Improving Access to Financial Services in Mexico

Background

Access to financial services in Mexico is  limited and costly. 74 percent of municipalities, supporting 22 percent of the country’s population, have no bank branch. About 75 percent of Mexico is urban, yet 85 percent of adults in urban areas have had no dealings with formal financial institutions. Participation rates are particularly low for both rural agriculture and non-agriculture enterprises, and very low for individual entrepreneurs and farmers.

The low level of formal financial services results in high transaction costs for people without a bank account. This is particularly true in relation to payments for utility services, remittances from abroad, and cashing of checks, including transfer payments under government social programs such as Procampo and Oportunidades . Interest rates on alternative credit are high and people outside the formal banking system get low earnings on their savings.

Clearly, there are people who could be using formal banking services but are not doing so. Poverty is not the only factor behind the low levels of access to financial services. Other constraints include an inadequate points-of-service network, inappropriate financial products, and the difficulty of opening a bank account.

Project objective

The project will help the Government of Mexico develop a robust savings and investment sector, coordinated by the Financial Services and National Savings Bank (Bansefi). The sector will be made up of cooperatives, associations, credit unions, and other entities that are legally sound, financially viable, operationally effective, with strong management, modern technology, and a high level of outreach so they can reach the people who lack access to financial services.

Project design

The project will deliver technical assistance to around 200 institutions that require certification and to another 40 that need further training to become more efficient and effective. The project will also provide technical assistance and guidance on the creation and functioning of a Deposit Protection Fund, as well as training in accounting and financial management for staff in the savings and credit sector.

Expected impacts

• Clients of the sector should increase from 4 million to 9 million.
• Around 200 institutions will be certified to operate as independent or merged entities. 40 more will be able to deepen their outreach and penetration.
• A Deposit Protection Fund will be established for at least one federation or confederation.