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Monthly Archives: February 2010

Mexico’s Compartamos Eyes 20% Profit Growth, Deals In 2010

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MEXICO CITY (Dow Jones)–Mexican microfinance bank Banco Compartamos SA (COMPART.MX) plans to grow its profit 20% this year and is looking for acquisitions in other Latin American countries, top executives said Tuesday.

“In Mexico, we think the best way to grow is organically, but outside of Mexico we are open to and looking for opportunities to acquire a well-managed institution with a focus similar to our own,” said Fernando Alvarez Toca, Compartamos’ chief executive, in an interview.

Alvarez Toca said the company has an internal team looking for acquisitions.

“Colombia, Peru and Brazil are countries that we think have the best environment for an operation like ours, but we aren’t ruling any [country] out,” he said.

Last week, Mexican consumer finance company Financiera Independencia SAB (FINDEP.MX) closed the acquisition of Financiera Finsol in a deal that boosted its domestic microfinance business and gave it a foothold in Brazil.

Microfinance, or the provision of small-scale financial services such as small working-capital loans, savings accounts and insurance policies, has gained popularity worldwide in recent years as a way to combat poverty.

It’s also a very lucrative business, with Compartamos, the largest microfinance lender in Latin America, reporting a whopping 43% return on equity last year.

“Compartamos’ financial structure means we are strongly capitalized and one of the best ways to make use of that capital is through acquisitions,” Alvarez Toca said.

Compartamos reported financial results Tuesday that handily beat management’s full-year 2009 guidance for a 20%-25% increase in net profit and loan growth of more than 20%.

This year, the bank expects to expand its loan portfolio by about MXN1.8 billion, add 310,000 new clients and increase net profit by about 20%, said Patricio Diez de Bonilla, director of treasury and financing.

The bank’s net profit grew 33% on the year to MXN1.49 billion in 2009 thanks to a big increase in lending even though the country suffered its worst recession since the 1995 peso crisis.

The Bank of Mexico expects the economy to grow as much as 4.2% this year, after it contracted 6.5% in 2009.

Compartamos’ total loans increased 33.4% to MXN7.64 billion at the end of December, while the number of active clients rose 30% to 1.5 million.

Compartamos provides small working-capital loans to low-income individuals and business owners, such as crafts manufacturers and food vendors, whose activities are largely recession-proof.

About three-quarters of loans corresponded to its Credito Mujer product for groups of women.

Riskier home improvement loans represented 13% of total loans last year, up from 8% in 2008, which contributed to a deterioration in asset quality.

Home improvement loans shouldn’t represent more than 15% of the overall loan portfolio in the coming years, said Toca, adding the bank’s focus will continue to be working capital loans.

The bank plans to pilot a savings account with a debit card this year with a view to make the product fully available to its clients during 2011, Alvarez Toca said.

Compartamos was one of 10 banks that received preliminary authorization from the National Banking and Securities Commission last December to offer basic financial services through banking agents, which are third parties like retailers hired by a lender to conduct transactions for their clients.

Compartamos’ clients can already pay their loans at Oxxo convenience stores and Chedraui supermarkets, and the savings account product will also rely on third parties because the bank’s network of 325 offices isn’t able to accept deposits, Alvarez Toca said.

“The first step we want to take is to offer a product for our current clients rather than the general public,” he said.

Creating a retail deposit base will allow Compartamos to diversify its sources of funding, which today depends heavily on development banks like government-run Nafin.

Last year, Compartamos boosted its liquidity by selling MXN1.5 billion in three-year notes.

Alvarez Toca said the bank has the resources to fund its growth this year, but even so will look to make another bond issuance if market conditions permit.

“The amount might be a little less than [last year’s]; the tenure, three years if possible, if we can get more we’ll go for a longer term,” he said.

Compartamos’ O shares fell 0.1% to close at MXN64.99 Tuesday. The shares rose 170% last year, compared to a 43.5% gain for the benchmark IPC stock index.

-By Ken Parks, Dow Jones Newswires; 52-55-5980-5177; ken.parks@dowjones.com

The Revolution Has Gone Mobile

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The Revolution Has Gone Mobile

Published: February 19, 2010

By mid-2010, there will be 6.8 billion humans on this planet. According to United Nations estimates, there also will be five billion cellphone subscriptions. These are astonishing numbers. What is still more astonishing, and hopeful, is the breadth of change this number reflects.

The United Nations says that right now 80 percent of the world’s population has available cell coverage. The fastest adoption of cellphone use is occurring in some of the world’s poorest places.

Cellphones are cheap, their batteries can be easily recharged with solar power and they are creating nothing short of a revolution: knitting rural communities together, sowing information, and altering the most basic assumptions about health care and finance. Anyone who has traveled to Africa recently can vouch for these changes.

In nearly every sizable town or city, there are dozens of tiny kiosks where phones can be rented or repaired and subscriptions can be purchased. In regions where communications used to be nearly impossible, cellphones are essential to social innovation. This means everything from microfinance and electronic credit, via SMS, to better networking among health care workers and their patients.

Another revolution is following close on the heels of the cellphone revolution. This year, the number of mobile broadband subscribers — people who access the Internet via laptops or mobile phones — is forecast to pass one billion, up from 600 million at the end of 2009. That number will almost surely skyrocket, too — and the developed world should be doing everything it can to encourage it.

That means increasing the reach and lowering the cost of broadband and pressing for political and commercial openness across the Internet. Mobile communication and access to digital information are powerful development tools and aids to self-sufficiency. And we, in turn, have a lot to learn from the innovative way those tools are being used around the world.

Mexico’s Financiera Independencia Closes MXN530M Finsol Deal

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Interesting M&A developments in Mexican Microfinance Institutions… great to see larger firms realizing the value of smaller MFIs, and recognizing that value in 8.6x Net Book Value premiums.

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MEXICO CITY (Dow Jones)–Mexican consumer finance company Financiera Independencia SAB (FINDEP.MX) said Friday that it has closed the acquisition of lender Financiera Finsol for 530 million pesos ($41.4 million).

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The deal included MXN794.6 million in loans and 173,179 clients, Financiera Independencia said in a filing with the Mexican Stock Exchange.

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Finsol’s operations include savings-and-loan firm Financiera Popular Finsol SA, insurance broker Finsol Vida SA, and Brazilian microfinance lender Instituto Finsol Brazil.

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Financiera Independencia said the acquisition of Financiera Popular Finsol is still subject to the approval of the National Banking and Securities Commission, which it expects to obtain during the second quarter.

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The deal expands Independencia’s microfinance business, which still represents a small portion of its largely consumer-oriented loan portfolio. Finsol specializes in making small loans to groups of individuals.

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Microfinance, or the provision of small-scale financial services such as small working-capital loans, savings accounts, and insurance policies, has gained popularity worldwide in recent years as a way to combat poverty.

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Financiera Independencia, which operates as a nonbank finance company, had 198 offices and MXN4.79 billion in loans at the end of September.

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The company’s shares closed 1.1% higher at MXN11.48 on Friday.

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$9m Purchase by Sequoia Gives Kalpathi Rich Exit from India’s Equitas

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$9m Purchase by Sequoia Gives Kalpathi Rich Exit from India’s Equitas

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February 2. 2010

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Kalpathi Investments, the investment company of entrepreneur Kalpathi Suresh, recently
sold its 10 percent stake in Equitas, an Indian microfinance institution, for the local-currency
equivalent of USD 9.4 million after having purchased the stake two years earlier for USD
754,000. US-based venture capital firm Sequoia Capital acquired the stake in Equitas, which
reports total assets of USD 61 million, a gross loan portfolio of USD 43 million, 339,158
active borrowers, return on assets of 1.52 percent and return on equity of 4.02 percent.
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To Help Haiti (For the long term), End Foreign Aid – WSJ

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While Haiti clearly needs aid and compassion now, the long term prospects will remain weak if not coupled with a rigorous rebuilding and foreign direct investment plan. The Haitian government must work toward building a legislative framework for the protection of human rights and establishment of a robust private sector.
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To Help Haiti, End Foreign Aid

It’s been a week since Port-au-Prince was destroyed by an earthquake. In the days ahead, Haitians will undergo another trauma as rescue efforts struggle, and often fail, to keep pace with unfolding emergencies. After that—and most disastrously of all—will be the arrival of the soldiers of do-goodness, each with his brilliant plan to save Haitians from themselves.
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“Haiti needs a new version of the Marshall Plan—now,” writes Andres Oppenheimer in the Miami Herald, by way of complaining that the hundreds of millions currently being pledged are miserly. Economist Jeffrey Sachs proposes to spend between $10 and $15 billion dollars on a five-year development program. “The obvious way for Washington to cover this new funding,” he writes, “is by introducing special taxes on Wall Street bonuses.” In a New York Times op-ed, former presidents Bill Clinton and George W. Bush profess to want to help Haiti “become its best.” Some job they did of that when they were actually in office.
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All this works to salve the consciences of people whose dimly benign intention is to “do something.” It’s a potential bonanza for the misery professionals of aid agencies and NGOs. And it allows the Jeff Sachses of the world to preen as latter-day saints.
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For actual Haitians, however, just about every conceivable aid scheme beyond immediate humanitarian relief will lead to more poverty, more corruption and less institutional capacity. It will benefit the well-connected at the expense of the truly needy, divert resources from where they are needed most, and crowd out local enterprise. And it will foster the very culture of dependence the country so desperately needs to break.
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How do I know this? It helps to read a 2006 report from the National Academy of Public Administration, usefully titled “Why Foreign Aid to Haiti Failed.” The report summarizes a mass of documents from various aid agencies describing their lengthy records of non-accomplishment in the country.
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Here, for example, is the World Bank—now about to throw another $100 million at Haiti—on what it achieved in the country between 1986 and 2002: “The outcome of World Bank assistance programs is rated unsatisfactory (if not highly so), the institutional development impact, negligible, and the sustainability of the few benefits that have accrued, unlikely.”
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Why was that? The Bank noted that “Haiti has dysfunctional budgetary, financial or procurement systems, making financial and aid management impossible.” It observed that “the government did not exhibit ownership by taking the initiative for formulating and implementing [its] assistance program.” Tellingly, it also acknowledged the “total mismatch between levels of foreign aid and government capacity to absorb it,” another way of saying that the more foreign donors spent on Haiti, the more the funds went astray.
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But this still fails to get at the real problem of aid to Haiti, which has less to do with Haiti than it does with the effects of aid itself. “The countries that have collected the most development aid are also the ones that are in the worst shape,” James Shikwati, a Kenyan economist, told Der Spiegel in 2005. “For God’s sake, please just stop.”
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Take something as seemingly straightforward as food aid. “At some point,” Mr. Shikwati explains, “this corn ends up in the harbor of Mombasa. A portion of the corn often goes directly into the hands of unscrupulous politicians who then pass it on to their own tribe to boost their next election campaign. Another portion of the shipment ends up on the black market where the corn is dumped at extremely low prices. Local farmers may as well put down their hoes right away; no one can compete with the U.N.’s World Food Program.”
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Mr. Sachs has blasted these arguments as “shockingly misguided.” Then again, Mr. Shikwati and others like Kenya’s John Githongo and Zambia’s Dambisa Moyo have had the benefit of seeing first hand how the aid industry wrecked their countries. That the industry typically does so in connivance with the same local governments that have led their people to ruin only serves to help keep those elites in power.
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A better approach recognizes the real humanity of Haitians by treating them—once the immediate tasks of rescue are over—as people capable of making responsible choices. Haiti has some of the weakest property protections in the world, and some of the most burdensome business regulations. In 2007, it received 10 times as much in aid ($701 million) as it did in foreign investment.
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Reversing those figures is a task for Haitians alone, which the world can help by desisting from trying to kill them with kindness. Anything short of that and the hell that has now been visited on this sad country will come to seem like merely its first circle.
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Write to bstephens@wsj.com
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Printed in The Wall Street Journal Europe, page 15
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