The new national policy for financial inclusion by Mexico’s government could accelerate the country’s progress toward financial inclusion. While the goal of achieving 40% loan to GPD is challenging, the new policy, if promptly executed, could support credit for the private sector and bring lending to GDP closer to the government goal by 2018.
The level of financial intermediation increased to 33.5% in 2015 from 27.7% in 2012. Regardless of whether the 2018 target is achieved or not, Fitch views this policy positively, considering its potential contribution to sustainable medium-term loan growth prospects.
The policy will focus on six pillars, which include the development of financial infrastructure in unattended areas and the use of technological innovation, which in Fitch’s opinion are crucial to meeting the established objective.
The extension of financial services to low income segments of the population could increase through a wider use of the agent or correspondent model in which a financial institution offers its services through alliances with retail stores and other non-financial participants. This allows it to reach areas where it may be less cost effective to operate a formal branch. These alliances have become progressively more important to microfinance companies rated by Fitch.
They have increased their reliance on correspondents for the receipt of debt payments and for loan disbursement.
According to the local regulator, the Banking and Securities National Commission (CNBV for its acronym in Spanish), there were 2.81 correspondents in Mexico per every 10,000 adults as of September 2015, compared to 1.86 branches per every 10,000 adults. The correspondent figure was also highlighted in the financial reform since 2013. In Fitch’s opinion, this pillar seeks to boost the importance of this model, which has been partially underused by financial institutions.
Development banks continue to play an important role in achieving greater financial inclusion, as they will increase their product offering in dispersed locations and in segments less attended by banks such as SMEs, small agro-producers and low income individuals. Credit facilities, guarantees on credits and issuances and technical assistance provided by development banks to financial institutions are currently enhancing credit growth.
Fitch believes non-bank financial institutions (NBFIs) could continue to be effective in channelling resources from development banks in geographies and economic segments where commercial banks’ presence is low. Fitch estimates that almost half of the credit to the private sector is provided by NBFIs and that this could increase as a result of the recently announced policy.
The increased use of smartphones in the country could be used as leverage to reach dispersed rural or semi-urban areas through the offering of mobile financial services, which has proven to be attractive in other Latin American countries. The gradual increase in investment in Fintech by some rated NBFIs and banks is also proof of the potential of how technology could boost offerings of financial products in the future.
However, Fitch believes this is still in its early stages; even though some controlled testing is being executed by financial institutions, no massive or relevant loans are expected to be granted through these channels in the short term. Regulation and oversight of these operations may also be more costly and could slow down their expansion.
The new policy includes other pillars such as the development of a responsible financial culture, the establishment of consumer protection mechanisms, and the compilation and monitoring of data related to financial inclusion measurements.
In Fitch’s opinion, all of these pillars are necessary to complement the overall government’s strategy. However, some of them, such as the development of a financial culture, could only show relevant improvements over time and would require joint efforts and compromise from the government and financial market participants.
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