NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, June 27, 2013

WASHINGTON, June 24 (Reuters) – Mexico’s microfinancing bank Compartamos, accused by activists of exploiting poor borrowers with exorbitant interest rates, has generally helped people but could cut the interest it charges without hurting its bottom line, a pair of studies has found.

The two studies, funded by the Massachusetts Institute of Technology’s Poverty Action Lab, looked at whether loans by Compartamos, the country’s largest and most profitable microfinance lender, had helped the people it sought to serve and, separately, whether it could lower interest rates.

Originally a charity, Compartamos went commercial in 2000 and it drew criticism from microfinance purists after its highly successful initial public offering in 2007.

One of the studies found that when Compartamos has a greater presence in a neighborhood or town, measures of well-being such as happiness and trust in others improved. And while there were no significant changes in household income, households were able to avoid selling assets to pay down debt, improving economic well-being.

“Microcredit is on average modestly beneficial – but not transformative,” said University of Michigan’s Manuela Angelucci, who co-authored one of the studies.