Rural Women’s Club Lender Seeking Urban Growth: Corporate Mexico

Gentera SAB, the Mexican microlender catering to rural shopkeepers and craftswomen, is winning over analysts as it pushes into riskier personal and small-business loans in cities.

The shares have 14 buy recommendations, three holds and two sells among equity analysts surveyed by Bloomberg, giving it the highest average rating of 35 companies on Mexico’s benchmark IPC index after tortilla maker Gruma SAB. Gentera said last month that its loan portfolio climbed 14 percent in the fourth quarter from a year earlier to a record 20.7 billion pesos ($1.56 billion) as its delinquency rate almost doubled.

Gentera transformed itself from a non-governmental organization into a $2.8 billion multinational corporation by lending to clubs of 10 to 50 rural women who turned out to be reliable borrowers in part because of shared accountability, according to the company. As growth in that market slowed, the Mexico City-based company increased outstanding loans by 46 percent in urban areas to individuals and business collectives that include men.

“At the start of any strategy shift, there will be difficulties,” Ana Cecilia Gonzalez, an analyst at Monex Casa de Bolsa SA with a buy recommendation, said from Mexico City. “They have been working to clean up the portfolio.”

Credito Mujer, the most-popular product in Gentera’s seven-year history as a public company, allows groups of rural women to take out 3,500 pesos to 30,000 pesos for 16 weeks at an annual percentage rate, or APR, of 78 percent, according to the company’s website. The average loan is 4,986 pesos. The company said in a quarterly presentation on its website that rural populations foster “social cohesion” that help the creditworthiness of the group.

Repayment Rates

Gentera shares rose 0.6 percent to 22.82 pesos in Mexico City trading. They have advanced 10 percent in the past 12 months, while the IPC index fell 11 percent.

The microfinance industry often caters to women because they have higher repayment rates than men, according to the website of the United Nations International Labour Office.

Credito Mujer loans as a share of Gentera’s total in Mexico fell to 56 percent in the fourth quarter, from 62 percent a year earlier and 71 percent in 2011. Although Gentera’s financial statements show that Credito Mujer loans outstanding fell 1.5 percent to 9.15 billion pesos, Chief Financial Officer Patricio Diez de Bonilla said in an interview that the drop was due to a change in reporting methodology.

Without the change, the Credito Mujer portfolio would have grown, though at a slower pace than other products, he said in a telephone interview yesterday from Mexico City.

International Expansion

“Where we’ve seen greater competition and, therefore, lower growth rates nowadays in the company is in Credito Mujer,” Diez de Bonilla said by phone. “Several years ago we were a uni-product bank, and we knew that eventually Credito Mujer’s growth would become more moderate.”

That led to the development of other products in Mexico, as well as the company’s expansion into other countries, according to Diez de Bonilla. Gentera also operates in Guatemala and Peru, where it bought control of microfinance company Financiera Creditos Arequipa in 2011.

Mexico is the biggest market, with 79 percent of loans outstanding.

Rural lending grew 0.9 percent last year in Mexico. The rural category includes Credito Mujer as well as home-improvement loans and a product known as Credito Adicional, which allows participants in the Credito Mujer program to take out personal loans.

Non-Performing Loans

The company’s newer urban lending products include Credito Individual, for individual business people, and Credito Comerciante, or merchant credit, which extends working capital to groups of 4 to 20 men and women. Versions of the products have existed with differing names since the lender’s 2007 IPO, though their share of total loans has more than doubled to 28 percent.

Non-performing loans, or those in or near default, rose to a record 4.6 percent of the portfolio on a comparable basis, up from 2.77 percent in the same period last year, according to the fourth-quarter report. Among urban clients, the NPL ratio was 7.34 percent, compared with 2.71 percent for Credito Mujer loans. The highest delinquency rate was on loans to urban individuals, at 10.02 percent.

“That’s what investors are looking at, to see if they can prove that they can really bring down those NPL ratios and manage that type of a loan portfolio,” Heber Longhurst, an analyst with Grupo Financiero Interacciones SAB, said in a telephone interview from Mexico City. “I think that they can.” He rates the shares buy.

New Markets

Jorge Benitez, an analyst at Corporativo GBM SAB with a hold recommendation, said the company has yet to prove it can compete against traditional lenders in newer markets.

“The group loans are the ones that are most effective because there’s lower risk and the NPL ratios are way better,” Benitez said in a phone interview from Mexico City. “They started to focus on other segments to offset the slowness they were seeing in group lending.”

Gentera’s Diez de Bonilla said the new products entail “moderate risk.” He said the company is increasing specialized training in the different products for sales people to rein in non-performing loans.

“This is the right strategy to start growing urban lending in a healthy manner, without impacting loan delinquency,” Monex’s Gonzalez said.

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