Jesuit Moneylenders - Forbes 1994

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Jesuit moneylenders. Millman, Joel Forbes; 8/29/94, Vol. 154 Issue 5, p56-58, 2p, 2c Article CAPITALISM JESUITS POOR COLOMBIA Reports that the Jesuits, a Catholic religious order, are helping to bring capitalism to the working poor of Colombia. How Caja Social de Ahorros (Social Savings & Loans) opened in 1991; Other Jesuit financial ventures. INSET: Meanwhile in Mexico...&hellip. 1009 0015-6914 9408197546 MasterFILE Premier This title is held locally 658.05 F49 VPL holds 1929+ BUSINESS DIVISION KEEPS CURRENT TWO YEARS; BACK ISSUES IN NEWSPAPERS & MAGAZINES DIVISION

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JESUIT MONEYLENDERS How a religious order helps bring capitalism to Colombia's working poor. IN Ciudad Bolivar, a neighborhood more than an hour's bus ride from the center of Bogota, a storefront bank is doing a brisk business. Caja Social de Ahorros -- loosely, Social Savings & Loans -opened in 1991. Today over 10,000 local shopkeepers, street peddlers and housewives have accounts. Caja Social is the only bank servicing a slum of at least 1 million people. Many of Caja Social's 126 branches are in such areas. ``Before, I had to ride a bus into the [city] center to get money,'' says Hernando Orozco, a loyal customer who employs 27 people in his tailor shop in Ciudad Bolivar. ``Now I come almost every day.'' Who brought banking to the working poor of Bogota? Not the established banks, which, quite naturally, prefer to do business in more affluent areas. Caja Social is, in essence, a religious bank. It traces its roots to a Jesuit priest and today functions as an autonomous organization whose board of directors is appointed by Jesuits. In addition to its banks in Ciudad Bolivar and other poor areas, Caja Social's parent organization, the Fundacion Social, owns a savings and loan, an insurance company, a construction company and a private pension fund. Fundacion Social's consolidated assets: $1.3 billion. Although controlled by the Jesuits, Fundacion Social's financial services companies function like any other in Colombia, competing in the marketplace and paying most regular taxes. Caja Social and

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Colmena, the savings and loan, also manage portfolios of stocks and bonds. The two banks have even issued some 100,000 MasterCards and Visa cards. Last year the Fundacion earned an impressive $38 million on consolidated revenues of $344 million. It allocated more than $3 million of these earnings to charity, and plowed the rest back into its growing financial businesses. ``The Fundacion acts like any private shareholder,'' says Enrique Andrade, a layman who has worked for the Fundacion since 1986. ``We reinvest profits, and we never sacrifice business for charity. We want to stick for the long term.'' Fundacion Social traces back to 1911, when Jose Maria Campoamor, a Jesuit priest, arrived from Spain and founded the Circulo de Obreros, a workers' club, in Bogota. The Jesuits had been expelled from Colombia twice since the 1500s, but Padre Campoamor came to stay. In running church programs for local shoemakers, bricklayers and carpenters, he learned that their greatest need was cheap housing. That led him to start a savings bank, owned by the Circulo de Obreros, which later evolved into the diversified financial holdings that today make up Fundacion Social. Caja Social's prevailing interest rate, 19% on passbook accounts, does not keep up with Colombia's 22%-a-year inflation. But Caja Social does give more important protection -- keeping its poor clients' money safe in a crime-ridden area. It is even open on Sundays. The extra personnel, plus the cost of handling tons of coinage each week, raises expenses for the Jesuits. But Caja Social is no charity. For the past two years the trade magazine America Economia has ranked it as Latin America's most profitable bank, with a return on assets of 8%. Salomon Brothers, which recently published an exhaustive report on the Colombian banking system, ranked Caja Social first in return on equity -- a way-ahead-of-inflation 143% in 1993. The high return can partly be explained by the fact that Caja Social is thinly capitalized. And even though the interest rate it pays depositors trails Colombia's inflation, the deposit base now exceeds $280 million. Some 3,000 customers visit Caja Social's Ciudad Bolivar branch every day, making deposits and withdrawals of as little as $5 at a time. In this high-crime area, people don't like to carry much cash on them, or leave it at their homes. Today, with almost a million depositors, Caja Social's average savings account is just over $200; three-quarters of loans are under $3,000, yet the default rate is almost nonexistent. ``If they don't borrow from us, they have to go to the loan sharks,'' says Enrique Andrade. ``They'll do almost anything to repay on time.'' Alvaro Davila, general manager of Fundacion Social, uses wit to describe the Fundacion's curious mixture of business and charity when he tells FORBES: ``Some companies start foundations. We're a foundation that started a bunch of companies.'' PHOTO: Busy tellers at a Bogota branch of Caja Social de Ahorros The customers accept negative real interest to protect their cash from theft. PHOTO: Fundacion Social general manager Alvaro Davila Established banks prefer business in more affluent areas.

~~~~~~~~ By Joel Millman

MEANWHILE, IN MEXICO... COMMERCIALLY clever as they are, the Jesuits who run Colombia's Fundacion Social have nothing on their brothers in Mexico. Since 1986 the Mexican order's Foro de Apoyo Mutuo Mexico has been tapping the world's secondary debt markets to raise cash for its many projects. After Mexico City was shattered by an earthquake in 1985, Father Enrique Gonzalez Torres, a Jesuit trained at Stanford University, came up with a scheme to leverage cash donations flooding in from Catholic charities overseas. Father Gonzalez, then 46, arranged a triangular swap plan. He used $200 million in dollar donations from abroad to buy Mexican sovereign debt securities in Europe at a discount -- about 45 cents on the dollar. He then sold those

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securities back to the Mexican government, now marked up to 60% to 80% of par, but in pesos. By 1990 Father Gonzalez had earned some $80 million on his original $200 million stake. With the improving Mexican economy, the spreads on sovereign debt have shrunk considerably. Father Gonzalez still plays the secondary markets, but now in much smaller bites. In March Foro de Apoyo did a $10 million deal, buying debt at 80 cents on the dollar and putting it to the government at 90 cents. Says Dr. Enrique Brito, assistant to Father Gonzalez: ``Magazines like FORBES tell the world how rich Mexico is. We don't get as many donations as before.''

~~~~~~~~ By Joel Millman

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