Mexico is one of the most populous countries in Latin America so it is not surprising that they have one of the largest number of microfinance clients: a whopping six million borrowers which is roughly 5% of the population (2013). Yet there is something distinct about how microfinance has developed in Mexico, especially when you compare it to its regional peers like Colombia and Peru. Unlike these countries, which have much less clients at around 2.5 million and 3.5 million respectively, Mexican microfinance is dominated by group lending (also known as solidarity lending or village banking where members of the group guarantee each other’s loan and are responsible for repayment should one of the members fail to make a payment).

You can tell by looking at the numbers: despite have more than double the number of clients in Colombia, the average loan size in Mexico is a mere $542 compared to Colombia’s US$2,536. Group loans are by necessity much smaller than individual loans because it is limited by the group member’s capacity to repay. Is it possible that there is just no need for individual loans in Mexico? Not so: there are about 8.4 million “microbusinesses” (based on number of employees, 0-10) in the country that presumably require the capital to grow or maintain their businesses. So why has microenterprise lending not taken off in the country?

Individual Lending to Microenterprises in Mexico: A Survey of Constraints and OpportunitiesWith support from McGrawHill Financial, Women’s World Banking conducted research in Mexico to answer this question. Through interviews with key representatives from government, financial services providers, industry organizations and financial inclusion experts; examination of publicly available data and focus groups with microentrepreneurs in Mexico City and Zacatecas (sites chosen to represent the range of economic activities and availability of financial services providers in the country), we sought to understand the perspectives of both the industry and clients to reach a holistic view of the issue and gain a better sense of the challenges and opportunities for financial institutions to offer individual microenterprise lending to low-income entrepreneurs in Mexico. Some highlights from the report:

 

 

 

  • Consumer credit, such as credit cards or lines of credit to purchase goods, have acted as a substitute for microenterprise lending;
  • Current regulation serves as a disincentive for financial services providers to offer microenterprise loans;
  • Clients associate strong feelings of mistrust and fear with financial services.

We have collected our findings and an idea for a path forward in the report, “Individual Lending to Microenterprises in Mexico: A Survey of Constraints and Opportunities“. With further support from McGraw Hill Financial, we are co-hosting  an exclusive roundtable in Mexico City for the movers and shakers of financial inclusion in Mexico with UNIFIM A.C. We hope the roundtable will begin the conversation about introducing well-designed microenterprise individual lending products to the microfinance market, to grow the financial services sector in Mexico and expand outreach to its microentrepeneurs by providing financial services that meet clients’ needs.