MONEY TALKS

Costa Rica 2018 | INDUSTRY | INTERVIEW

TBY talks to Gastón Monge, CEO of Grupo Monge, on its operations in nano-credit, its regional aspirations, and managing risks.

Gastón Monge
BIOGRAPHY
Gastón Monge has been CEO of Grupo Monge since 2006. He has a master’s degree in business administration from INCAE, an institution founded by President Kennedy and Harvard in Central America. He has extensive experience in banking, having worked at Interfin, where he contributed to the development of the leasing of the banking center. He was also part of the expansion of Banco Promérica in several countries. Additionally, in 2000, Monge propelled Grupo Monge’s international operations.

How do you compete with a company like Walmart?

Walmart is much larger than us; however, today with our generic brands we are a close competitor. However, we are not just selling a TV; we sell solutions. A large portion of our customers do not have available credit. We also operate a consumer sales finance unit because we directly finance 60-70% of sales depending on the country. We have a portfolio of more than 1.3 million credit operations, which we call nano-credit because we operate credit loans of an average balance of around USD300. We offer financing for segments that are completely out of any banking operations in the countries in which we operate. Around 50% of our customers are clients that are not in the formal economy; they do not have a steady salary every month. In Nicaragua, for example, around 70% of our customers make less than USD300 a month. They make up the base of the pyramid and do not have access to credit. The size of the financing is so small that they are not profitable for a bank.

Are you looking at any other new markets or are you nurturing the ones that you have?

We seek to be humble in our interest in Peru. Peru is almost the same size as Central America and it took us a decade to expand to this region. Currently we do not have any plans for further expansion. We should focus on Peru and develop our business and consolidate our position there. Every five years we go into a competitive strategy process. The last was in 2015 and we were clear that we were not looking for another market until 2020.

What risks are related to the financing side of the business?

The credit business is a risk management operation. There is nothing wrong with risk if you know how to measure and project it. We know how to measure it because for 10 years we have been implementing the best practices of consumer finance to our operations and have complex models that we have developed with FICO in the US, which are the gold standards of credit score operations in the world. Currently, we are operating our fourth generation of models. We perhaps have the only set of models based on more than 6 million credit histories in the base of the pyramid of Central America. That gives us the possibility of truly measuring risk and facilitating financing for those families that would otherwise not have any other option of access to durable goods relevant to their quality of life. There is a difference in risk according to the country; we have a lower risk in Costa Rica and Nicaragua than in Guatemala or Honduras. The business model is adapted to every country and we have a sustainable model for that, though it is very different from a traditional bank. We have a risk-based pricing strategy and are extremely comfortable with offering several financing conditions adapted to every customer segment.

Do you compete with the secondhand market with people who know how to fix products?

That is a not a large market; there is a small percentage of resale in certain countries in tires and a large secondhand tire business in certain countries in Central America. However, there is not a large market of used products when it comes to TVs, stoves, and so on. Cellphones, for example, are more affordable today, and our financing gives even the lower-income segments the opportunity to get a hold of a new product with a warranty from the brand and from us by paying monthly installments. The availability of products at affordable prices with monthly installments is an incentive for families to purchase new products.