Microfinance what can we learn from mexico and central america
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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

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)

  • 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

  • Clear credit policies

  • Effective controls to manage the loan portfolio

  • Efficient information systems

  • Enough capital to support intrinsic risks


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

Profesionalism increase control and supervision

Lower Risk

Diversified with participation of international institutions

Flexibility to attract additional shareholders or funds


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

  • SupplyDemandNot relevant

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

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)

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

  • Reserve and charge-off policies.

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

Current ratings:

Counterparty Credit RatingmxA+/Positive/mxA-1

Structured Notes ProgramMxP500 millionmxAA

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 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 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

  • 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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