ‘mxA+’

  • The structure of the notes incorporates mechanisms that provide a certain level of credit and liquidity protection to noteholders that results in an enhanced rating of the notes of two notches above the CCR

Financiera compartamos3

Financiera Compartamos

Structured Notes Ratings (mxAA):

  • Partial guarantee granted by IFC (at least 34% of outstanding at the time of the first disposition)

  • Standby loan granted by IFC equivalent to the available amount of the partial guarantee

  • IFC’s ‘AAA’ counterparty credit rating in Standard & Poor’s Global Scale

  • Inexistent direct macroeconomic correlation between Compartamos and IFC

  • The structure of the transaction is according to the parameters established by the Standard & Poor’s Partial Guarantee Model

Future developments

Future Developments

  • As the informal economy sector grows in the economies of the region we expect microfinance to become a fast growing segment with a strong potential for development

  • Increasing number of new participants

    • Not all will be able to develop a viable project

  • Different types of organizations

    • Figures similar to those of Sofoles (Sociedades Financieras de Objeto Limitado)

    • Trusts with federal or state participation, e.g., Fondo Jalisco de Fomento Economico (FOJAL, rated ‘mxA-/Stable/mxA-2’)

    • Evolution in their legal structure toward banks



Suggest reading

The MicroBanking Bulletins







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