Earlier this week, Mexico launched its National Financial Inclusion Strategy (NFIS), which will accelerate access to financial services for more than half of the population currently left out of the formal and regulated financial system.
44% of adults in Mexico own a bank account, according to the just released Encuesta Nacional de Inclusion Financiera.
A national financial inclusion strategy is a roadmap to help a country better plan and focus on its financial inclusion goals.
According to the World Bank Group’s estimates identified in the UFA Progress Tracker, by implementing a national financial inclusion strategy, Mexico will be able to amplify the effectiveness of existing financial inclusion efforts, which can potentially enable an additional 29 million adults to have access to a transaction account and other financial services. Other interventions, such as opening up the legal and regulatory environment can help enable access to 35 million people that are currently saving or making payments outside of the formal financial system. Additionally, digitizing government to person (G2P) cash transfers can reach 6 million people who are currently receiving their government transfers or wage salaries in cash.
In 2013, the World Bank published the Mexican Financial Capability Survey, the first nationally representative survey commissioned by the government to better understand people’s financial behavior, attitudes and knowledge and to inform public policies and interventions. Consumers’ ability to make sound financial decisions and use financial products is crucial to ensuring financial inclusion.
In 2014, the government approved a comprehensive financial reform to increase the financial sector’s contribution to economic growth. The reform focused four areas: encouraging competition across the financial sector; strengthening the legal framework, mandate and operating capacity of development banks to expand access to credit; expanding credit through private financial institutions by enabling financial authorities a more systematic evaluation of commercial bank credit to channel it more efficiently; and ensuring the financial system is stable and solid.
To remove regulatory barriers to opening accounts, the authorities introduced a tiered “Know Your Customer” scheme with more flexible requirements for low-value, low-risk accounts
The government also started shifting payments from cash to debit cards. A half of the 6.5 million beneficiaries of Mexico’s conditional cash transfer program Prospera (previously, called Oportunidades) now receive payments through electronic account with associated debit cards. Prospera also opened up access for low-income women, which may help explain the absence of a significant gender gap in account ownership in Mexico.
However, Mexico’s key challenge is to increase financial service penetration, and to extend financial access to people who are currently out of the reach of the regulated financial sector.
Development banks have a key role to play here by focusing on extending financial access to people and businesses that have proved difficult to reach. For example, more than 4 million low-income recipients of government transfers through Bansefi could benefit from full access to financial services.
The World Bank Group’s Support to Mexico
The World Bank Group has several active projects in Mexico to help the country strengthen financial sector oversight, foster credit and expand financial inclusion.
A $100 million Savings and Credit Sector Consolidation and Financial Inclusion Project seeks to improve the performance of the country’s credit and savings institutions and expand their financial services, especially in marginal areas of the 1,250 municipalities, targeting women and underprivileged and indigenous populations in rural areas.
Another $400 million project on Expanding Rural Finance focuses on expanding access to credit for rural micro, small and medium enterprises (MSMEs) and strengthening institutional capacity, both in public and private financial institutions, for the provision of sustainable rural financing. The project is expected to reach over 41,000 MSMEs of which about 60 percent are expected to be female owned.
At the same time, IFC, the private sector arm of the World Bank Group, is supporting financial inclusion through several initiatives. In the microfinance space, IFC supported the development of Compartamos, Mexico’s largest microfinance institution. IFC is also supporting Progresemos, a microfinance institution with 33,142 clients, and CAMESA, which serves 370,000 micro-entrepreneurs.
In the Fintech space, IFC is supporting Fintech companies active in the Mexican market, particularly in the areas of P2P lending (i.e., Afluenta), online lending (Kreditech) and payment infrastructure. Moreover, IFC is in discussions with PRONAFIM, Mexico’s national program for the financing of microenterprises, to assist selected microfinance finance institutions in adopting digital financial services.
IFC is also partnering with the Ministry of Economy in a project aimed at promoting the financial inclusion of SMEs by facilitating the use of movable assets as collateral for loans.
Mexico and Universal Financial Access 2020
The country is among the 25 countries the World Bank Group and partners are prioritizing as part of the efforts to reach Universal Financial Access by 2020, whose goal is to enable access to a transaction account or electronic instrument to store money and send and receive payments to adults locked out of the formal financial system.
At the national level, more than 50 countries have made commitments to financial inclusion since 2010, while more than 30 have developed, launched or are in the process of developing a national financial inclusion strategy.
For countries that put in place a national financial inclusion strategy, the annual increase in adults with a formal account can be up to twice as fast compared to countries that don’t have a strategy in place, according to World Bank estimates.