1. Knowledge of the “base of the pyramid market”, a desire to reduce poverty driven by social morals, belief in empowering borrowers, ability to offer products that increase production, ability to measure financial and social success, and a proven business model led by a strong management team are all key factors in determining the success of a microfinance operation. This differs from traditional banking in that the target market is much more destitute, the goal is more socially oriented, and the focus of the funded projects must be more closely analyzed for microfinance operations.

2. At the lower level, microfinance lending rates must compete with those offered by the “curb market”, which consists of loan sharks. Proceeding up the ladder of a microfinance operation, one can expect that efficiencies resulting from economies of scale and scope should translate into lower lending rates. As a financial operation, microfinance banks must produce an acceptable return to remain viable. The return on equity can be decomposed into a product of leverage, asset turnover, and return on sales. Each of these metrics must be adjusted to simultaneously maintain an acceptable return on equity and level of social improvement.

3. They went public to garner a higher level of financial resources to more significantly reduce world poverty. An immediate reason was to cash in the value of Compartamos so that it could be redeployed in other microfinance projects. Number of active clients, loan portfolios, and net income surged while net interest margin and return on equity decreased as a result of the IPO.

4. Access to public markets and lower cost of funds are important for increasing the scope of the business’s impact. Erosion of the high return on equity due to competition and change in the management of the company are necessary sacrifices to further reduce world poverty. As a result, I would have been in favor of the IPO from a social perspective.

5. After an IPO, the objective shifts from social impact to growth and returns. The lending and profitability policies must be revised to positively affect the P/E ratio in the interest of new shareholders. This is worth it in my view due to the expansion possibilities offered by the IPO such as savings accounts, microinsurance, and housing loans, which would all help decrease world poverty. These new features would need to be highlighted to protect the company’s reputation as an IPO shifts its public image from one of social impact to one of profit.

6. Compartamos has been socially successful regardless of the high lending rate because it has brought the issue of microfinance to the forefront of the industry. They have inspired competition, which will eventually lower rates and increase access to credit in poorer communities. Furthermore, providing access to credit to those who previously had no options is beneficial independently of the rate.