This article was published on 14 September 2014.

• More than two thousand businesses in Mexico profit from charging interest above fifty percent to those with the least resources for access to credit

Pilar’s shoes are covered with mud. In Toluca, Mexico State it has been raining more than a week. The city of Toluca is one hour from Mexico City. In Toluca, forty-two percent of its 407,000 residents are poor. At the door of this woman – she’s fifty-eight years old – three small, skinny dogs and a red hen stand guard. Laughs and murmurs spill out of the small home. More than twenty women have come to their regular Thursday appointment. All are small business people: they sell shoes, vegetables, bedding, and cosmetics. They are meeting to pay a credit of 365,000 pesos (almost USD$28,000) that they had asked for from Compartamos Bank and that must be repaid in four months. Pilar has asked for three thousand pesos (USD$228) to stock her candy and soda store.

Some pay one hundred or two hundred dollars, others up to one thousand, depending on the money that they have requested. Cirene owns a stationery store. She belongs to a group of women who have been the bank’s clients for four years. In 2010 she requested three thousand pesos (US$230) from Compartamos. Now her debt stands at around US$2,000.

“Now I want more,” says Cirene, 50, with pride. She is not the only one. The majority of women have improved their business outlook thanks to the money that we give them as credit. “Not just anybody can borrow,” she argues. In its twenty-four year history, Compartamos has had more than three million clients, 90 percent are women, two-thirds of those have barely completed their basic education and six percent are illiterate.

The micro-bankers, like Compartamos, know how to take advantage of the hole left by Mexico’s big banks: the population with scarce resources, explains Óscar Pfeiffer, spokesperson for Prodesarrollo, a network that brings together 87 financial firms dedicated to this sector of the population. In Mexico this is an enormous market. According to the National Council for the Evaluation of Social Development Politics (Consejo Nacional de Evaluación de la Política de Desarrollo Social), the number of people in poverty exceeds 53 millions. The Economic Commission for Latin America and the Caribbean (CEPAL) says that 60.6 millions Mexicans suffer from poverty.

Compartamos has attracted strong criticism from Nobel Prizewinner Muhammad Yunus

Compartamos controls 40 percent of the microfinance market and is the star of this sector. It’s no longer an NGO, like it was in 1990 when it began. Now it’s a bank that has been listed on the Mexican stock exchange since 2006. One sign that things are going well is the trust the investing public has placed in this institution. After just three years on the stock market, Compartamos’ shares increased in value by 98 percent. In 2013, its profits were almost US$189 million and now it operates in Guatemala and Perú.

In Mexico, according to the Inter-American Development Bank (IADB) there are around two thousand micro-banking institutions with a client list of around six million Mexicans, all of scarce resources. Owing to their growth in the last decade, some international organizations have criticized the interest rates that these businesses charge for their loans. According to the IADB, in Mexico the average commission is above 50 percent whereas in the rest of Latin America it is thirty percent.

For some Compartamos clients whose annual commission averages 75 percent, the price of the credit is hardly relevant. Andrés hasn’t stopped working. He spends every morning in his workshop where the smell of paint overwhelms but the substance is needed to make figures from resin. With his mother – who is responsible for the loan – together they have been in business for five years and just asked for a three thousand dollar loan to enable it to grow. “The interest rate is high but there’s no other way for us to gain access to money,” he says.

The rate is justified, says Carlos Daniel, president of Compartamos’ advisory board. “In order to provide a client with the service operating costs have to be covered: accounting, publicity, transportation,” he points out. In 2008 the institution was criticized strongly by the Nobel Prize-winning Economist Muhammad Yunus. “It’s priority has been to make money,” he said. Yunus was one of the pioneers of the concept of micro-finance. His company, Grameen Bank in Bangladesh has an interest rate less than twenty percent.

“These businesses offer services to people whom the large commercial bank does not see as potential clients because they can’t fulfill its lending requirements,” Óscar Pfeiffer says, the Prodesarrollo spokesperson. “Although they are rates higher than in other countries, in Mexico there are low profit margins for these operations.

To the question about whether micro-bankers are just doing good business at the expense of the poor, Compartamos Bank’s Carlos Daniel searches for a reply: “What we would say is that what we are doing is making Mexico better.”

Translator Patrick Timmons is a human rights investigator and journalist. He edits the Mexican Journalism Translation Project (MxJTP), a quality selection of Spanish-language journalism about Latin America rendered into English. Follow him on Twitter @patricktimmons. The MxJTP has a Facebook page: like it, here.

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