Compartamos: From Nonprofit to Profit

(page 2 of 2)

Compartamos representatives supervising the groups earn bonuses of up to 120% of their salary based on growth in the numbers of clients and loans. They urge borrowers to seek more credit as soon as they pay off each loan. Nearly 9 out of 10 do so, the bank says. Persistent indebtedness can create daunting burdens for customers, many of whom also have loans from Azteca, loan sharks, and other lenders. Few working-poor clients understand the concept of interest rates, Danel admits. "What matters [to most borrowers] is: How much do I have to pay every week or every month or up front?'"

Although Compartamos may have declared victory prematurely in the case of Hernández, there are other, more promising stories, such as that of Jenny Ramírez, a 24-year-old single mother whose marriage broke up after her husband left for the U.S. Until five months ago, she sold children's clothes from a sidewalk table. Compartamos loans, on which she pays an APR of 105%, enabled her to open a small store. "From the time I was a little girl, I loved money," she says. "I sold bread door to door. I sold Fuller brushes, I sold Avon."

Ramírez' group of 16 women calls itself Avanzando, which means "advancing." Yet even those who seem to be advancing encounter financial obstacles. At an October meeting in the unfurnished front room of a member's home off a dirt alley, the women buzz about a new fee for life insurance. Compartamos loans automatically include an insurance policy. Coverage lasts only for the term of the loan and pays any remaining debt if a borrower dies, as well as funeral costs. The Compartamos representative has told the group that at least 11 of them would have to buy additional insurance at a cost of $5.50 each, or else their group's loans would not be renewed. None of the women want the extra coverage. The cost may sound modest, but not to people teetering on the edge of insolvency. Reluctantly, the women draw straws, and Ramírez and her mother wind up among the unlucky 11 having to pay the extra $5.50.

Ramírez can't contain herself. "You forced us to buy these extra policies, and it's not fair," she says sharply to the bank representative.

Interviewed later, Danel, the co-CEO, says that the representative acted "overeagerly and wrongly" and that in the future insurance purchases will be entirely voluntary. But he stresses that Compartamos is no longer a charity. "A lot of people have suggested that financial inclusion can be a poverty alleviation tool," he says. "We're not out to prove that. We're out to provide financial services as opportunities to these clients, realizing that some people might make better use of them than others."