Companies that want to survive the global financial crisis and create sustainable value for shareholders need to start by creating value for their clients, microfinance entrepreneur Carlos Danel Cendoya said Feb. 10 at Thunderbird School of Global Management.
“Any sensible investor understands very well that in order to have economic success, they need to create value for their clients,” Danel told a group of about 50 students, faculty and staff at the graduate business school in Glendale, Ariz. “I think we often go into things that create value for everyone except the client, and we don’t focus enough on the value we create for them.”
Danel’s clients at Compartamos Banco in Mexico include more than 1 million low-income families that traditional banks often overlook.
His company stirred debate in 2007 when it became the first microfinance operation to go public — with shares traded in New York and Mexico. Critics worried that Compartamos Banco would exploit Mexico’s rural poor in its rush to pay high dividends to investors, but Danel called these concerns short-sighted.
“We have very good examples of companies, when they do abuse their clients, they collapse,” he said. “Our mission at Compartamos Banco is to create social, economic and human value for all stakeholders. If we are unable to do that because of pressure from our shareholders, then it’s not going to last.”
He rejects the notion that companies can either serve the shareholder or the client. “From a business perspective,” he said, “the thing that really builds a sustainable endeavor is when you actually realize what problem you can solve for somebody — a problem that is meaningful — and how you can create long-term value for him or her.”
He said microfinance clients have the same basic aspirations as anyone else and deserve to be treated like any other bank customer.
“They are eager to be dealt with as business partners and as clients,” he said. “The fact that you say it is OK to do business with a higher income client but not with a lower income client is really just another form of discrimination.”
Danel said Compartamos Banco, which started as a nongovernmental organization in 1990, protects its clients from excessive debt by eliminating incentives for loan officers to lend more than is necessary. In most cases, he said, clients borrow less than $400.
“We reward our loan officers for being productive in terms of how many clients they serve, not the amount they lend,” he said. “There isn’t a single incentive within the bank that would lead loan officers to increase the amount of the loan.”
He said traditional banks caught in the global financial crisis could benefit from similar restraints.
“Focus on the clients,” Danel said. “Focus on the clients’ needs. And focus — first and foremost — on creating value in their lives.”
Video: Profiting from the poor (2:42)
Video: Reality check for microfinance (1:52)
Video: Creating sustainable value (2:11)