Abstract:
Microlending, defined as very small loans advanced to very low-income entrepreneurs, has attracted wide attention as a potentially effective means to aid the economic development of impoverished nations. This case focuses on one of the largest and most successful of such microlenders, Mexico's Compartamos ("we share") organization, and raises questions about the most effective business model and scale of microlenders. Specifically, the case tells the story of how Compartamos, which had found great success making small loans in villages and rural areas, fared when it sought to expand into Mexico City. A series of reverses--higher default rates, personnel problems, and unexpected competition and regulatory issues--implicitly pose the question of whether Compartamos and microlenders of its type, which historically have relied on peer group pressure to ensure repayment of otherwise unsecured loans to small start-up businesses, can expand and adapt to an urban setting.
Learning Objective:
Through this case, students can learn about issues faced by non-profit managers such as those in microfinance organizations in replicating successful programs in new venues.
