Ethical Issues of NGO Principals in Sustainability, Outreach and Impact of Microfinance: Lessons in Governance from the Banco Compartamos' IPO

Management online REview, pp. 1-18, November 2009

18 Pages Posted: 15 Feb 2008 Last revised: 4 May 2018

See all articles by Arvind Ashta

Arvind Ashta

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté

Matthew Bush

BGC Partners, Inc.

Date Written: 2008

Abstract

In April 2007, a Mexican microfinance company named Banco Compartamos issued shares in a secondary offering IPO. Existing shares were sold at 12 times their book value. The book value itself was 21 times the paid-in-capital. The 21 fold increase in book value was mainly from charging high interest rates of 86% to poor people net of taxes. The backlash to the issue was a lot of accusations that poor people were sacrificed for rich investors. The selling investors included NGOs such as Compartamos AC, Accion as well as IFC, the private lending arm of the World Bank group. These agencies were quick to react and offered many explanations in their defence. Nevertheless, ethical issues involving principal-agent problems, where the principal is an NGO, have been left unanswered.

This paper resumes the facts, summarises some criticisms, recapitulates the defence arguments, assesses them and also summarises many of the ethical issues in governance needing further academic debate and research. Although many of the issues were raised by the extraordinary profits of the IPO, the issues go beyond the realm of discussing IPOs but all social justice associated institutions, MFIs in particular. The objective of the paper is to present a myriad of unresolved issues and to stimulate researchers to debate and clarify each of the themes presented. Most of the ethical issues are deontological, but some are teleological. Ethics shape laws, but are also shaped by existing laws and beliefs. A question is also who decides the ethics.

Keywords: Principal-agency, microfinance, IPO, business ethics, governance, sustainability, Rawls, ICST

JEL Classification: G29, G3, L32, L33, N8, F30, F34, F35

Suggested Citation

Ashta, Arvind and Bush, Matthew, Ethical Issues of NGO Principals in Sustainability, Outreach and Impact of Microfinance: Lessons in Governance from the Banco Compartamos' IPO (2008). Management online REview, pp. 1-18, November 2009. Available at SSRN: https://ssrn.com/abstract=1093665

Arvind Ashta (Contact Author)

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté ( email )

29 rue Sambin
21000 Dijon
France

Matthew Bush

BGC Partners, Inc. ( email )

Singapore
London, UK
Tokyo
Japan

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