The Mexico Promise: A Better Microfinance Environment

> Posted by Sonja Kelly, Fellow, CFI

Last week in Mexico City, tens of thousands of people took to the streets to voice their hope for a better Mexico. In a hotel that overlooked the demonstration, members of the World Savings Bank Institute met to talk about how to make a safer and more effective financial system for those at the base of the pyramid. In terms of inclusive finance, in recent months we’ve seen significant progress. During the meeting, Vice President of the National Banking and Securities Commission (CNBV) in Mexico, Bernardo Gonzalez, opened his remarks by putting up a list of the top 10 countries in this year’s Global Microscope. Modestly, he pointed out that five of the 10 were from Latin America. Perhaps more emphatically, he highlighted Mexico’s place—fifth on the list.

As a regulator, he should be proud. Mexico’s score this year is in part a reflection of the regulatory reforms that the country has been moving forward, with attention to customers at the base of the economic pyramid. While Mexico’s microfinance sector has been under scrutiny in recent years because of notoriously high interest rates, concerns of over-indebtedness, and commercial banks hesitant to go “down-market”, a new set of microfinance regulations attempts to change things.

The CNBV has announced that – to better manage the country’s complex financial services sector – it will consolidate, register, and monitor microfinance entities. These institutions will be required to disclose information on their loans to one of the two credit bureaus in Mexico, increasing the amount of information available on clients in order to aid decisions on credit-worthiness. Simultaneously, regulators have a broader commitment to resolving disputes and monitoring unfair practices. Rating agency S&P reports that in light of these reforms, namely the consolidation efforts, 20 percent of microfinance institutions could disappear. However, those remaining will operate in an environment of increased transparency and accountability.

These reforms come alongside an effort from Condusef, the consumer protection regulator, to increase the decision-making power of consumers through a media campaign. The government institution will be encouraging people to take advantage of financial services that can help them better address their needs, while also providing them with financial education to help them make decisions.

In addition, Bansefi, Mexico’s public institution whose mandate is to provide financial services to those at the base of the pyramid, has unveiled its new Prospera program. The program couples electronic G2P payments with a line of credit, complimentary disaster insurance, and low-cost life and health insurance. Prospera will replace Bansefi’s Oportunidades program, and has received much media attention in the last few weeks as it has begun its roll out.

As illustrated by the calls for a better Mexico on the streets of Mexico City, the reforms come at a good time. The microfinance industry, for example, has an outstanding loans penetration rate only 0.5 percent of GDP. Microfinance services have not yet reached a wide segment of the population, but those who do have access to microfinance services may be taking capital from multiple institutions, carrying balances that are too high for their incomes. An overhaul in the sector, defining the rules of engagement for institutions, increasing the amount of information about consumers, and empowering consumers to be more financially capable, could be the environment Mexico’s microfinance industry needs to thrive.

Image credit: Accion

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