> Posted by Caitlin Sanford, Bankable Frontier Associates
“Although Paula is experiencing economic difficulties, she says that she will stretch the little money she has to cover household expenses.” -Field researcher’s qualitative journal
Today the Mexican Ministry of Finance (Secretaría de Hacienda y Crédito Público), the federal development bank BANSEFI (Banco del Ahorro Nacional y Servicios Financieros), the MetLife Foundation, and Bankable Frontier Associates (BFA) release the results of the Mexico Financial Diaries at an event at the library at the National Palace in Mexico City. The Mexico Financial Diaries, with support from the Bill & Melinda Gates Foundation and the World Bank, tracked cash flows of 185 families located on the outskirts of Mexico City, in a small town in Puebla, and in a rural Mixteco community in Oaxaca over the course of about 11 months.
Mexico is the first Latin American country where this Financial Diaries methodology has been used to collect fine-grained household finance data. These data add to the growing compendium of Financial Diaries data from Kenya, Rwanda, South Africa, India, Bangladesh, Tanzania, Mozambique, Pakistan (all implemented by BFA and partners), the U.S. (implemented by NYU’s Financial Access Initiative and the Center for Financial Services Innovation), and Zambia (implemented by Microfinance Opportunities).
The research findings presented in the reports Estirando el Gasto: Key Findings from the Mexico Financial Diaries and De Fiado en Fiado: Credit to Bridge Expenses in Mexico Financial Diaries Households confirm that—as is the case in other countries— income is highly volatile for Mexico Diaries respondents. These households struggled to smooth income even when working an average of 7.3 different jobs per family. During the study, households experienced an average of 2.4 major drops in income, which was when income fell below 25 percent of monthly income.
But financial behavior in Mexico differs from other Financial Diaries households in an important way: unlike similar households in other countries, Diaries respondents in Mexico rely more heavily on credit than savings to bridge gaps in income and to acquire assets. On average, Mexico Diaries households used an average of four credit instruments and 2.9 savings instruments during the course of the study. They also made more transactions in credit than savings instruments. As an example of this behavior, rural households in Oaxaca receiving the Prospera government social transfer tended to take food on credit with local shop owners, over making large repayments as soon as they received their benefit. In the Mexico City site, respondents bought goods like appliances, furniture, and even shoes and clothing on monthly installment plans, sometimes committing a significant share of their income to installment payments.
We found that formal credit, although useful for these families, is mismatched with erratic, unpredictable incomes. Payments for installment purchases and microfinance loans are structured in uniform monthly payments, but most households do not earn on a monthly basis, and income is irregular month-to-month. To comply with repayment schedules, some Diaries households channeled short-term savings towards credit repayments, which are more tangible and immediate than other savings goals. Others used informal financial tools, like savings groups and loans from family, friends, and employers, to keep up with formal financial commitments. As one field researcher noted, “Mari participates in three tandas (savings groups)… She says it is very complicated, but this is the only way she can finish paying her debts.” In this way, respondents engineer their own commitment devices to comply with formal financial instruments.
The Mexico Diaries also found that respondents made over 85 percent of both purchases and financial transactions inside their communities within 30 minutes of walking from home. This result highlights the need for financial service providers to be present in lower-income communities, if not physically through digital channels and by leveraging technology and partnerships.
We hope that the insights from the Mexico Diaries inform the work of policymakers, financial service providers, and other organizations working to create solutions for the most pressing problems facing the poor in Mexico.
Photos by: Adriana Zehbrauskas
Have you read?