Archive for: mexico

Over the last few years, the Mexican financial system has been moving toward a more inclusive financial system by expanding access to and usage of financial services.

According to a survey conducted by the Ministry of Finance, the number of Mexicans in 2009 with a formal savings product substantially increased over the previous five years. This progress mainly resulted from amendments to the legal framework and implementation of specific policies allowed expanding the supply of diverse financial products. These policies complemented the fostering of consumer demand with appropriate measures on financial education and consumer protection.

Supply-side actions

• To enhance competition, the Ministry of Finance created a new category of  niche banks (with less stringent licensing and prudential requirements), facilitating the entry of new competitors to the banking system.
• Amendments to the legal framework introduced banking agents and mobile financial services to help lower operating costs while expanding access and usage.
• The modification of anti-money laundering regulations, including the simplification of Customer Due Diligence/Know Your Customer (CDD/KYC) and transaction monitoring, helped promote the use of certain banking services, such as mobile financial services.

Demand-side actions

• Financial intermediaries enhanced transparency with respect to fees and commissions. The Ministry of Finance introduced rules requiring bank statements to clearly disclose the costs of financial services, and banks are required to offer basic deposit accounts with no fees.
• The Ministry of Finance established basic pillars of appropriate consumer protection and strengthened the powers of the National Agency for Financial Consumer Protection (CONDUSEF).

Financial inclusion requires high-level coordination among a wide array of Mexican financial authorities and private sector representatives who are committed to designing and implementing a financial inclusion strategy and thereby improving the quality of life of Mexico’s low-income population. To meet this coordination challenge, a Presidential decree, issued on September 30, 2011, created the National Council for Financial Inclusion (the Council). The objective of the Council is to ensure the commitment from financial authorities and private sector participants to design, coordinate and promote Mexico’s National Financial Inclusion Policy. Read the rest of this page »

To encourage knowledge sharing and to discuss innovative approaches that can help increase access to financial services in Mexico, CGAP, the National Banking and Securities Commission (CNBV), and the IFC are hosting an Agent Banking Seminar on 2-3 September 2010 in Mexico City.

There is growing interest among representatives of the government, banks, and other sectors to utilize banking agents to bridge the financial access disparities seen across Mexico. The hope is that through these agent networks, more Mexican citizens will be able to enjoy quality, consistent access to a range of basic financial products such as savings, bill payment, money transfers, and microcredit.

The event will not only bring together key banking institutions, government representatives, and retailers from within Mexico, but also experienced providers from Brazil, Colombia, and Kenya, to provide insight into successful programs already available in their countries.

What gets measured gets improved. After years of neglect, more governments are applying this logic to the topic of financial inclusion. The Mexican bank regulator (CNBV) has taken a big step by launching its first quarterly Financial Inclusion Report,[1] with support from the Alliance for Financial Inclusion (AFI). The report contains metrics on banking outlets, accounts opened and cards issued for each of Mexico’s states and municipalities. This is one of the first times the financial regulator of a developing country has required regular reporting of detailed data from commercial banks with the express purpose of assessing progress towards the goal of increased access to basic banking services and it’s an exciting development.

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No, the crisis is not over and Yes, it is probably too early to draw any conclusions, but overall it seems that the combination of the food crisis, financial meltdown and economic recession has revealed lessons in many areas including in the role that governments can play to support more inclusive financial systems.

During the recent European Microfinance week, CGAP facilitated a panel on “the Role of Government” and I presented a survey that we conducted last summer to track government responses to the crisis as part of our overall work on the global crisis. In rich countries, governments have intervened heavily in the banking sector to try to stem the tide, so we wanted to know whether governments have done the same in developing countries. We found information on policy interventions in 21 countries over a one-year span (Aug 2008-Aug 2009).

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New analysis of a consumer finance initiative in Mexico seemingly points to some extraordinary gains for low-income earners over the past seven years, but it also has left me with a lot of questions. The analysis,  by World Bank economists Miriam Bruhn and Inessa Love, examined the economic impacts of Banco Azteca, launched seven years ago by Grupo Elektra, an electronics and household goods retailer.

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I just got the annual report from Compartamos in Mexico.  Putting data there together with some MIX data, here are their interest rates:

 Interest income (almost all from portfolio) divided by average gross loan portfolio:

    2005   88%
 2006   82
 2007   85
 2008   71

I asked Compartamos management whether the steep decline in 2008  was due to competition. They told me that there is considerable competition in the Mexican market, but that the competition is not driving prices much, yet at least.  Last year’s substantial reduction in Compartamos’ interest income was due to implementation of a longer-term pricing policy, including a feature that gives lower rates to groups that repay well and have more members, both of which lower Compartamos’ costs.

Compartamos says that their own price drop hasn’t driven down competitors’ prices as much as they expected.  Note that this is in line with classical competition theory as described in a Focus Note David Porteous wrote for CGAP  a couple of years ago:  in the early phases, as a market is becoming saturated, competition first focuses on product features rather than price.

I see that their admin costs as % of portfolio dropped by about 5% last year. Analysis by Adrian Gonzalez of the MIX shows that the learning curve is probably the biggest factor pushing down costs:  mere age drives costs down, even after controlling for things like loan size, portfolio volume or numbers, etc.  Because Adrian had no statistical variable to represent competition, he could not control for competition in his regression analysis, but most microfinance markets are not competitive yet, so the strong cost reductions we’re seeing in the MIX data are probably mainly learning curve rather than competition.

Because Compartamos’ costs didn’t drop as fast as their interest income did, their profits were down last year, but still plenty fat:  15% return on assets (down from 20% in 2007).  They’re still not very leveraged, so that translates into a 39% return on equity (down from 46% in 2007).  

Last week Compartamos announced that due to the recession its past-due loans will to the highest level in their history.  But that will be about 2.5% (PAR30?) by the end of 2009–still darned low.  They’re slowing new branch openings (20 this year, down from 60 last year), and will stop hiring new loan officers in the cities for a while.

The investors who paid monster prices to buy Compartamos shares in the mid-2007 initial public offering have gotten clobbered.  The share price was over $6 shortly after the IPO. By November of last year it had crashed to $1.33, suffering along with almost all other bank stocks.  Its latest price was $2.86–which made it one of the best-performing stocks in Mexico for the first half of 2009.

Here’s my narrative….  The 2007 public offering produced an “irrationally exhuberant” buzz, and new investors bought shares at ridiculous price/earnings multiples.  By June of 2008, sanity had returned and the trading price settled to a more defensible level ($3.85).  Then the universal panic about bank shares drove their price down to the low of $1.33 near the end of last year.  But eventually the market figured out that Compartamos was largely immune from the asset quality problems affecting other banks, and the price has climbed back to nearly $3–still far below the price right after the IPO.  Given how strong earnings have remained, one would expect to see further price gains as (or if ?) investors get less nervous about banks generally, and it becomes clearer that Compartamos is unlikely to have a serious default problem.  (If their loan portfolio were seriously shaky, I think it would have shown up by now, since most of the loans are short-term.)

Note that this price evolution affects, not only new purchasers of shares, but also the insiders who annoyed a lot of people by getting rich off of the IPO.  They still own a big chunk of the company.  As shareholders, they’re still sitting pretty, but not nearly as pretty as they were in the fall of 2007.

Absolutely. Access to finance is much more than poor people simply getting credit. Access to finance is – or should be – about delivering a wide range of “appropriate” financial services that include savings, payments, credit, and insurance to the  people in  need of them. In a sense, finance is similar to sanitation, electricity, or water. The key is to supply those financial services taking into consideration the market it is intended for.

A  natural question arises concerning whether financial institutions are willing to provide these services in the midst of a financial crisis. That may well depend on  the  product,  but many are. While it may be difficult to finance a mortgage today,  opening a bank account may have become easier. Consider for example, the case of Latin America. Due to the crisis, many banks have experienced a shortage of liquidity and resources from international markets. To overcome this deficit, banks  have aimed to expanding their depositor base by offering new products and targeting  new  market segments. In Colombia during the last year, the  number  of  adults  with a bank account increased considerably, so that now more  than  half  of  the adult population hold an account. In Mexico, banks are pushing  regulators to pass the law that would allow them to contract agents and expand  their  depositor  base. These situations present an opportunity for many people  to  get  access to a bank account and a chance to fortify the system. So, even with a credit squeeze and financial crisis, these trends show that it still makes sense to promote an access to finance agenda.

Throughout past financial crises—especially those of the 1990s (Mexico, Asia, Russia)—financial services for poor people have shown remarkable resilience to shock. In fact, the loan portfolios of microfinance institutions (MFIs) in Asia during the Asian crisis and in Latin America during various banking crises in that region barely blinked while corporate portfolios collapsed.

This is because these banking and currency crises had little relevance to subsistence-based economies in closed ecosystem markets. Our present financial crisis is like no other, and microfinance is far more connected now. Although microfinance still has deep shock-resistant roots, there will be impact—both on the institutions and the clients they serve. The medium and longer term effects of a global recession are likely to be punishing to poor people.

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